August 23, 2012 / 9:37 PM / 8 years ago

Brazil to allow development banks to sell local notes

* New rule extends sales to development lenders

* Commercial banks currently sell so-called LFs

* Comes as government seeks to fund investments

BRASILIA, Aug 23 (Reuters) - Brazil’s top economic policy-making body on Thursday allowed development lenders to sell notes to investors in the local debt markets, in a move that might help finance 133 billion reais ($65 billion) in infrastructure spending for the coming years.

Under rules approved by the National Monetary Council, development lenders will be allowed to offer long-term senior and subordinated debt the same way commercial lenders currently do. The notes, known in Brazil as letras financeiras, or LFs, were created at the start of this decade to help banks diversify their sources of funding.

Development banks offer below-market interest rates to companies carrying out socially relevant projects in a region. In Brazil, aside from state development bank BNDES, other such lenders include the development agencies of the states of Minas Gerais, Espirito Santo and Rio Grande do Sul.

“The goal of this is to broaden the use of LFs as a fund-raising instrument for the long run and pave the way for the development of a secondary market for them,” according to a statement from the council. “The changes will permit development banks to keep helping projects in the regions where they operate.”

The decision signals that the government is recognizing the importance of developing a local debt market to help fund infrastructure investments. Bankers and investors have warned that President Dilma Rousseff’s infrastructure investment push, which was announced earlier this month, could likely require foreign investment as local savings are insufficient.

The rule takes effect Nov. 1.

Rousseff’s plans, which seek to expand Brazil’s limited road and rail systems and repair crumbling bridges, outdated ports, potholed highways and abandoned railway lines, face enormous challenges in the funding front. The government expects massive investments in the segment to be a game-changer for Latin America’s largest economy, which is showing signs of stagnation after years of rapid growth.

The council, known as CMN, also approved the issuance of swap contracts for subordinated LFs, and cut the minimum issuance value per senior LF note by half to the equivalent of 150,000 reais.

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