1

London – March, 2013

Investment Opportunities in the

Brazilian Economy

Luciano Coutinho Luciano Coutinho President

2

Summary

1 Fundamentals of the Brazilian Economy

2 Investment Outlook & Infrastructure

Perspectives

3 The Financing of Infrastructure

3

Fundamentals of the Brazilian Economy 1

4

Brazil has solid fundamentals for sustaining economic growth

Stable legal and institutional framework;

Social inclusion has spurred the domestic market;

Healthy banking sector not exposed to troubled assets;

Robustness of the external sector;

Strengthening of long-term planning;

Government has conditions to foster growth:

Fiscal and monetary instruments;

Improvement of regulatory framework;

Partnership with private sector.

5

Gross Fixed Capital Formation (as % of GDP)

Expansion of investment is a major government priority

15

16

17

18

19

20

21

22

23

24

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

3Q

20

12

*

20

13

20

14

20

15

20

16

20

17

20

18

18

,3

16

,9

17

,4

17

15

,7 1

6,8

17

16

,4

15

,3 16

,1

16

16

,4 1

7,4

19

,1

18

,1

19

,5

19

,3

18

,5

PAC 1

Infrastructure programs

PAC 2

Source: IBGE.

6

Increasing investments by the public sector

Public Sector Investment (as % of GDP)

1,1 1 1 1 1,1 1,4

1,8 1,9 1,7 1,9

1,2 1,2 1,2 1,4 1,1

1,4

1,4 1,6

1,4 1,4

0,1 0,2 0,1 0,2

0,3

0,4

0,4 0,4

0,3 0,4

0,2 0,2 0,3 0,4 0,4

0,5

0,6

0,8

0,6 0,7

2,6 2,6 2,6 3,0 2,9

3,7

4,2 4,7

4,0 4,4

0

1

2

3

4

5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Central Government

States & Municipalities

States & Municipalities (self financing)

State Owned Enterprise (Central Government)

Source: IPEA.

7

Sound macroeconomic fundamentals: Declining Net Public Debt/GDP

Consolidated Public Sector Net Debt (as % of GDP)

60,4

54,8

50,6 48,4 47,3

45,5

38,5

42,1 39,2

36,4 35,1

30

35

40

45

50

55

60

65

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Brazilian Central Bank.

8

CPI Inflation (IPCA index, % YoY)

Sound macroeconomic fundamentals: Inflation under control

8,9

6,0

7,7

12,5

9,3

7,6

5,7

3,1 4,5

5,9

4,3

5,9 6,5

5,84

0

2

4

6

8

10

12

14

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

IPCA Lower Bound Center of the Target Upper BoundSource: IBGE.

9

International Reserves (US$ billion)

Sound macroeconomic fundamentals: Strength of the external sector

Source: Brazilian Central Bank

10

Foreign Direct Investment - FDI (US$ billion)

• Fonte: UNCTAD

• Elaboração: Ministério da Fazenda

FDI at highest levels

Source: UNCTAD

11

Brazil will be the fifth largest global market in 2020

Global Consumer Market in US$ trillion

Source: based on McKinsey, prepared by Ministry of Finance

12

Ongoing economic inclusion fuels a dynamic market

Population by income class strata (# of people)*

* Source: IPEA, based on PNAD/IBGE data. Prepared by Ministry of Finance

13

New macroeconomic framework

Tax Cuts

(US$ 23 bn

in 2012)

Exchange

Rate

Policy

Monetary

Policy

• Lower interest rates

• Inflation under control

• Maintaining competitiveness

• Floating exchange rate with reduced volatility

• Payroll tax reduction (40 sectors)

• Reform of VAT (ICMS)

• Reduction of the Tax on Industrial Producs (IPI)

• Reform of Social Contributions (PIS/COFINS)

14

Expected growth in business

Recent survey* (with more than 1,300 CEOs), indicated Brazil as the third most

often mentioned country for expanding business over the next 12 months

Countries where companies expect to expand their business (% of total answers)

* “Dealing with disruption, adapting to survive and thrive”,

PricewaterhouseCoopers, 16th Annual Global CEO Survey, January 2013, p.12.

15 Sources: National Agency for Civil Aviation (ANAC), National Agency for Aquatic Transportation (ANTAQ), Brazilian Association of Highway Concessionaires (ABCR) and Brasilian Associationof Automative Vehicle Manufactures (ANFAVEA).

Increasing demand for infraestructure

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Investment Outlook and Infrastructure Perspectives 2

2013-2016: BNDES Investment Survey at highest level

Source: BNDES Investment Survey

350

370

390

410

430

450

470

490

510

530

550

2006 2007 2008 2009 2010 2011 2012

391,1

441,1 439,1

419,8

512,3

475,4

535,9

Investment Outlook for 4 years ahead(Comparable Sectors - US$ billion - 2012)

Base year of BNDES Survey

2007-2010

2008-2011 2009-2012

2010-2013

2011-2014

2012-2015

2013-2016

Investments will reach at least US$ 1.9 trillion in coming 4 years

Source: BNDES

(*) Note : The BNDES research on the investment outlook for 2013-2016 covers 66% of the total industrial investments, and 100% of investments in infrastructure, totalizing about 58% of the investments in the economy (excluding residential construction). Agriculture and Services investments are based on queries to Sectorial entities and/or econometric forecast.

Sectors 2008-2011 2013-2016 Δ (%) CAGR %

Industry 434,4 529,7 21,9 4,0

Infrastructure 184,1 257,1 39,7 6,9

Housing 305,6 394,9 29,2 5,2

Agriculture and Services 589,2 776,1 31,7 5,7

Total 1.513,3 1.957,8 29,4 5,3

Investment Outlook for Brazil (2013-16) (U$ billion - Constant prices)

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Investments in logistics will increase 123% in coming 4 years

Source: BNDES

(US$ Billion)

Logística 80,4 179,2 123,0 * It represents an expansion 44.5 GW of power capacity and 23,600 Km Transmission Lines

Sectors 2008-2011 2013-2016 Δ(%)

Infrastructure 184.1 257.1 39.7

Electricity* 82.2 91.3 11.0

Power Generation 52.5 57.2 9.0

Transmission 6.9 13.6 97.1

Distribution 22.8 20.5 -10.0

Telecommunications 43.5 52.2 20.1

Sanitation 17.4 21.7 24.9

Highways 20.5 35.2 71.8

Railways 14.0 39.4 182.6

Ports 5.0 12.5 150.1

Airports 1.7 4.7 170.9

Logistics 41.2 91.9 123.0

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Financing of Infrastructure 3

Hydro Power Plant

Alternative energy

Distribution

Transmission Lines

Railways

Highways

Ports, Terminals, and

Warehouses

Airports and Air

Transportation

US$ Million

Source: BNDES 21

BNDES Disbursements in Electricity and Logistics

1,922

2006 2007 2008

4,430

8,214 7,836

1,726

3,649

2005 2009 2010 2011 2012

9,612

12,584

Electricity

Logistics

BNDES Financing in Electricity and Logistics

Sector # Projects Amount Financed Total Investment

Hydroeletric Power Plants 13 24.830 39.854

Wind Power Plants 44 7.096 11.608

Distribution 45 7.670 14.650

Transmission Lines 56 6.942 12.138

Thermal Plants 18 3.624 7.094

Nuclear 1 3.073 5.244

Small Hydros 30 963 1.489

Cogeneration 8 439 575

Energy Racionalization 14 63 84

Roadways 37 8.123 15.094

Ports, Terminals and Warehouses 44 6.425 12.406

Railways 16 3.899 6.655

Airports/ Air Transportation 9 3.678 5.253

Pipeline Transportation 1 2.051 4.345

Navigation 11 1.007 1.456

Others 5 32 36

TOTAL 352 79.914 137.979

(US$ million)

Source: BNDES (projects approved or in the pipeline) 22

Logistic

Main operators

Electricity

Source: Valor 1000, 2012 23

Main financiers and equity investors

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Infrastructure Funds Large Private Banks

Pension Funds Asset Managers

Transmission Generation

26,4 R$ Billion

US$ Billion

111,4

13.6 57.2

50%

55%

10

20

30

40

50

60

US

$ B

illio

n

70%

25%

80%

35%

15% 30%

Source: BNDES

* Figures according to BNDES forecast

** SPC leverage ≤ 80%

*** Amount of loans should observe DSCR ≥ 1.2

Equity

Debentures

(holding or SPC**)

Credit***

Values in US$ billion

Financing structure: Electricity (2013-2016)*

15%

5%

5% 15%

25

Toll roads Railways Ports Airports

Financing structure: Logistics (PIL)

23,5 R$ billion

US$ billion

56,0 54,2 11,4

12.1 28.7 27.8 5.8

Values in US$ billion

65%

65%

60%

60%

10

20

30

40

50

60

R$

b

illio

n

80%

80%

20%

15%

15%

20%

20%

65%

15%

5%

5%

15%

20%

20% 15%

70%

15%

15%

20%

* SPC leverage ≤ 80%

** Amount of loans should observe DSCR ≥ 1.2

Source: BNDES 26

Equity

Debentures

(Holding or SPC*)

Credit**

Credit Lines for electricity and PIL government guidelines

Sectors

Amortization

Schedule

(up to – in yrs)

Grace Period

(up to – in yrs)

BNDES

Credit

(% - up to)

Financial

Cost

Spread

(%

p.y.)

Power Generation

Hydropower 20 5 70

5 % *

0.9 + Risk rate Alternative Energy 16 5 80

Thermal (Coal &1 Oil) 14 4 50 1.8 +

Risk rate

Transmission 14 3 70 1.3 +

Risk rate

Railways 30 5 65 - 80

5 % *

1.0

Toll roads 25 5 65 - 80 1.5

Airports 20 3 70 0.9 +

Risk rate

Ports 20 3 65 2.5

Source: BNDES * TJLP - Long Term Interest Rate 27

Project Finance – typical toll road model

Auction

3 Months

Contracts Signed /Bridge Loan

Approved LT Loan

Approved

6 Months 30 Months to 60 Months

Completion End of

Concession

... 30 years total

Equity (20-35%)

Bridge Loan Long Term Loan (65-80%)

Infrastructure Bonds (10-15%)

Strategic & Financial Investors, Local & Foreign

Financial Investors Local & Foreign

Timing of Events

Banks &

Source: BNDES 28

Infrastructure Financing Holdings and SPC’s

Holding

Government Banks/Funds may co-invest with strategic and financial investors, either directly in the SPC’s or through the holding company’s equity, taking minority equity stake

SPC 1 SPC 2 SPC N

Bond

Equity

Bond

Equity

Source: BNDES 29

Brazilian Infrastructure Bonds and infrastructure investment

funds – benefits for non-resident investors:

(i) zero Income Tax rate

(ii) zero IOF (Financial Operation Tax)

Each 1% increase in supply of infrastructure can add up to 0.5 percentage points to Potential GDP

Induces economic integration of production clusters and

increases efficiency of supply chains

Increases competitiveness by reducing production costs...

Therefore: generates systemic productivity gains...

... and contributes to improve life standards

The relevance of efficient eletricity, logistics and other infrastructures

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Concluding remarks

• Brazilian growth will be led mainly by infrastructure investments

• Infrastructure pipeline: many opportunities of low risk and attractive yields

• Government financial institutions, like BNDES, will retain a role in financing Brazilian development, but…

• Investment financing in larger scale requires new private players and investors,

• making use of project finance and capital market instruments, led by private financial institutions

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32

London – March, 2013

Investment Opportunities in the

Brazilian Economy

Luciano Coutinho Luciano Coutinho President