The measure also covers agribusiness bonds and other real estate securities; the decision was made at a special meeting
Finance Minister Fernando Haddad is a member of CMN — Foto: Marcelo Camargo/Agência Brasil
The National Monetary Council (CMN) announced Thursday (1), after a special meeting, a series of limitations on the issuance of tax-exempt bonds. Taken in the context of reducing tax loopholes and increasing tax collection, the measures restrict the types of backing that can be used in real estate receivables certificates (CRI), agribusiness receivables certificates (CRA), and real estate credit bills (LCI). It is also now forbidden to use funds raised through agribusiness credit bills (LCA) to grant rural credit that benefits from federal economic subsidies.
The changes, effective as of July, come after strong growth in the use of these instruments, including in operations not directly related to the sectors being incentivized. These securities all offer exemption from income tax for investors. The stock of tax-exempt bonds already exceeds R$1 trillion.
The Ministry of Finance has managed to approve taxation on offshore companies and closed-end funds. According to a government source heard by Valor, the CMN is now seeking to tighten the rules for issuing tax-exempt bonds, ensuring the funds raised are strictly directed towards financing agribusiness and the real estate sector. We’re closing loopholes; 2024 is the year when the rich get into income tax,” said the source.
The Central Bank has denied that the changes are aimed at reducing the volume of issuance of tax-exempt instruments. However, its experts told journalists that a drop in issuance could occur.
“The aim is to ensure that issuances serve as a source of funds for public policies, but a reduction in the volume of LIG (Real Estate Secured Bills) and LCI is expected,” said Felipe Derzi, deputy head of the Central Bank’s Financial System Regulation Department. “The market will have to find other business models to support what is not linked to public policy.”
The CMN changed the rules and terms of the LCA, LCI, and LIG. In the case of the LCA, the funds can only be used to contract rural credit “at rates freely agreed under market conditions.”
The collegiate body also prohibited the use of advances on foreign exchange transactions, export credits, receivables certificates, and debentures as LCA backing. The minimum maturity of the LCA was also extended from 90 days to nine months. Another change to the LCA no longer allows the “possible overlapping of tax benefits.” The aim is to gradually restrict the use of rural credit operations with controlled resources in the composition of LCA backing by July 1, 2025.
The changes to the LCI extend the minimum maturity from 90 days to 12 months and specify the types of real estate credit accepted as backing. The amendment removes the possibility of using operations with no connection to the real estate market, even if they are backed by real estate.
With regard to the LIG, the CMN decided to apply the same rules as for the LCI on the backing of real estate credits already used to meet the mandatory targeting of savings deposits. The Central Bank explained that the credit balance of LIGs with these characteristics will be deducted in full from the balances of the real estate credits that serve as reference. The Central Bank said that the change seeks to “avoid a double tax benefit without the corresponding origination of new real estate credit operations.” Only LCI and LGI issuances that take place after the decision will be impacted by the measures.
The CMN has barred the issuance of CRAs and CRIs backed by debt securities issued by public companies not related to the agribusiness or real estate sectors. According to the Central Bank, the measures aim to “ensure that the instruments are backed by operations compatible with the purposes that justified their creation.”
The CMN also prohibited the issuance of rights backed by credits originating from transactions between related parties or from financial transactions “whose resources are used to reimburse expenses.” The measures do not affect CRAs and CRIs that have already been distributed or that have public offers registered with the Securities and Exchange Commission of Brazil (CVM).
The possibility of the government restricting the backing of CRIs and CRAs is something that has worried issuers since December, when rumors about a change in the rules grew. In recent weeks, some companies have decided to shorten the timetable to secure issuances that still comply with the old rules, according to lawyers. At least four issuances that were due to go ahead in the next few weeks have already been paused.
“The measure was much worse than we could have imagined and significantly limited CRI and CRA operations,” said Daniel Laudisio, a partner in the capital markets area at Cescon Barrieu. “As it will greatly restrict those who can raise funds with these securities, the tendency is for the cost of funding to rise.”
Ricardo Stuber, a partner at TozziniFreire, believes that the most significant impact will be the ban on transactions in which the debtor is a publicly traded company or a related party of a publicly traded company and which are not in the real estate or agribusiness sectors. “Another important point is that the use of funds for reimbursement, which was very popular in the market and permitted by the CVM, will now be prohibited.”
The change affects the plans of companies that issue so-called “rental CRI,” whose resources are used to pay past and future rents. This possibility is relatively recent and came into existence thanks to the CVM’s relaxation of the rules. Rede D’Or was the first to issue CRIs for this purpose in May 2022. At the time, the hospital chain raised R$1.14 billion.
Back then, the permission was celebrated, as it would significantly increase the list of companies that could access the market. After Rede D’Or, retailers, pharmacy chains, and banks followed. On the agribusiness side, issuances by companies such as restaurant chains with no connection to the sector but which bought inputs from rural producers became common. Vendors from the areas of transportation, logistics, or vehicle leasing also used this relationship with the “agribusiness chain” as backing.
*Por Gabriel Shinohara, Jéssica Sant’Ana, Rita Azevedo, Adriana Cotias — São Paulo and Brasília
Source: Valor International