How to OBTAIN FINANCING in Brazil

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2 How to OBTAIN FINANCING in Brazil American Chamber of Commerce for Brazil AMCHAM International Affairs Department Brazil, 2010

3 FINANCE ACKNOWLEDGMENTS Santander has built its own business model, which is supported by the following pillars: a strong focus on retail banking through the largest international network of branches in international banking; geographical diversification; prudence in risk management; cutting-edge technology at the service of commercial efficiency; capital discipline; and the best management team. The aim of this model is to offer the greatest added value to its 90 million customers, 3 million shareholders and more than employees, in the whole world. In Brazil, Santander Group is the third largest private bank. The bank has over 10 million current accounts, Branches, mini-branches and ATMs. Fabio C. Barbosa President The American Chamber of Commerce for Brazil, being the largest Amcham outside the United States is constantly serving its members by building bridges for Brazilian businesses worldwide. Our foreign investment attraction efforts have also been a key leading point for Amcham. The How To Series is part of this initiative; with the support of some of our corporate members we are putting together strategic information on the most various aspects of doing business in Brazil. Over the last year the Brazilian economy has clearly demonstrated an outstanding economic performance. The country s business environment as well as foreign investment numbers are also very positive. The International Monetary Fund estimates that crisis apart; the Brazilian economy should grow on a 3.5% basis. It is now more than ever, a strategic time for businesses opportunities in Brazil, we welcome you and hope that the information you are about to read serves you best. Gabriel Rico Executive Director

4 How to OBTAIN FINANCING in Brazil

5 FINANCE CONTENTS WORKING CAPITAL...06 OVERDRAFT ACCONT...07 RESOLUTION CREDIT ASSIGNMENT WITH RECOURSE...09 CREDIT ASSIGNMENT WITH NO RECOURSE...10 COMPROR...12 VENDOR...13 NCE - EXPORT CREDIT NOTE...15 BANK GUARANTEES...16 BNDES...17 CONFIRMING...18 ABOUT OUR SPONSOR...20

6 6 How to OBTAIN FINANCING in Brazil WORKING CAPITAL Target customer Companies in general with predictable cash flows which require short-term or medium-term funding to support their working capital needs. Description Local currency loan for a given term, intended to support shortterm or medium-term funding needs. Benefits Amortization according to the schedule chosen by the Customer in order to be most suitable to its cash flow; Disbursement either immediately or at a scheduled date in the future; The customer does not need to evidence the resources destination; Contract length may be adapted to the customer necessity. Terms Amount: Established in the Credit Loan Agreement, according to the credit limit; Rates: Fixed or Floating (CDI, TR, IGP-M); Minimum Terms: - Fixed/Floating rates: one day; - Reference Rate (TR): two months; - IGP-M (general prices index: one year). Payment schedule: In installments or at the maturity date. Documentation Loan Agreement: An agreement which formally establishes the amount, term and other conditions of the loan. Promissory Note: An instrument of credit which represents the Customer s Obligation Taxes IOF (Financial Transaction Tax): % per day (consecutive days) over the principal amount, limited to 365 day; plus 0,38% over the principal amount, independently of contract length and payments amount.

7 FINANCE 7 OVERDRAFT ACCOUNT Target customer Companies with non-predictable cash flows, and which require short-term or medium-term funding to support their working capital needs or which do not wish to prematurely withdraw funds that have been invested. Description Revolving line of credit whereby the awarded credit limit can be fully or partially used and outstanding balances can be settled at any time during the agreement s term. The established credit line shall always be linked to an unblocked current account. Benefits Speedy and manageable; Funding available at any time; Interest and IOF (Financial Transaction Tax) over the daily outstanding balance used. Terms Term: At least 30 days; Maximum: To be established according to the credit limit, limited to 6 months; Rates (*): Fixed or floating (CDI); Interest Payment: monthly (on the first working day of the month) or at the maturity date; Types: a) Regular: any withdrawal or repayment must be requested; b) Deposit: previous requests are not necessary. (*) Floating rate transactions are subject to approval by the bank. Documentation Revolving Credit Agreement: An agreement which formally establishes the amount, term and other conditions of the overdraft account; Promissory Note: An instrument of credit which represents the Customer s Obligation. Taxes IOF (Financial Transaction Tax): 0,0041% to be paid on the sum of the daily outstanding balances for the month, charged on the first working day of the following month; 0,38% to be paid on the sum of the total amount after each day increase, on the first working day of the following month.

8 8 How to OBTAIN FINANCING in Brazil RESOLUTION 3844 Target customer Companies with predictable cash flows which require short, medium or long-term credit loan to supply their working capital requirements. Description Local currency loan indexed to the US Dollar, Japanese YEN or BRL Reais, commonly known as Resolution 3844 (name of the resolution by the Central Bank). The funds are raised in foreign currency by Banco Santander, via loan or issuance of bonds (Eurobonus, Notes, etc.) Benefits Disbursement made available either immediately or on a scheduled date; Repayment according to the schedule chosen by the Customer in order to be most suitable to its cash flow. Terms Amount (*): To be established according to the credit limit; Rates: Fixed interest rates (coupon) plus the exchange rate variation of the BRL against the foreign currency (for US Dollar and Japanese YEN). Fixed rate or floating (CDI) are applicable for BRL Reais only; Other conditions: Companies can avoid the F/X risk by entering through a swap transaction; (*) Subjected to the availability of funds to the bank. Documentation Bank Credit Note: An instrument of credit which formally establishes the amount, term and other conditions of the loan; Agreement of Collateral: Instrument which formally establishes the collateral rendered by the Company, when applicable. Taxes IOF (Financial Transaction Tax): % per day (consecutive days) over the principal amount, limited to 365 days. 0,38% over the principal amount, independently of contract length and payments flow. Maximum Term (*): To be established according to the credit limit;

9 FINANCE 9 CREDIT ASSIGNMENT WITH RECOURSE Target customer Industrial and commercial companies, Santander s customers, interested in a working capital transaction and improving balance sheet ratios. Description Assets transference deal, qualified generically as accounts receivables (credits). These credits must be represented by credit securities (Trade note receivables, promissory notes, others). Characteristics The credits negotiated may be from commercial activity of the company or operations described by their activity roll; The credits may be represented by credit securities (trade notes payable or promissory notes) or via contract formalized and may be performed; The credits may have no legal impediment (allowing the assignment to the bank); The bank s Customer (Assignor) is the credit risk for this transaction (since it is the guarantor of all payors indebtedness). Benefits Possibility to concede better duration conditions, negotiated with the bank; Interest rate negotiated with the bank for the transaction may be different than interest rate negotiated with the payors for the credit sale, keeping a different sales strategy control; Possibility to improve balance sheet ratios, depending on the accountancy rules used by the companies. Negociation details Acquisition Value: Price paid for the credits acquisition, considering the interest rate and the term negotiated for the transaction; Minimum and maximum value: There are no restrictions being the maximum value estabilished by the credit limit approved for the assignors; Operations Terms: No minimum term. According to the credit limit approval; Repayment: Directly by the payors to the bank, through settlement of payment slip order, TED or debit in current account, under the payor authorization. Notes Floating indexed credits must be approved by the Bank. Regulation Credit Assignment Contract: Formalizing the credit assignment, the responsibility of the customer for the credits existence and for the payors indebtedness; Notification: The document is delivered to the payors, communicating the cession and supplying payment roll instructions.

10 10 How to OBTAIN FINANCING in Brazil 3- A. Customer/ Assignor notifies clients/ payors regarding the assignment transaction; B. Customer/ Assignor s Clients/ payors sign a notification letter agreeing in paying the Bank directly as their new creditor; C. The Bank makes the assignment payment to Customer/ Assignor; 1- Customer/ Assignor practices credit sales with its clientes (sale strategy); 2- Customer/ Assignor Assigns its receivablesd (credits against its clients/ payors) to the Bank (by signing a Credit Assignment Agreement ); 4- Payors effect the payment (in the maturity date) directly to the Bank; 5- In case of indebtedness, the Assignor effects the payment to the Bank as the Payor s guarantor. CREDIT ASSIGNMENT WITH NO RECOURSE Target customer Industrial and commercial companies, the bank s customers, interested in a working capital transaction and improving balance sheet ratios. Description Assets transference deal, qualified generically as accounts receivables (credits). These credits must be represented by credit securities (Trade note receivables, promissory notes, others) and must be already performed. Characteristics The credits negotiated may be from commercial activity of the company or operations described by their activity roll; May be represented by credit securities (trade notes payable or promissory notes) or via contract formalized and must be already performed; May have no legal impediment (allowing the assignment to the bank); The bank will check the availability of credit limit to each payor indicated by its Customer. Benefits Possibility to concede better duration conditions, negotiated with the bank; The Credit risk is transferred to the bank;

11 FINANCE 11 Interest rate negotiated with the bank for the transaction may be different than interest rate negotiated with the payors for the credit sale, keeping a different sales strategy control; Possibility to improve balance sheet ratios, depending on the accountancy rules used by the companies: the cession and responsibility of the customer for the credits existence; Notification: The document is delivered to the payors, communicating the cession and supplying payment roll instructions. i) This operation may be not accounted as a bank loan. ii) Accounts receivable may suffer reduction and increase cash/ bank deposits. Negociation details Acquisition Value: Price paid for the credits acquisition, considering the interest rate and the term negotiated for the transaction; Minimum and maximum value: There are no restrictions, being the maximum value estabilished by the credit limit approved for the payors; Operations Terms: No minimum term. According to the credit limit approval; Repayment: Directly by the payors to the bank, through settlement of payment slip order, TED or debit in current account, under the payor authorization. Notes Floating indexed credits must be approved by the Bank. Regulation 1- Customer/ Assignor practices credit sales with its clientes (sale strategy); 2- Customer/ Assignor Assigns its receivables (credits against its clients/ payors) to the Bank (by signing a Credit Assignment Agreement ); 3- A. Customer/ Assignor notifies clients/ payors regarding the assignment transaction; B. Customer/ Assignor s Clients/ payors sign a notification letter agreeing in paying the Bank directly as their new creditor; C. The Bank makes the assignment payment to Customer/ Assignor; 4- Payors effect the payment (in the maturity date) directly to the Bank; Credit Assignment Contract: The contract that formalizes

12 12 How to OBTAIN FINANCING in Brazil COMPROR Target customer Companies ( Buyers ) that require funding to support their working capital needs in order to purchase goods or services from their suppliers. Description A financing program offered by the bank to its clients, allowing the purchasing of goods and services. The Buyer (the bank s client) negotiates the price and the term (credit sale) with its suppliers and Banco Santander makes the payment directly. Benefits FOR THE BUYER: The funds are transferred directly to the suppliers; The payment on a cash basis provides more advantageous conditions when negotiating prices with suppliers; Working Capital, Resolution 2770, Export Credit Note (NCE) can be used; Credit is awarded and Suppliers paid with speed and ease due to electronic mode.* Indexed to: BRL or US Dollar (subjected to the availability of funds to the bank); Rates: Fixed or floating (CDI, only for transactions in BRL); Repayment: In installments, Via DOC, TED or settlements of payment slip order. Regulation Compror transactions are subject to the rules established by the National Monetary Council (CMN), the Central Bank, regarding loans and credits in general. Taxes IOF (Financial Transaction Tax) 0,0041% per day, on the principal amount, limited to 365 days; 0, 38%, on the principal amount, independent on the loan length and payments flow; Note: Exceptionally for transactions based on NCE funding, the financing is free of taxes. Note: It is necessary the supplier adhere the PagFor program. Terms Credit Program Amount: To be established according to the credit limit; Term: To be established according to the credit limit;

13 FINANCE 13 VENDOR Target customer Industrial and commercial companies interested in provide financing to their clients, in order to improve sales. Description Sales financing program for goods and services. The bank pays the Seller on a cash basis and the purchasers pay the Bank at the maturity date or in installments. The seller is the purchasers guarantor under this program. Benefits Seller Liquidity: The Seller receives the sale amount on a cash basis; Possibility to Raise Sales: The Seller s products become more attractive and more competitive in terms of price due to the Purchaser, in terms of financing and interest rates; Possibility to improve balance sheet rations, depending on the accountancy rules used by the companies; Taxes Benefits: Reduced tax cost (IPI, ICMS among others), since the Seller receives on a cash basis and the seller s invoice does not incorporate the financial cost; Interest Rate Adjustment: The Seller can maintain different price strategies for its customers (purchasers); Electronic Vendor: Reduced operational costs due to the Electronic Data Interchange (EDI) of financing terms. (Remittance / Reply). Purchaser Better Financing Conditions, such as terms, interest rates and payment plans, resulting from the credit extended by the seller to its customers; - Flexibility on the payments flow. Terms Transaction Term: Minimum seven days (to allow the payment slip to be sent) and maximum term according to the credit line; Rates / Indexes: fixed in BRL; Disbursement: Deposit in the Seller s current account; Payment schedule: Bullet payment or in installments; Repayment Types: Payment slip or debit in the Seller s current account. Documentation Master Agreement signed by Seller and the bank (in order to indicate the purchasers to be financed and to settle all guarantees conditions); Financing Contract signed by Seller, the bank and Purchaser (in order to formalize the financing to be and to nominate the Seller as Purchaser s Solicitor allowing the Seller to negotiate the financing conditions with the bank directly); Deal Slip signed by Seller (as Purchaser s Solicitor) and the bank to contract all deal conditions (Purchaser Data, tax, term, IOF payment, etc.).

14 14 How to OBTAIN FINANCING in Brazil Taxes IOF (Financial Transaction Tax): % per day (consecutive days) over the principal amount to, limited to 1.5% and 365 days; 0,38% over the principal amount, independently of contract length and payments flow; NOTE. The Tax is owed by the purchaser, however, it can be paid: (1) By the Purchaser (by increasing the financing principal amount); (2) By the Seller (by deducting the owned amount from the principal to be disbursed). 1- The seller and the Bank execute a master agreement, establishing the general terms and conditions, guarantees, term and financing limit; 2- The seller, the Bank and the purchaser execute a Financing agreement. The Agreement may be signed by the seller by proxy. Both the Financing Agreement and Financing Spreadsheets are deposited with the seller; 3- The seller issues Invoices on a cash basis to its purchasers; 4- The Bank pays the seller in cash according to the Financing Spreadsheet and/or electronic file; 5- The Bank issues a payment slip to the purchasers to settle the credit; 6- If the purchaser does not pay the financing on the due date, the Bank debits the credit amount plus the previously established charges from the seller s current account. Bank

15 FINANCE 15 NCE - EXPORT CREDIT NOTE Target customer Companies exporting goods and services and its suppliers which intend to obtain credit in local currency. Description Local currency financing to supply short-term or medium-term working capital needs or to acquire goods, services and raw materials to be used in a production process. The funds must be invested in export-related activities. Benefits Export financing without exposure to exchange rate variation; Exempt from the IOF tax (Financial Transaction Tax) in accordance with Law of December 16, 1975; Rates: Fixed or floating (CDI); Payment schedule: In installments or at the maturity date. Documentation Export Credit Note: An instrument of credit which formally establishes the amount, term and other conditions of the transaction; Budget: This is an integral part of the Export Credit Note and provides a description of how the funds will be used. It is a legal obligation for establishing a NCE. Taxes IOF (Financial Transaction Tax): Exempt in accordance with Law of December 16, Funds can be directly transferred to suppliers by the bank; Repayment according to the plan chosen by the Company in order to be the most suitable to its cash flow; There is no legal obligation to link the export financing funds to one or more shipping documents of goods and services for export. Terms Currency: BRL (Brazilian Reais) and US dollar; Amount: To be established according to the credit limit and budget; Minimum term: 30 days; Maximum term: negotiated by the exporter and the Bank, according to the credit limit available, budget and general market conditions; 1- The Customer submits the Exporter Classification form to The Bank, detailing the use of the funds. Such document shall be subject to analysis and approval by the Bank; 2- The Bank issues and forwards the Export Credit Note and Budget to the CUSTOMER to be signed: A. The Bank credits the CUSTOMER s current account, or B. The Bank pays the CUSTOMER s SUPPLIERS for the acquisition of goods, services and materials intended for export (Compror NCE). 4- The CUSTOMER settles the loan.

16 16 How to OBTAIN FINANCING in Brazil BANK GUARANTEES Target customer Companies in general which require a bank guarantee to cover obligations with third parties. EXAMPLES: Performance. Advance payment. Participating in Public Tender Bids. Rent Payments. Collateral on Margin: Stock Exchanges, Commodity Exchanges and Futures Markets. Collateral for legal proceedings: tax and labor law liabilities etc. Description A commitment undertaken by the bank to pay a given amount, in local currency (BRL) to the beneficiary of the Guarantee, in the event of nonperformance, fully or partially, of the obligations by the bank s customer. Benefits Companies can obtain a guarantee covering obligations undertaken with third parties, without any immediate impact on their cash flow. Terms Amount/Maximum Term/Fees/Payment of Fees: These terms are freely agreed by the company and the bank on a case-bycase basis, based upon the credit limit awarded and the type of obligation underwritten. Documentation Private Agreement of Guarantee: Agreement which formally establishes the undertaking executed between Banco Santander and the Company to guarantee the obligations made. Letter of Guarantee: A document delivered to the beneficiary of the Guarantee, which formally establishes the guarantee rendered by the bank. Agreement of Collateral: Instrument which formally establishes the collateral rendered by the Company, when applicable. Specific terms and conditions Letters of Guarantee other than the standard model used by Banco Santander shall be analyzed in advance.

17 FINANCE 17 BNDES The Brazilian Development Bank (BNDES) is a federal public company, linked to the Ministry of Development, Industry and Foreign Trade (MDIC). Its goal is to provide long-term financing aimed at enhancing Brazil s development, and, therefore, improving the competitiveness of the Brazilian economy and the standard of living of the Brazilian population. Description The BNDES Credit Lines comprise long-term financing, at competitive interest rates, for the development of investment projects, the commercialization of machinery and equipment, and the growth of Brazilian exports. Main Products FINAME - Financing for the production and commercialization of new domestically manufactured machinery and/or equipment accredited with BNDES; Automatic BNDES - Support for the implementation, expansion, recovery and modernization of companies engaged in industry, commerce, services, including investments in the environment. Financing is provided for projects of up to R$ 10 million, including associated working capital; FINEM - Financing for Endeavors. Loans above R$ 10 million for investment projects, for the implementation, expansion of productive capacity and modernization of companies, including acquisition of new machines and equipment, manufactured in Brazil, accredited by BNDES, as well as the import of new machinery, not manufactured in Brazil, and associated working capital; Export Support - Financing for the export of goods and services in two different categories: Pre-shipment and Post-shipment. Clients Individuals, domiciled and residing in Brazil; Companies (legal entities): Brazilian and foreign enterprises with head offices and administration in Brazil, individual businessmen, cooperatives, associations and foundations; Direct and Indirect Public Administration in the Federal, State, Municipal and Federal District regions. Benefits Competitive interest rates; Long-term Maturity rate; There are no taxes, such as IOF (Financial operation s tax), on operations.

18 18 How to OBTAIN FINANCING in Brazil CONFIRMING Target customer Companies with an interest in financing their supply chain and improve their balance sheet through the extension of payments terms with suppliers benefiting from Confirming advantages. Product description A Supply Chain Finance Service through which the issuer bank intermediates in the payment process to suppliers, without any modification of the terms agreed between PURCHASER and its suppliers. Benefits Negociation parameters Purchaser - Purchasers are better positioned to negotiate lower cost of goods or extended payment terms, helping improve company s working capital and cash flows; - Purchaser gets fewer supplier queries about invoice status, while providing valuable information and support through the bank s platform and services; - Costs control and cost reduction; - Easier administration and reconciliation, as bank manages payments to suppliers; - Easy implementation through flexible integration with purchaser s ERP. Supplier - Early payment of invoices at a competitive discount, as the operation is priced at the buyers credit risk; - Easy access to finance without presenting financial statements to banks and a lower conventional bank borrowing; - Suppliers get access to invoice status through web platform, Confirming desk and contact center, improving the visibility and control of their accounts receivables and collection processes; - No need to be a the bank account holder; - Improves company s working capital and cash flows; - Contract Volume: Established according to the buyers credit line; - Transaction Deadline: 15 Day minimum & 360 Day Max; - Min volume/operation: R$1.000,00; - Interests rates: Pre-negotiated; - Payment Method: Electronic transfer to the suppliers bank account; - Operational Method: File Exchange; - Sales channel (Supplier): Operation Desk, Call Center e Internet.

19 FINANCE 19 Formalization Buyer - Confirming Contract: Formalization of the confirming contract; - Credit line approval. Supplier - Account Holder: Signature card authenticated; Card (authenticated), CPF, RG and company address confirmation document (original or authenticated). This document is for information purposes only and is solely intended for customers of the bank. Any decisions to contract the product should be based solely on the customer s analysis. No assumption, projection or example contained herein should be deemed to guarantee future events and/or performance. This document is not an offer or solicitation to contract the product, and does not constitute any binding obligation on Santander(Brazil). - Non Account Holder: Company s Social Contract and modifications or Social Statute and Minutes of director s election (original or authenticated copy), Attorney empowered (original or authenticated copy), Application Form Confirming, Signature

20 20 How to OBTAIN FINANCING in Brazil ABOUT OUR SPONSOR In 2008, Santander became the third largest bank in the world in terms of profits, and the seventh in stock market capitalisation. In 2008, the Group earned ordinary attributable profit of 8,876 billion, 9% more than in 2007, excluding extraordinary income.

21 FINANCE 21 Geographical Diversification One of the Group s defining features is its international scope, reflected in the geographical diversification of its businesses. Santander develops its business in three core areas: Continental Europe - The main commercial units are: the Santander Network, with 2,933 branches, Banesto (1.915 branches) in Spain; Santander Totta in Portugal, with 770 branches, and Santander Consumer Finance, which is between the leading entities in consumer finance in: Spain, Germany, Italy, and Nordic countries; The United Kingdom - Following the acquisition of Alliance & Leicester and Bradford & Bingley s branch network and retail deposits in 2008, Santander has become the third largest bank in the country in terms of deposits, with a market share of 10%, 1,303 branches in total, and 25 million customers. In 2008, it doubled its number of retail banking outlets; and Latin America - Santander is the largest financial franchise in the region, with 6,089 branches, and holds a position of leadership in economies with the highest potential, such as Brazil, Mexico, Chile and Argentina. In Brazil, following the integration of Banco Real, Grupo Santander Brazil secured its position as the third largest private bank in the country, with 3,551 branches and 22 million customers.

22 22 How to OBTAIN FINANCING in Brazil In 2008, the Santander Group achieved another important milestone with the acquisition of the US bank Sovereign, with strong presence in the retail banking market in the north east of the country with 747 branches. The Bank also has divisions that operate on a global scale: Santander Global Banking & Markets, Santander Asset Management, Santander Insurance, Global Private Banking, and Santander Cards. Business Model Santander has built its own business model, which is supported by the following pillars: a strong focus on retail banking through the largest international network of branches (over 14,000, including Sovereign) in international banking; geographical diversification; prudence in risk management; cutting-edge technology at the service of commercial efficiency; capital discipline; and the best management team. The aim of this model is to offer the greatest added value to its 90 million customers, 3 million shareholders and 170,961 employees. Santander is also committed to society in all its operational countries. Its main focus in terms of corporate social responsibility is Santander Universities, which has signed over 700 agreements of cooperation so far, with universities around the world. Santander Value Proposition Santander has the largest retail banking infrastructure in Latin America. Strongest collection capabilities: electronic collections, paperbased collections, cards, direct debit, pick up services, etc. Complete payment solutions: all types of domestic and international suppliers payments, but also the widest range of tax payment and Payroll services. Local services, regional delivery and global relationship. Relationship Model allows for resource allocation and mobilization at Global, Regional and Local levels. A highly experienced team of implementation and client service professionals for both local and regional management. Supply Chain Finance solutions: range of payables and receivables financing options, like Factoring, Confirming, etc.

23 FINANCE 23 SANTANDER IN BRAZIL Santander is uniquely positioned in Brazil combining strong local presence with a full global network Branches ATMs - 10,2 million current accounts employees - Maintains relationship with over of the largest group corporation Major presence in Brazil through Banco Santander and Banco Real. Focus on Wholesale Banking and Consumer & Commercial Clients, providing solutions that integrate the value chain of its clients. Santander in Brazil is the largest private bank by number of mini-branches. Santander presence in the Southeast region and in large cities covers 77% of Brazil s GDP.