SAO PAULO, Brazil — Brazil’s push to finish stadiums for soccer’s 2014 World Cup is leaving the state development bank on the hook for $1.9 billion in loans, highlighting builders’ dependence on subsidized funding as auditors say a third of the arenas won’t be able to pay for themselves after the games.
BNDES, as the bank is known, will fund 55 percent of the 6.9 billion reais ($3.5 billion) needed for World Cup arenas, an amount that tripled since 2007 because of construction delays, redesigns and a surge in labor costs as unemployment falls to a record. Loans as long as 15 years cost a maximum 5.58 percentage points over the 5 percent reference rate, excluding administration fees. Andrade Gutierrez SA, one of the builders getting BNDES funds, issued a 10-year bond in June that paid 6.2 percent plus inflation, currently 5.84 percent.
In 2007, the government said the 2014 World Cup wouldn’t require any public money
The state bank is the main financier for the projects that former Sports Minister Orlando Silva had said in 2007 wouldn’t require any public money, joining local governments to fund more than 90 percent of stadium costs after Germany covered 38 percent of arena improvements before the 2006 World Cup. Brazil still relies on subsidized loans to fund construction, two years after it moved to jump start an infrastructure bond market designed to encourage private financing.
“In Brazil, we’re seeing a greater participation of state financing than in past World Cups,” said Pedro Daniel, an economist at BDO Brazil, the nation’s fifth-biggest audit and consulting firm, whose clients include soccer clubs and stadium builders. “Construction costs per seat are as high as the most expensive World Cup stadiums that were built in Germany. The difference is, in Germany, they were able to fill the stadiums once the games were over.”
The government removed a withholding tax, known as IOF, on earnings of long-term local company debt tied to infrastructure in December 2011. Only five companies have issued bonds worth 1 billion reais in the market that was forecast by the government to grow to 100 billion reais.
BNDES, which disburses four times the amount of loans as the World Bank, is offering the stadiums financing as the 2014 World Cup and 2016 Olympics put Brazil on the global stage. The biggest emerging-market economy after China has bounced back from inflation of more than 6,000 percent in April 1990 to grow at an average annual rate of 3.6 percent over the past decade.
Brazil’s government wants to use the sporting events to showcase the country after it overtook Britain as the world’s sixth-biggest economy, echoing Japan’s post-World War II emergence when the Asian country was host of the 1964 Olympics. Brazil was host of the fourth FIFA World Cup in 1950.
A report last year by Brazil’s government auditing agency found four of the stadiums — in Manaus, Natal, Brasilia and Cuiaba — were likely to be “white elephants” that wouldn’t generate enough revenue after the World Cup to pay for maintenance. The report also found BNDES, which lent to three of them, didn’t have the engineering expertise to analyze the projects before approving them.