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BNDES leverages private resources to finance rural producers

04/07/2021

 The Brazilian Development Bank (BNDES) will help increase the supply of private credit to small producers in the rural areas. This becomes possible because of a new financial product, BNDES Garantia, which allows the Bank to act as a credit guarantor, in a model similar to what occurred in the Emergency Credit Access Program (Peac), which used funds from the Investment Guarantee Fund (FGI) to secure R$ 92 billion in financing last year.

The first pilot action of BNDES as a guarantor of rural financing occurred with the launch – on yesterday, April 6th – of an operation with Cotrijal, a cooperative that brings together more than 7,700 members and operates in 32 municipalities in the north of Rio Grande do Sul. BNDES’s experience in agribusiness and the capital market allows the Bank to be an inducer of the development of this type of credit solution. BNDES’s participation, in turn, can attract investors to share the risks when the search for greater potential returns exists.

The modeling was conceived by BNDES as a solution to stimulate private financing to the agricultural sector in a context of high aversion to risk, thus also seeking to reduce the dependence on public resources by the sector, an agenda under construction with the Ministry of Agriculture, Livestock and Supply (MAPA). “BNDES Garantia represents another step taken by the institution to establish itself as a bank that promotes development through a wide range of services, including those complementary to traditional financing,” explains The Director of Credit and Guarantee of BNDES, Petrônio Cançado.

For MAPA, this operation achieves a more effective path of how the State should stimulate the credit market for Brazilian agribusiness. “When public resources enter the equation as  guarantor of credit instruments by mitigating risks of investor losses, they allow a larger number of rural producers to have access to credit that is not as costly as what is provided by the rate equalization mechanism,” says Assistant Secretary of Agricultural Policy, José Angelo Mazzillo Junior.

This Thursday, April 8th, at 3:20 pm, the president of BNDES, Gustavo Montezano, and the Minister of Agriculture, Livestock and Supply, Teresa Cristina, will participate in a livestream to launch of the Certificate. The event can be watched at youtube.com/bndes.

Launched on Tuesday, April 6th, by Ecoagro in public offering, Agribusiness Receivables Certificates (CRA) raised R$ 29 million in resources that will allow Cotrijal to better support the activities of the rural producers who are a part of the cooperative. With annual installments in June 2021, 2022 and due in 2023, the certificates are exempt from income tax if acquired by individuals under CVM Instruction 476, and will have annual amortization and remuneration. The guarantee offered by BNDES will focus on the senior quota of the certificates, which can reach R$ 17.4 million. The operation will be backed and ultimately guaranteed by the receivables of members of the cooperative.

“By supporting the issuance of CRA, BNDES contributes to the strengthening of the agricultural sector. BNDES’s guarantee also helps in attracting more investors, being an important alternative financing source for cooperatives and small producers and distributors,” said Petrônio Cançado. According to Mazzillo Junior, of MAPA, the intensification of the use of this mechanism will also provide a more rational use of the Federal Government’s general budget in favor of the sector, one that urgently needs a more stable and comprehensive rural guarantee.

Agribusiness Receivables Certificates CRA is a credit title that, like the Agribusiness Letters of Credit (LCA) and Agribusiness Credit Rights Certificates (CDCA), provides tax benefits to individual investors. These certificates have the receivables of the agricultural sector as their guarantee – in this case, the Cotrijal members, which will cede the credit rights to Ecoagro. Ecoagro, in turn, issues the CRAs that may have been acquired by investors in exchange for a prefixed remuneration. The operation also has Vortx as a fiduciary agent, responsible for monitoring the entire structure, and Banco Alfa as the leading coordinating bank of the offer to the market.

“CRAs allow the democratization of credit, transforming individual assets of small- and medium-sized producers into more robust structures that access investors with greater transparency and credibility,” added Moacir Teixeira, Executive Partner of Ecoagro.

In addition to the senior quota guaranteed by BNDES (60% of the issue, with a remuneration of CDI+0.5% p.a.), the certificate has two other classes: a mezzanine, aimed at investors with more risk appetite (25% of the total issued and remunerated to CDI+4.5% p.a.) and a subordinate, which will be acquired by Cotrijal (15% of the issue and remuneration of 1% p.a.), aligning interests between issuer, guarantor and investors. While the senior class takes priority in ransom and amortization rights over the others, the mezzanine takes precedence over subordinated ones. The acquisition of the subordinated quota by the cooperative broadens the perception of the security of the operation, since it would be the first impacted by a possible poor performance of the credit portfolio that will provide ballast to the operation.

In addition to enabling the attraction of private capital to small producers, the operation marks the beginning of a BNDES’s strategy to support the democratization of access for the rural sector to the capital market. BNDES intends to continue supporting new emissions via risk mitigation and risk sharing, granting guarantees, especially with a focus on producers who would not usually access such markets by themselves.

About BNDES – Founded in 1952 and currently linked to the Ministry of Economy, BNDES is the main instrument of the Federal Government to promote long-term investments in the Brazilian economy. BNDES’s actions focus on the socioenvironmental and economic impact in Brazil. BNDES offers special conditions for micro-, small- and medium-sized enterprises, as well as social investment lines, directed at education and health, family agriculture, sanitation and urban transport.  In situations of crisis, BNDES acts in an anticyclical manner and assists in the formulation of solutions for the resumption of economic growth.

About Ecoagro – Founded in 2007, Ecoagro acts as a link between the Agribusiness production chain and the capital market, structuring financial operations appropriate to both the profitability and safety needs of investors, as well as the demand for resources for producers and companies. www.ecoagro.agr.br/

 

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