Brazil eases state loan limits for Vale, Petrobras

Fri May 25, 2012 12:35am EDT

* Gov't eases BNDES loan exposure limits to miner Vale

* Extends no-limits policy to Petrobras, Eletrobras

* Move comes as credit conditions abroad worsen

By Tiago Pariz and Luciana Otoni

BRASILIA, May 24 (Reuters) - Brazil eased rules for subsidized lending by state development bank BNDES to three of the country's biggest companies, in a move that may help President Dilma Rousseff shield a struggling economy from market turmoil abroad.

The National Monetary Council, which sets the country's guidelines for credit, monetary and exchange policies, late on Thursday allowed BNDES to increase loans to iron-ore miner Vale above a limit of 25 percent of the lender's loan book.

The council also extended the no-limit loan policy for Brazilian state-led oil giant Petrobras and state-controlled power company Eletrobras until June 2015. The measure was due to expire later this year.

The credit move comes at a time when uncertainty over the health of the global economy has increased the cost of credit for some corporate borrowers.

"Given the BNDES role as a development bank and the strategic importance of these companies ... the council decided to allow BNDES to surpass the credit limit for a longer period of time for Petrobras and Eletrobras and include Vale," Sergio Odilon dos Anjos, the central bank's head of regulation, said in Brasilia.

Rousseff has moved with a barrage of fiscal and monetary stimulus to support an economy that has flirted with recession since mid-2011. Earlier this week she announced a new round of tax breaks to bolster the automobile industry in the world's sixth largest economy.

A credit crunch related to a potential Greek debt default and euro exit could spoil her plans to revive the economy. A slowing Chinese economy is also threatening the price of key Brazilian exports like iron ore, oil and other commodities needed to pay corporate debts.

The BNDES, the hemisphere's largest development bank, had a key role in providing Brazilian companies with ample credit during the 2008-2009 global financial crisis.

Tight lending conditions have forced Vale to review projects. The company decided to sell some non-iron assets like coal and oil projects in Colombia and Brazil.

The no-limit loan policy could help Petrobras develop some of the world's biggest oil reserves off the shores of Brazil.

The South American country may surpass the United States to become the world's No. 3 oil producer with expected output of more than 8 million barrels per day by 2020, according to production estimates of Petrobras and other private oil firms operating in Brazil.

State-controlled Petrobras and Eletrobras, and Vale, the country's biggest export earner, jointly have plans to invest about $300 billion over the next five years.

The Rousseff administration considers these companies essential to the health of the domestic economy.

The three companies make up about 25 percent of Brazil's benchmark Bovespa stock index. Petrobras and Vale are the two largest non-US companies on the New York Stock Exchange.

A sharp depreciation of the real, partly caused by government efforts to protect exporters, has also increased the costs of taking loans in dollars for local companies. The real has weakened 8 percent so far this year.

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