Bolsonaro’s Plan to Unload State Companies Runs Into Trouble

(Bloomberg) -- Brazil’s plan to sell as much as 30 billion reais ($7 billion) of shares in publicly traded companies owned by its development bank this year is being derailed by a dispute between career employees and the new management team.

The tension at BNDES, as the development bank is known, has already resulted in the departure of investment director Andre Laloni, a former UBS Group AG and Goldman Sachs Group Inc. executive, less than three months after he was hired with the mission to sell the bank’s stock portfolio valued at about 110 billion reais.

While BNDES said Laloni has asked for a temporary leave, two people with direct knowledge of the matter said the government is already looking for his replacement.

The unexpected departure shows the roadblocks President Jair Bolsonaro’s administration faces as it tries to trim down the size of the state. Privatizations and asset sales make up a large part of the president’s agenda, not only to shore up government coffers in the short term but also to try to spark faster growth by giving the private sector a bigger role to play in the economy. While lender Caixa Economica Federal has started to unload some of its holdings in other government-owned firms, BNDES has yet to sell stakes it owns in companies like JBS SA, Petroleo Brasileiro SA and Vale SA.

Laloni faced opposition from long-term bank staff who are creating obstacles to President Jair Bolsonaro’s ambitious privatization plans, the people said, asking for anonymity because the discussions are private. The employees -- public servants who can’t be fired -- usually argue that market valuations are not high enough or that BNDES shouldn’t pay fees to investment banks in market transactions, the people said.

The dispute highlights the political and technical difficulties faced by the government when trying to deliver on its privatization pledge.

BNDES expanded its loan portfolio and presence in publicly-traded companies greatly under former presidents Luiz Inacio Lula da Silva and Dilma Rousseff, including infrastructure projects that soured including deals with Venezuela. Since winning the presidency late last year, Bolsonaro has vowed to open and audit the “black box,” in reference to BNDES.

Since Rousseff was impeached in 2016, incoming BNDES CEOs including Joaquim Levy have tried and failed to carry out meaningful asset sale plans.

Since BNDES acts as a Treasury agent in all of its sales, other privatizations may also be at risk, one of the people said. That includes the sale of Centrais Eletricas Brasileiras SA and Empresa Brasileira de Correios e Telegrafos.

BNDES declined to comment on the internal dispute and resistance from long-time employees. Representatives for the bank’s employees weren’t immediately available to comment outside of business hours.

First Roadblock

Laloni found his first roadblock when trying to sell about 1 billion reais in shares of Banco do Brasil SA from a Treasury fund, joining an offer carried out by state-owned banks Caixa Economica Federal and Banco do Brasil itself.

BNDES’ legal department was against the operation and, following an initial discussion, Laloni initially got the upper hand when the head of the department, Luciana Tito, was asked to leave her post. He was planning to replace the whole legal team when the bank’s current chief executive officer, Gustavo Montezano, and its executive directors voted against it, one of the people said.

While Montezano’s goal is to carry out the planned asset sales, the government expects him to find a way to appease the bank’s staff, even if that means a slower pace of sales, one of the people said.

To contact the reporters on this story: Rachel Gamarski in in Brasilia at rgamarski@bloomberg.net;Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;Daniel Cancel at dcancel@bloomberg.net, Walter Brandimarte

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