Former BTG Partner Plots a U-Turn for Brazil’s Development Bank

(Bloomberg) -- Gustavo Montezano has a new mission for Brazil’s bloated government development bank: stop flooding the economy with subsidized credit and start looking more like a traditional investment bank.

Montezano, who became BNDES’s chief executive officer in July after a 17-year career in the financial markets, says his new clients are the federal government, states and cities.

“We’re building an investment-banking team that will cover the ministries, the whole state, the top 100 cities,” Montezano, 39, said in an interview at Bloomberg’s headquarters in New York. “We’ll do a traditional investment-banking job -- knocking on clients’ doors, making a pitch for divesting assets, concessions, optimizing portfolios.”

The plan is to “bring all the financial infrastructure that we have to put that in place,” he said.

The strategy is an about-face from previous administrations, when leftist governments used the development bank to build “national champions” -- corporate behemoths such as meat producer JBS SA that used billions in state-backed loans and equity to become global competitors in their industries. The practice pushed BNDES’s loan portfolio to a whopping 695 billion reais ($165 billion) by the end of 2015.

As part of President Jair Bolsonaro’s efforts to move the government to the right, BNDES is now trying to sell its stakes in those companies and others, and is helping privatize assets such as the post-office operator Empresa Brasileira de Correios e Telegrafos SA and power company Centrais Eletricas Brasileiras SA.

“We will still be there lending -- there will be no lack of credit to Brazilian companies -- but with the amount of capital looking for investments globally, we don’t need to be the sole lender,” said Montezano, who was previously an executive at Banco BTG Pactual SA, including a stint as a managing partner for corporate lending. “Our lending capabilities will be used as a catalyst to bring more capital from other sources.”

A native of Brasilia who was raised in Rio de Janeiro, Montezano joined the government from commodities-trading firm Engelhart CTP, where he was chief operating officer. Before moving to BNDES, he was privatization secretary for the Economy Ministry. Montezano earned his master’s degree at Ibmec, a business school in Rio, and has a bachelor’s degree in mechanical engineering from the city’s Instituto Militar de Engenharia, according to his LinkedIn profile.

Getting Smaller

Montezano’s predecessors had already begun trimming the bank’s loan book, which had dropped to 463 billion reais as of September. They also tried to sell some of its 120 billion reais in equity holdings, which include stakes in oil-and-gas company Petroleo Brasileiro SA and paper producer Suzano SA, though without much success.

The new CEO is making changes to help BNDES unload some of those holdings, which he called a “speculative equity portfolio.” They include new rules to better define what would be considered a “fair price” for a sale and changing internal regulations to require the board’s approval for any deal with a value higher than 1 billion reais.

In one of the first steps in that direction, JBS said on Tuesday BNDES hired banks to sell an 8 billion-real stake in JBS.

“We are in a bright spot for Brazilian equity markets now,” Montezano said Wednesday at a forum in New York sponsored by Banco Bradesco SA, adding that other sales could be done this year. The goal is to divest the whole portfolio in three years, he said.

Montezano said BNDES tends to be more conservative than a private investor, so the sales process can take longer. The goal is to avoid affecting prices.

Budget Balancing

Another legacy of previous administrations that Montezano is trying to undo is the state’s reliance on the development bank’s profits to help balance the budget.

“In the past 15 years, BNDES was used as a primary revenue machine” for the government, Montezano said. That “made the bank very greedy for profits and market share” and was a distraction from what should have been the institution’s main purpose, he said.

“We are here not for profits, but to improve Brazilian people’s lives, to improve productivity in the economy, to improve social and environmental conditions,” Montezano said.

Even so, BNDES is giving the government about 132 billion reais this year, including 9.5 billion reais in dividends. The goal is to give back more than 200 billion reais by the end of 2022.

The money will be used to reduce the government’s total debt, but that shouldn’t be the primary goal, according to Montezano. The priority should be to “shrink the size of the state,” because a government acting as an “entrepreneur or an investor brings low productivity to our companies,” he said.

‘Build Something’

Future BNDES equity investments in Brazilian companies “must be something linked either to a privatization -- investing in a company that is intended to be privatized, which is a first step to privatization -- or that has a clear development perspective like build something, create something,” he said.

BNDES said the government completed privatizations totaling $28 billion in 2019, compared with its target of $20 billion announced at the beginning of the year. Bigger numbers should be expected in 2020 and 2021, he said. Among future deals will be Eletrobras, the state-owned electric company, and the post-office operator, “which is already on track as well,” Montezano said.

The new priorities for privatization and lending will be the gas, sanitation and water sectors, along with roads, railroads, airports and port concessions.

“We want to be sure there will be no lack of financing for sanitation,” Montezano said at the Bradesco event.

To contact the reporters on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net;Gerson Freitas Jr. in São Paulo at gfreitasjr@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Daniel Taub

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