Industry: new fixed income security will boost the sector by reducing the cost of credit in investments

New fixed income security raises funds for investments in industry and small businesses

The CNI’s Industrial Policy superintendent, Fabrício Silveira, states that the approval of the LCD comes at an opportune time for the country with a view to adapting the national industrial sector.

“The approval of the LCD comes at a fundamental moment for our country, where we need to unlock a series of investments in the industry to adapt to all the challenges that Brazil currently faces in its process of productive restructuring,” he says.

Fabrício Silveira also highlights that the LCD will have an impact on reducing the cost of credit for productive investments in the industry, as it exempts investors from income tax – as do other existing letters of credit, Real Estate Credit Letter (LCI) and Agribusiness Credit Letter (LCA), which finance the real estate sector and agribusiness.

“LCD allows development banks to raise funds at a lower cost because this instrument exempts investors from paying income tax. Therefore, with this lower cost, development banks can offer credit and then credit directed at neo-industrialization, directed at these challenges and opportunities that exist today so that companies can then have access to cheaper investment resources,” highlights Fabrício Silveira.

For economist and financial educator Francisco Rodrigues, LCD has the potential to expand Brazilian industry, which he believes has been stagnant in recent years. “This will boost industry, generate new investments and expand innovation and infrastructure. Very importantly, it will stimulate Brazilian industry, which has been stagnant in recent years, with many factories and industries shutting down or migrating to other countries. This will also contribute to job creation, income generation and an increase in gross domestic product,” says the economist.

Matheus Facio, a lawyer at b/luz Advogados who works in Fintech, Financial and Capital Markets, in São Paulo (SP), emphasizes the security of the LDC with only one possible risk regarding the issuer. However, the lawyer emphasizes that the risk can be mitigated by the fact that the letter of credit is linked to a public development bank – such as the National Bank for Economic and Social Development (BNDES).

“The only relevant risk that we could present here is the issuer’s risk. However, since in Brazil these development banks are all public banks, they have a solid track record and a solid cash flow, also due to the form of financing, the internal structure, their relationship with, for example, the National Treasury, which is different from the relationship that private banks have with fixed income. And in this case, I think the risk is actually reduced by being linked to a public development bank and the security for investors also increases,” says Matheus Facio.

Perspectives

The CNI’s Industrial Policy superintendent, Fabrício Silveira, believes that despite being a new mechanism for promoting Brazilian industry, the LDC can contribute to a new industrial scenario in the country’s development.

“It is still an instrument that is starting as a pilot, because we are thinking of raising funds that can reach up to 10 billion. And just for comparison purposes, the LCA currently has raised around 460 billion, while the LCI, which is for real estate, is around 360 billion. We are talking about something between 8 and 10 billion, which is still not enough for the industry’s needs, but it is already five times more than what the BNDES, for example, raised from internal and external sources last year. So, it is the fundamental step to start this journey of a new Brazil, of a new industry for Brazil”, says Fabrício Silveira.

The creation of LCD, a new fixed income security, was suggested by the Executive Branch and approved in the Chamber of Deputies and the Federal Senate PL 6.235/2023 and awaits presidential sanction.