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Caixa-managed fund mulls alternatives for Banco do Brasil stake sale

Brazilian investment fund FI-FGTS is looking at alternative options for the sale of its stake in Banco do Brasil SA, according to a statement from the bank.

The fund has sought advisers to assess the alternatives for the sale, which does not exclude a secondary public offering of the shares, Banco do Brasil said, citing correspondence from Caixa Econômica Federal, which manages the FI-FGTS.

Caixa reportedly wanted to launch a secondary offering of its stake in Banco do Brasil during the first half of 2019, although the plan was later postponed to September. The sale of the Banco do Brasil stake is part of Caixa's broader divestment strategy aligned with government efforts to downsize public banks.

An earlier report said the FI-FGTS had already approved the sale of its 2.5% stake in Banco do Brasil, allowing Caixa to carry out the follow-on share offering.

Meanwhile, the Brazilian government is looking at the possibility of opening up the management of the FGTS workers' severance fund to players other than Caixa, Reuters reported, citing Igor Villas Boas, director of the economy ministry's FGTS department.

An ongoing reassessment of projects that receive funding from the FGTS should help to improve governance and lay down rules that are "much more free from political interference," Boas said. In this regard, the possibility of letting other entities manage the fund should be a "natural" discussion, the official added.

Tensions between Caixa officials and the economy ministry have reportedly risen following the latter's creation of the FGTS department.

Caixa said it will incur a negative impact on annual revenues of about 300 million reais due to withdrawals from employee funds such as the FGTS. However, the effect will be minimal given that the fund only accounts for 1% of the bank's total revenues, CEO Pedro Guimarães said.

Created in 1967, the FGTS was originally created as an assistance fund to protect workers from wrongful dismissals. However, the fund underwent changes in 1991 that saw it support housing programs and infrastructure investment policies.

In 2007, the FI-FGTS was established as an investment vehicle that channels funds from the FGTS into infrastructure and development projects, including sectors such as airports, energy, highways, railways, ports and sanitation.

As of Aug. 5, US$1 was equivalent to 3.94 Brazilian reais.