June 17, 2019 / 6:47 PM / a year ago

Brazil to let ethanol sector raise capital using tax free notes

SAO PAULO (Reuters) - The Brazilian government will allow companies in the sugar and ethanol sector to raise capital for investments through the issuance of notes that are exempt from income tax, Energy Minister Bento Albuquerque said on Monday.

Albuquerque and other government officials signed an order on Monday during the Ethanol Summit in Sao Paulo including the sugar and ethanol industry in the priority areas that can make use of that type of debt, locally known as ‘debêntures incentivadas’.

Investors who buy these notes when issued by companies for investments will not be charged income tax over the yields.

Money raised through these notes could be used by companies in activities such as cane field renovation and maintenance for sugar and ethanol industrial facilities.

“It is a competitive alternative for financing, it would be important to replace public credit that is getting smaller,” Albuquerque said after signing the order.

He estimates the new financing modality could raise around 13 billion reais ($3.33 billion) per year in coming years.

Albuquerque said that money could help mills to increase capacity use, which has fallen in recent years when companies in the sector struggled with low sugar and ethanol prices.

The situation improved recently at least for ethanol, as demand in Brazil rose sharply due to a price difference that favors the biofuel when compared to gasoline.

Reporting by Marcelo Teixeira; Editing by Marguerita Choy

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