Brazil’s national development bank is using the COVID-19 pandemic to double down on its privatization agenda and ongoing reforms of the state-owned lender, says CEO Gustavo Montezano. 

Gustavo Montezano was named CEO of national development bank BNDES in June 2019 on the back of two promises: to implement an aggressive privatization agenda and shift the bank’s focus from large companies to small and medium-sized enterprises (SMEs).

“When I joined the bank in 2019, our agenda was to diversify BNDES in terms of products and services, de-leverage the equity hedge funds that we have in our portfolio, and to focus the bank on the social, environmental, and economic development of Brazil,” said Montezano during a telephone interview with LatinFinance in late November.

Eight months later, the former deputy special secretary for privatization at the Ministry of Economy faced a crisis that threatened to derail both objectives.

In late February, Brazil registered its first case of COVID-19 forcing the government to step up preparations ahead of an expected surge in cases and a severe economic shock.

Image: Gustavo Montezano

In March, Brazil’s Congress declared a state of public calamity, allowing the government to exceed a constitutionally mandated spending ceiling and introduce a so-called ‘war’ budget that included trillions of reais of extra spending to tackle the crisis.

“We are not a private bank looking for profit. We’re a social-environmental bank looking for purpose [and] looking for impact, but, of course, the bank should be financially stable, financially sustainable”

Gustavo Montezano

Fiscal measures designed to mitigate the impact of COVID-19 would add up to 12 percent of GDP and contribute to a primary deficit of 8.4% of GDP this year, according to the International Monetary Fund.

BNDES would play a key role helping to channel billions of reais to individuals, companies and sectors impacted by the travel restrictions, social distancing measures and stay at home orders designed to contain the spread of the virus.

“We are not a private bank looking for profit. We’re a social-environmental bank looking for purpose [and] looking for impact, but, of course, the bank should be financially stable, financially sustainable,” said Montezano.


Several reforms intended to make the national development bank financially sustainable had already been introduced several years before Montezano took up his role.

“When you compare Brazil to Europe, for example, the main difference is you see large companies are basically funded by the capital markets.” 

Claudio Gallina, Head of South America & Caribbean at Fitch Ratings

In 2017, BNDES began to gradually shift from a subsidized long-term lending rate, dubbed the TJLP, to a new rate based on the government’s borrowing costs, known as TLP.

The main aim of the reform was to reduce BNDES’ outsized role in the loans market and boost lending to infrastructure projects by encouraging commercial banks to enter the sector.

“When you compare Brazil to Europe, for example, the main difference is you see large companies are basically funded by the capital markets,” said Claudio Gallina, Head of South America & Caribbean at Fitch Ratings.

On the privatizations side, the government created the Investment Partnership Program (PPI) – a quasi-governmental body designed to structure and auction hundreds of state-owned companies, assets, and concessions – a year earlier.

After assuming power in 2019, President Jair Bolsonaro gave the PPI a more central role within the Ministry of Economy and expanded the program with the inclusion of dozens of new projects.

In May, the PPI added 59 projects including ports, airports, highways, rail roads and transmission lines and announced plans to privatize nine state-owned companies, including the postal service Correios and the telecommunications company Telebrás, three months later.

However, rather than slowing progress, Montezano said the coronavirus pandemic has provided BNDES with an opportunity to accelerate its reform agenda.

“What COVID-19 provided us was the opportunity to speed up and implement the process that we started last year,” he said.


Emergency credit lines designed to bolster the economy and the sale of equity positions in large companies throughout the year has helped accelerate the bank’s shift away from large companies towards small and medium-sized enterprises.

Since March, BNDES has disbursed BRL128 billion ($25.5 billion) in financing and match funding with a further BRL20 billion transferred to social security funds FGTS, according to its figures published on December 7.

SMEs received the lion’s share of these funds worth BRL90.2 billion of the total. However, to minimize the risk of delinquency, BNDES disbursed the funds to commercial banks, such as Itaú, Bradesco, Santander and Banco Safra, rather than lending from its own balance sheet.

“They created these funds to support the banks, but the banks run the risk, so you create a second layer of analysis [of the SMEs],” explained Fitch’s Gallina.

BNDESPar, the investment division of Brazil’s national development bank, has also pushed forward with the sale of its equity stakes in large companies and aims to sell BRL90 billion of from its portfolio by the end of 2022.

In November, BNDES raised BRL2.5 billion for part of its stake in mining company Vale after earning BRL8.1 billion from the sale of most of its stake three months earlier, and BRL6.91 million for its stake in pulp and paper company Suzano in October.

Earlier in the year, the bank pocketed BRLR22 billion for selling shares in state-owned oil company Petrobras in February and another BRL450 million from the sale of its stake in local power company Light in January. In December it raised BR1.2 billion from the sale of its stake in food producer Marfrig.

“We already have a one-year track record worth almost BRL50 billion, so the market already knows our style and what we do well,” said Montezano.

BNDESPar is also considering selling its 7.5% stake in paper company Klabin and hired BTG Pactual to oversee the sale of its 24% stake in Paraná’s state utility company Copel in December.

“We have until December 2022 to sell the positions, so we’re not going to shock the market,” he added.


Where BNDES has been less successful is meeting the government’s ambitious privatization targets in 2020.

Earlier in the year, Minister of the Economy Paulo Guedes pledged to sell “three or four” large state-owned companies before the end of 2020.

By early December, Guedes was forced to admit the process “did not go well” after failing to auction a single one and said the government would reconsider its approach.

“When you look at what BNDES and the government have been doing, I think we are doing a good job…but we need more political consensus to approve some relevant bills and, given the situation we have with COVID-19 and all the political discussions going on, it was not possible so far,” said Montezano.

The privatization of Rio de Janeiro’s state water company CEDAE is emblematic of many of these difficulties. Since a failed initial public offering attempt in 2013, the sale has been repeatedly delayed by political opposition and legal challenges.

At the time of going to press, BNDES was still waiting for approvals from Rio’s municipalities and CEDAE’s board to publish bidding documents for the concession auction on December 18. BNDES is rushing to release the bidding documents ahead of a new mayor and city councillors taking office in January.

“We are still working to publish this year and fully ready on the technical side, but the political discussions are never easy,” said Montezano.

Speaking on condition of anonymity, one advisor that works with BNDES on structuring concessions told LatinFinance Montezano’s lack of political experience could be contributing to the delays.

Before becoming CEO, the 40-year-old spent more than a decade in the private sector working for BTG Pactual, but only several months working in the Ministry of Economy before joining BNDES, the source noted.


CEDAE, the crown jewel among the state-owned water and sanitation companies, has been earmarked for privatization even before the Brazilian government introduced a new sanitation framework in July.

Three sewage concession were successfully auctioned in 2020. Aegea won the latest two public private partnership (PPP) contracts with offers more than 38% below the maximum bid price to treat a cubic meter of sewage.

“There is so much inefficiency in the current operating system in Brazil that just by being more efficient, the companies can generate increased cashflows to fund the high bids.” 

Gustavo Montezano

BRK Ambiental Consortium, which is controlled by Canada’s Brookfield, won the first PPP contract to come to market with a BRL2 billion bid well above the BRL15.1 million threshold.

In December, Neoenergia bid BRL2.52 billion or 76.6% above the minimum asking price to buy CEB-D from the Federal District government, representing the highest multiple ever achieved for the sale of an energy distribution company.

“There is so much inefficiency in the current operating system in Brazil that just by being more efficient, the companies can generate increased cashflows to fund the high bids,” said Montezano.

Brazil’s privatization push may have fallen short of its objectives in 2020, but Montezano said the aim is push for more ambitious targets in 2021.

Nine company companies are earmarked to be privatized including postal service Correios and state energy company Eletrobras.

Several concessions are also being structured covering social infrastructure, such as national parks, monuments, and forests. Two pilot projects are also planned for prison public private partnerships.

In total, the Ministry of Economy plans to auction 115 projects next year with an expected BRL367 billion in investments including 22 airports, 16 ports, six highways and three railways.

“We have a big agenda of national parks concessions in Brazil…Although financially it’s not large, when you go to the social and environmental dimensions, the impact is huge,” he said.

To finance the growing pipeline of projects, Montezano said the current structure of BNDES debentures and local bank financing should be adequate to meet the requirement for the next five years.

“Going forward, we need to look what the shape of the curve will be,” he added.

Green bonds are among the financing instruments that could help replace BNDES financing in the future.

In September, pulp and paper producer Suzano sold $750 million worth of long 10-year sustainability bonds to fund a buyback offer.

BNDES also set formal targets for its loan desk next to structure more social and green bonds next year, said Montezano, who described the Suzano bond as “a very first step” in developing the market.

“I think the reason behind [the lack of demand for green bonds] is that the market today is very focused on the infrastructure debentures, given the tax incentive,” he added.

Carbon credit is another area being explored by BNDES, particularly given the huge potential of the Amazon rainforest to be leveraged to bolster the ESG credentials of the notes.

“We still don’t have a product, but we are studying how BNDES can leverage that revenue source to make our loan portfolio more robust,” he said.

Most recently, the coronavirus pandemic has also revealed tentative signs of the private sector turning away from BNDES financing in favour of market-based alternatives.

Loan disbursements by BNDES to large companies, for example, fell 3% to 51% of total loans in first half of the year, according a credit report from Moody’s Investors Service in August.

“We expect that loans will have lower importance than in the past, whereby the bank boosted subsidized loans to large companies,” wrote Moody’s senior analyst Theresangela Araes.

Earlier this year, Brazilian airline Azul also opted to issue BRL1.6 billion in debentures to raise funds during the COVID-19 pandemic rather than access an emergency a line of credit offered by BNDES. Gol, another local carrier, has also so far decided not to access the funds available.

“We think this is an awesome outcome because it is private money solving private problems for big clients. We were the parachute, but to their credit, the parachute was not necessary,” said Montezano.