Sovereign Wealth Fund Institute

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According to the Wall Street Journal, “Brazil’s federal sovereign wealth fund and the BNDES and Caixa Economica Federal state-controlled banks will be allowed to participate in the planned capitalization of state-controlled oil company Petroleo Brasileiro (PBR, PETR4.BR) later this month, according to a decree published by government in the country’s federal register Thursday.

Under the decree, BNDES National Development Bank and the Caixa Economica Federal savings and loan bank will be allowed to sell or exchange up to 217,395,982 common shares of Petrobras, as the company is known, with the country’s sovereign wealth fund, which is managed by the state-controlled Banco do Brasil. Later this month Petrobras plans to sell approximately 3.17 billion new shares in a public offering as part of its effort to fund development of offshore oil fields discovered in 2007 off the country’s southeast coast. The share offer is seen raising upwards of 111 billion Brazilian reals ($64 billion) for the company.  Following announcement of the share offer last week, Petrobras said the government and its financial units planned to buy at least BRL74.8 billion of its shares. Brazil’s government currently owns 30% of Petrobras’ total shares and more than 50% of its voting shares.”

Read more: Wall Street Journal

According to the Wall Street Journal, “The Brazilian sovereign wealth fund will buy 66.5 million shares to be offered by state-run Banco do Brasil SA, Latin America’s biggest bank by assets, through bank’s primary and secondary offering of shares on the Sao Paulo Stock Exchange, BMFBovespa.

Banco do Brasil said, in a statement late Wednesday, that Brazil’s sovereign wealth fund, Fundo Soberano do Brasil, will acquire its shares via a special fund known as FFIE.

Earlier this month, Banco do Brasil said it will offer a total of 356.85 million shares, with 286 million shares through a primary offering and 70.8 million shares via a secondary offer.  The operation could raise about 9.77 billion reais ($5.46 billion) based on Banco do Brasil’s closing price of BRL27.39 on Wednesday.

Investors can reserve shares from June 21 through June 29. Trading is expected to begin July 2.  With the acquisition of shares to be made by the sovereign wealth fund, the federal government will keep its control on Banco do Brasil.

Brazil created the sovereign wealth fund in late 2007 with the aim of reinforcing public sector savings and funding projects of strategic interest abroad.”

Read more: Wall Street Journal

Wall Street Journal reports, “A year after setting aside 14.1 billion Brazilian reals (US$8.2 billion) for establishment of a sovereign wealth fund, Brazil’s government Tuesday formalized rules for the fund’s operation. Brazil’s federal treasury is now authorized to sell domestic government securities held in the fund to date in order to make new investments.

According to information published in the country’s federal register, investments made by the fund abroad must yield a return equal to or greater than the six-month London interbank offered rate, or Libor. Investments locally must yield the equivalent of Brazil’s TJLP long-term interest rate, currently at 6% annually.

The executive decree also states the fund’s investments must be made in assets that have investment grade ratings from a minimum of two ratings agencies, and that the government must issue a report twice a year to Brazil’s congress detailing changes in the fund’s asset values. Under legislation approved by Brazil’s congress in December 2008, the fund was established to invest in domestic and foreign securities, create public savings and support investments in projects of strategic interest to Brazil abroad. Traders in Brazilian markets said the news of the fund’s regulation Tuesday pressured the local currency, the real, as investors positioned for the government’s possible entrance into local markets as a buyer of foreign currency for use in the fund.”

read more: Wall Street Journal

Bloomberg reports, “Brazil may tap its 15.8 billion real ($8.6 billion) sovereign wealth fund next year to help finance spending without widening the budget deficit, Planning and Budget Minister Paulo Bernardo said.

Tax collections may lag behind an expected economic recovery in 2010 because some companies have ways to postpone taxes on earnings until the following year, Bernardo said during an interview in Brasilia. Tax revenue fell 1.9 percent in the first half of 2009 from a year earlier.

‘If tax collection is not as good, we will use the sovereign fund,’ Bernardo said. ‘I don’t think we will need the sovereign wealth fund this year. Next year, we may.’

Drawing on the fund will allow President Luiz Inacio Lula da Silva’s administration, amid an election year, to avoid cuts to spending should economic growth or tax revenue falter. Lula’s administration will also have room to extend tax breaks granted this year to boost the recovery if needed.”

read more: Bloomberg

According to Reuters, “Brazil will not tap a new sovereign wealth fund for key investment projects this year even though the economy may miss an official 2 percent growth forecast, Planning Minister Paulo Bernardo said on Wednesday.

‘It is more likely that we use (the sovereign wealth fund) next year but we still haven’t defined this. This year we will not use it,’ Bernardo told the Reuters Latin American Investment Summit in Brasilia, Brazil’s capital.

The fund was created last year and was originally aimed to help finance the expansion of Brazilian companies abroad.”

read more: Reuters

Wall Street Journal reports, “The lower house of the Brazilian Congress on Tuesday night approved legislation making an existing Sovereign Wealth Fund into a permanent fixture. The Chamber of Deputies voted 274-102 to approve a government bill making the fund permanent and approving an initial total for it of 14.2 billion Brazilian reals ($6.5 billion). The Sovereign Wealth Fund was created late last year by Brazilian President Luiz Inacio Lula da Silva by a temporary executive order. For the fund to become permanent it requires congressional approval. Following Tuesday’s Chamber of Deputies vote, the bill will move on to the Brazilian Senate, where approval is also expected.

The Sovereign Wealth Fund is equal to approximately 0.5% of Brazil’s gross domestic product. The idea behind it is to create and maintain the fund from public revenues during periods of economic growth. Money locked up in the fund can then be spent during periods of economic downturn.

Currently, Brazil is facing the prospect of zero economic growth in 2009 after posting an expansion of 5.1% in 2008. So far, the administration of President Lula has not indicated any intention of unlocking the Sovereign Wealth Fund for spending this year. However, many economists and business leaders have said the government should spend some of the fund’s money in order to stimulate Brazil’s economy. “

read more: Wall Street Journal