BNDES’ strategies to finance telecoms in Brazil

Despite some downsizing, Brazil’s development bank BNDES remains a massive financing and credit provider, disbursing 64.3bn reais (US$12.3bn) in 2021 via 191,093 transactions to 117,082 clients.

Around 66% of the total went to the productive chain and 97% to micro, small and medium enterprises.

Recently, the bank said it will invest 2.5bn reais in five funds, which should prioritize logistics and transport, energy, urban mobility, basic sanitation, and telecommunications.

BNDES will also be one of the financial agents, through other accredited institutions, of the reformed telecom services universalization fund, Fust.

A new law allowed Fust, which is fed with a portion of operator’s gross revenues, to finance the expansion of broadband, rather than of fixed telephony, which was the essential service when the fund was created in the late 1990s.

Also under the new law, at least 18% of Fust resources must be allocated to public school connectivity, and projects will be defined by a management board. The fund collects a little over 1bn reais per year. Since 2001, the fund has raised more than 44bn reais in real values.

BNDES also operates other lines for telecom and innovation, such as Finem, for internet providers; Funttel, for the technological telecoms development; Finep, for research and innovation; Finame, for machinery, and others.

On the sidelines of the Painel Telebrasil Summit, BNamericas spoke to Ricardo Rivera, the bank’s head of Intensive Industries in Technology and Connectivity unit, about Fust, telecom and the financing options for the sector.

BNamericas: Which options for telecom and innovation financing will BNDES prioritize? Will there be a greater focus on reimbursable resources, for example?

Rivera: Considering the fiscal situation, at the end of the day – and I hope I’m wrong – the perspective is that there won’t be room to have a very large volume of non-reimbursable funding.

The bank has non-reimbursable lines it operates, such as through the Educação Conectada initiative, but we understand that, at least in the short term, Fust will mostly be credit [reimbursable resources].

Cheap and long-term credit, which makes room for financing the expansion, for example, of small providers, in a very interesting and efficient way.

BNamericas: What are the challenges?

Rivera: The challenge now is, based on this difference of the private market-operated [interest] rate and the rate the fund will offer, to establish the counterparts, the obligations, on the part of the providers and operators that will access the resource.

We are sitting at the table with [telecoms regulator] Anatel and the [communications] ministry discussing these counterparts.

We understand there is room to expand the economic frontier of telecom.

BNamericas: What do you mean?

Rivera: The network planning of operators and providers consists of whether in a particular region there will be a set of potential subscribers who will not only justify the investment, but allow it to be monetized.

What ends up happening, especially in rural areas, is when you have 100, 150, 200 households, 10km, 15km, 20km from the closest network access point. No provider goes there, because those 100 homes will not pay for the necessary investment, will not monetize a network this long.

Much of the digital gap that we understand exists in Brazil is in these rural districts, which are far from the center, from the headquarters of municipalities.

If we can offer a low rate [for financing the network] in the long term, eventually some of these areas – we hope many – will become profitable. And in these areas, there are schools [one of the mandatory focuses of Fust].

It is possible, at the limit, to have a model in which fiber can be financed to reach the school and from the school to distribute the signal, either by 5G network or by fiber.

BNamericas: BNDES has other lines in addition to Fust, and even models, such as financing providers of fiber, as recently announced with [optical equipment manufacturer] Padtec. Are all these strategies concurrent?

Rivera: Yes, like Funttel. In the case of [telecommunications technology development fund] Funttel, we finance 100% of high intensity products that were developed in the country, which is the case of Padtec.

But there is no reason differentiating the importance that innovation has for the country, which is the purpose of Funttel, from the importance of expanding broadband access, with access to opportunity through education, which is the purpose of Fust.

I would say that Fust will benefit from these instruments that we learned to develop for Funttel. 

BNamericas: Could Fust also be used to finance equipment providers?

Rivera: Eventually it won’t be with a supplier, but a distributor, for example. I don’t know.

But in either case, we must plug in a counterpart, like connecting X schools or reaching X rural areas. This understanding of the counterpart is the big challenge [in the case of Fust].

The purpose of Fust is to bring a network where there is none. My concern is less with the equipment and more with where this credit is boosting this investment.

BNamericas: What can we expect?

Rivera: We are currently closing the design. Fust has several fronts. 

We are thinking both of direct operation, by financing [projects] above 10mn reais with Fust resources, coupled with counterparts, as well as an eventual guarantee fund and credit funds. 

You have distributors that already finance small providers. They offer payment terms of 12 months, 18 months. One proposal would be to help these distributors prolong that term at a lower rate.

It’s no use putting Fust to finance what is already being financed. We have to improve some financing condition there at the end.

And providers with access to this credit would eventually have to connect some schools, health centers. That’s what we’re thinking right now. But the board [of Fust] will decide this.

BNamericas: How about debentures?

Rivera: It’s a focus. But today it is much clearer for the bank that it should not do what the market already does. If the market is financing debentures well, and it is, then we let the private market finance it.

But we can support some providers to access this debenture market. It is a role that we can play, taking them to the private credit market. We did this with [internet service provider] Brisanet.

But there are many providers that are issuing [debentures] without resorting to BNDES. 

BNamericas: Last year BNDES president Gustavo Montezano said the bank’s portfolio for financing ISPs was around 600mn reais. How is that now?

Rivera: It’s a little bigger. I don’t have the exact number, it is hard to specify. I would say it would be more than 1bn reais. We are growing, we are looking for different models.

Sometimes we finance the manufacturer, sometimes the provider, sometimes the operator, there are 5G investors with whom we are working. So this ticket can grow a lot.

BNamericas: Could the bank change its strategy, which now has a more focused financing approach, if the government changed next year?

Rivera: I don’t think so. I cannot speak for the next government, but it has already been proven that the market can properly finance an important part of investment. The government does not need to finance everything.

We can finance innovation, expansion, universalization in a more qualified way. For 5G, I think it’s worth to be there to support accelerating the growth of that network. But for ordinary investment by large operators, it makes no sense.