The $1 billion loan from private banks that Correos is seeking to weather its biggest crisis is unlikely to get approval from the National Treasury. In addition to Tuesday’s negative result, the history of similar operations over the past 15 years also indicates this. State-owned enterprises facing problems only obtained credit from public or multilateral banks.
On Tuesday, the company’s management suspended trading at a value of about 20 billion Brazilian riyals due to the high costs of the operation. The loan was negotiated with a group of banks, formed by Banco do Brasil, Citibank, ABC, BTG and Safra.
The head of the state-owned company, Emmanuel Rondon, was warned by members of the Ministry of Finance that the Treasury would not agree to guarantee an operation with an interest rate approaching 136% of the CDI. This cost is considered high compared to the usual standards for operations approved by the Treasury, which reach 120%.
Last week, Finance Minister Fernando Haddad ruled out privatization and said the Treasury would be the guarantor of the state-owned company if there was a coherent restructuring plan.
In theory, Treasury approval facilitates negotiations with banks, including lower interest rates. If the state-owned company defaults, the government honors the debt. But since 2010, no private bank has accepted the risk, or at least the Treasury has not complied with the conditions imposed by these institutions in the offers submitted during that period.
In the past 15 years, loans to federal state-owned enterprises have been granted only by Brazilian public banks, such as Caixa, Banco do Brasil, and BNDES, and by international development institutions, such as the World Bank, the Inter-American Development Bank, and KfW. During this period, the Treasury granted a total of 1,171 guarantees, of which 765 (65%) were for loans from national financial institutions and 406 (35%) from international financial institutions.
The majority of these funds were contracted by state and municipal governments, and only 12 were awarded to state-owned enterprises. Among them are Eletrobras (privatized in 2021), Furnas (a subsidiary of Eletrobras), Eletronuclear (which also included the electricity group) and Finep (financier of studies and projects).
Curios has not yet contracted any credit operations with Treasury approval, but its management sees this as practically the only way out. For economist Marcio Holland, professor at FGV and former Secretary for Economic Policy at the Treasury, it is a high-risk operation for any bank, given the company’s situation and what has been announced so far as part of the restructuring:
Ultimately there is justification for valuing the Correos plan more generously, but private financial institutions will want to see a lot more than that. They will want to see when the post office starts generating cash in the future, and there is no such possibility.
In the short term, the state-owned company expects a credit offer of up to R$10 billion, more than double the largest operation authorized by the Treasury for a state-owned company, R$4 billion, from Banco do Brasil to Eltropras, in August 2014. As with Correos, shortly before the privatization, Eltropras also faced difficulties in obtaining credit.
In an attempt to convince the banks, Curios has drawn up a plan that demonstrates its sustainability in the medium and long term. The company says it is analyzing the proposals submitted by the banks, but did not provide details.
For Armando Castelar, research associate at FGV Ibre, the most viable path should be privatization.
– It is a company that is no longer justified at the present time to be state-owned. Once again, we will push the problem to the next government if the loan is granted, says the economist, who criticizes the use of public banks to help state-owned enterprises. -This indicates little transparency. If the one who guarantees is the bank owner, then in essence he is giving the guarantee to himself.