The new edition of the Provisional Measure 1.858-10 of October 26 1999 brought some tax incentives to foreign investments in the Brazilian Commodities and Futures Exchange (BM&F), which is today one of the 10 largest derivatives exchange in the world, with a current net worth of more than $ 230 million.
Earlier in October, individual international investors had been allowed to freely trade in agricultural commodities futures, without being subject to the exchange controls still prevailing for other transactions in Brazil, or to the resulting exchange risks. For that, BM&F will maintain an account in New York to receive and effect the relevant payments in US dollars.
As for taxation, according to the new rules, international investors are exempt from the otherwise applicable 10% Brazilian tax on capital gains, provided that the investment originates from a jurisdiction that imposes at least 20% tax on such capital gains. With this new rule, the Brazilian government intends to keep investors from low tax policy countries and tax havens from benefiting from the tax exemption in Brazil.CESP-Tietê, one of the generators of the Energy Company of São Paulo, was sold in public auction on October 28 1999, for nearly 30 % more than the initial asking price. American Electric Power, AES, paid approximately $ 472 million for 38.66% of the total capital, including 61.62% of the voting capital (the shareholding control) of CESP-Tietê. The Brazilian National Bank of Economic and Social Development, BNDES, agreed to finance roughly $ 180 million, to be paid by AES in five years. The remaining $ 290 million is to be paid by AES on November 10 1999. In addition, AES will invest approximately $ 350 million within eight years to modernize and increase the efficiency of nine hydroelectric plants of CESP-Tietê.
Another important deal in São Paulo´s energy industry took place on November 09 1999 when a concession for natural gas distribution was granted to the Consórcio Brasiliano, a consortium formed by Agip and Società Italiana de Gas, both Italian. The consortium offered approximately $ 137 million, paying a premium of nearly 150% over the initial price. The minimum investment expected is $ 25 million.
One of the causes of the high interest rates still applicable to domestic transactions has been the large number of defaulting borrowers. To address the problem, Provisory Measure 1.925 of October 14 1999 created a new collateral entitled “Cédula de Crédito Bancário” (“CCB” – Banking Credit Instrument), to be specially issued in favour of financial institutions.
CCBs issued in favour of a financial institution outside Brazil may be denominated in foreign currency and CCBs can be enforced through simplified judicial procedures.