As of January 1 2018, a new long-term interest rate for loans granted by the Brazilian National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico e Social or BNDES), known as TLP, is in force.
The market has been expecting the TLP (Portuguese acronym for long-term rate) for a while. It replaces the TJLP (long-term interest rate), based on the inflation target disclosed by the Brazilian Central Bank as part of the government's economic policy and, therefore, not completely free of political influences. Historically, the TJLP was several percentage points lower than the Brazilian Central Bank's basic rate (SELIC) and, consequently, much lower than private banks' market interest rates, turning it into a heavily subsidised rate.
As a result, the TJLP created an overdependence on BNDES for infrastructure financing, influencing business models and bidding prices for new projects. This overdependence presented problems especially during Brazil's most recent economic crisis, when a number of the expected loans by BNDES failed to be disbursed.
The new TLP debuted with a rate equivalent to the TJLP. It will converge in five years to the rate of a Brazilian sovereign note (NTN-B), based on the country's official inflation rate IPCA. This is a much more accepted and market-friendly index as opposed to the inflation-target rate used by the TJLP. The TJLP will still be used for loans approved by BNDES for projects auctioned up to December 31 2017, among a few other specific cases.
This rate replacement is an important part of an overall effort to reduce the dependence of infrastructure projects on BNDES' loans and, thus, increase the participation of private players in infrastructure financing. BNDES will then aim to crowd-in other sources of funding and foster financing by the local and international capital markets and focus its loans on critical areas that usually attract less interest from the private sector (such as sanitation), while leaving more bankable projects (eg power transmission lines) to be financed by private banks.
This is a welcome change and is likely to bring an increase in private infrastructure investment and financing in Brazil in the coming years.
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