Spain, Colombia, Portugal, and the United Arab Emirates are interested in joining Southern Cone bank, CEO says

02/06/2024

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Luciana Botafogo — Foto: Wenderson Araujo/Valor

Fonplata—a development bank by Brazil, Argentina, Bolivia, Paraguay, and Uruguay—plans to double its authorized capital and seek new partners to leverage its credit portfolio and, as a consequence, expand investments in member countries. Plans for the year also include raising $300 million to $400 million in foreign capital. In Brazil alone, the bank’s portfolio totals $1.7 billion, considering approved, existing, and non-existing projects.

In an interview with Valor, CEO Luciana Botafogo said that the publication, in December, of a decree by President Luiz Inácio Lula da Silva enacting changes to the Fonplata’s constitutive agreement, as well as Argentina’s decision to remain as a partner opened some room for discussing other matters, such as the vote on the capital increase, from the current $3.14 billion to $6.5 billion. The distribution of Fonplata’s shares was pending ratification of adjustments to the constitutive agreement by all member countries. Brazil was the last country to enact the change.

The increase in authorized capital will help maintain the pace of credit granting from 2027 onwards. Currently, average growth is around 10% per year. “We plan to continue [at this level], or maybe reduce it a little, to 9.5%, by 2026. The funds we have give us peace of mind for now, but not from 2027 onwards. If we can’t increase capital, I would have to reduce the pace of growth,” Ms. Botafogo said.

She said the proposal has been submitted to the bank’s governors, who are the Financial Planning or Finance ministers of the five countries. “We hope to have a favorable vote in the next ten days to increase capital to $6.5 billion. We will increase the bank’s capital by more than a double-fold. That is crucial to increase our lending capacity, our ability to operate in the five countries,” she said. Ms. Botafogo is the first woman to take the position at the bank, which turns 50 in June.

Despite fiscal challenges in the region, such as in Argentina and Brazil, the CEO believes the entry of other countries interested in investing in sustainable projects in Latin America can reduce the need for large capital infusion by the bank’s current partners in the medium and long terms.

“By distributing [the capital] between the five founding countries and new, non-founding countries, we dilute the demand for capital in countries that are facing fiscal challenges, which are our five countries. Also, over the last ten years, those countries allocated an amount 20% higher than what we are currently proposing. It’s about allocating from now on, over the next ten years. So, we are reducing the annual entry amount that each member country can contribute. That helps because it weighs less on the fiscal situation,” she said.

According to Ms. Botafogo, several countries have responded positively to the possibility of becoming a member, including Spain, Colombia, Portugal, the United Arab Emirates, and Singapore. “But now we can formally come up with a proposal; until then, those were just approaches,” she added. “Our expectation is to have at least two new countries this year and two more next year. The idea is to start increasing capital from 2026 on,” she said.

Among the issues that need to be agreed upon by the five current founding countries is how to ensure the focus of investments continues to be in Latin America. Fonplata often works in loans or partnerships to complete small construction works that do not always arouse interest from institutions such as the Inter-American Development Bank (IDB) and the Development Bank of Latin America and the Caribbean (CAF).

To ensure a regional focus, it is being debated, for example, that the votes of the founders have a greater weight than those of other countries. In addition to enabling an increase in resources for investment in construction work, the entry of other countries will also help improve the bank’s rating, which in turn helps reduce the cost of international funding.

The bank’s CEO also said $150 million to $200 million per year are invested in projects in Brazil. For example, Fonplata has a loan of nearly R$200 million in Maceió (capital of Alagoas state) to mitigate the Braskem’s mine risk of collapsing.

Asked about the new administration in Argentina and its impact on the bank, Ms. Botafogo said Argentines are interested in maintaining the relationship with Fonplata. According to her, all approved contracts, involving $600 million to $700 million, are being reviewed at the request of the new Javier Milei’s administration.

She said Argentina requested the suspension of funds for construction works that have not been released so that the funds can be allocated to social projects “to guarantee this transition, until the inflation problem is solved.” “They [the Argentine government] are currently making fine tuning. We are together with the technical teams, seeing what will be maintained, what will be canceled, which construction work was being carried out and which will not stop,” she said.

*Por Edna Simão — Brasília

Source: Valor International

https://valorinternational.globo.com/