811.516 Export-Import Bank/4–2247
Memorandum by the Special Assistant of the Division of Investment and Economic Development (Stenger) to the Director of the Office of Financial and Development Policy (Ness)
Subject: Agenda for meeting of Board of Directors Eximbank April 23, 1947.
1. Minutes of meeting of April 16, 1947—to be received. They are ok.
2. Minutes of meeting of April 9, 1947—to be approved. They are ok.
For Action:
3. Brazil—Sorocabana Railway. The request is for a credit of $6,649,021. The Electrical Export Corporation (The International General Electric Company and the Westinghouse International Electric Company) requested the Eximbank to participate in financing the sale of 26 electric locomotives, 8 substations, transmission towers and other equipment to the Sorocabana Railway for the electrification of the line running from San Antonio to Bernadina de Campos, a distance of 185 miles. The total amount of the contract is $9,498,602. The Bank was requested to purchase, without recourse, 70% of the notes of the Sorocabana Railway, amounting to $6,649,021. The notes, to be guaranteed by the State of São Paulo, are to mature over a period of 7 years from December 1, 1947 to June 1, 1954, with interest at 4–½%.
The request for financing was first submitted to the Bank in June 1945, but action was deferred pending a satisfactory solution of the exchange assurances problem.
The project was again considered by the Board of Directors of the [Page 445] Bank on December 13 and December 18, 1946. Action was deferred in order that additional information might be obtained regarding the financial status of the State of São Paulo. Reports have now been received which apparently indicate, to the satisfaction of the staff of the Bank, that the finances of the State of São Paulo are such that its guarantee of the obligations would be acceptable.
Recommendation: This project has been cleared with the interested divisions in the Department, and there are no objections to the approval of financing.
4. Brazil—Sorocabana Railway. The request is for a credit of $1,500,000. This application is from the Whitcomb Locomotive Company, a subsidiary of the Baldwin Locomotive Works, for a credit of $1,500,000 to finance, without recourse, 75% of $2 million, the cost of 15 diesel-electric locomotives purchased by the Sorocabana Railway. As in the preceding case, the Bank has been asked to accept the notes of the Railway, guaranteed by the State of São Paulo, which are to mature over a period of 5 years with interest at 4–½% per annum. The history in this case is similar to the aforementioned case. An application was originally submitted on July 5, 1945 for a credit to finance the sale of 30 diesel-electric locomotives, but no action was taken because it was understood that Sorocabana would arrange for other financing. Other financing had been obtained for the first 15 locomotives, but the Railway requested the builders to finance the remaining 15 in this country. It is this application which was considered at the meeting of the Board of Directors on December 18, 1946, and on which action was deferred pending further investigation of the finances of the State of São Paulo.
It might be well to remark that on February 20, 1946 a credit of $1,925,500 was authorized by the Bank to the Whitcomb Locomotive Company for similar locomotives, and that this credit was cancelled on November 26, 1946 when Whitcomb informed the Bank that the purchasers had made other arrangements for financing.
As stated in connection with the preceding application, a report has recently been received from the American Consulate, São Paulo, which indicates, to the satisfaction of the staff of the Bank, that the finances of the State of São Paulo are such that the present financing can be undertaken without any undue risk.
Recommendation: The Department has no objections to the recommendation of the staff that financing should be approved. This has been cleared with the interested divisions in the Department.19 The political division (BA) does not feel too happy about the maturity of [Page 446] the notes of the Sorocabana Railway. The Bank indicates that the notes will mature over a period of 5 years, the first due 3 months after the average date of completion. The words “average date of completion” appear to disturb BA, and it is of the opinion that, in the absence of a fixed date for the first maturity, some difficulties may arise later regarding the definition of the average date of completion. ED is of the opinion that this is a matter which should be left to the discretion of the Bank.20
5. Brazil—National Alkali Corporation. This is for a proposed credit of $7,500,000. An application from the National Alkali Corporation of Brazil for a credit of $10 million was considered by the Board of Directors on January 22, 1947, but action was deferred principally because the necessary action had not yet been taken by the NAC. While the NAC on February 18, 1947 approved consideration by the Eximbank, it was felt in the Bank that additional information was necessary before a final conclusion could be reached. This information was received recently.
The National Alkali Corporation is a Brazilian Government corporation with an original capital of $50 million cruzeiros, which is to be increased to $100 million cruzeiros (from approximately $2,500,000 to about $5 million). The Corporation intends to construct a plant to manufacture soda ash and caustic soda. The total cost for construction and installation, it is estimated by the Corporation, will be in the neighborhood of $12,500,000. It will be recalled that, when the application was previously discussed, there was some question about the equity capital. As the capital is now to be about $5 million, it is the opinion of the staff of the Bank that the maximum loan required should be reduced accordingly. In other words, if the total amount required to start operation is approximately $12,500,000 and the equity capital is to be $5 million, a credit of only about $7,500,000 will be required.
The staff of the Bank is convinced that this project is economically sound, and that if the plant is constructed, it would help to solve the problem of Brazil’s need for caustic soda and soda ash which is now in very short supply. The Department is in accord with this reasoning.
Recommendation: The staff of the Bank recommends approval of a credit up to $7,500,000 to finance the purchase of U.S. materials, equipment and services, the credit to be repaid in 10 years beginning December 31, 1949 and ending June 30, 1959 with interest at 3–½% per annum;21 the obligations of the corporation to be guaranteed by [Page 447] the Banco do Brasil. The Department does not object to the approval of the proposed recommendation.
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