Circular No. 1303 — Conversion of External Debt into Investment

CIRCULAR NO. 001303

We communicate that the Board of Directors of the Central Bank of Brazil, in view of the provisions of Resolution No. 1,460 of 01.02.88 of the National Monetary Council, has decided to establish the criteria specified below for conversions into investment not subject to auction, as dealt with in Arts. 3, 5, 7, and 8 of the Regulation annexed to the aforementioned Resolution.

2. The conversions are subject to authorization by the Central Bank of Brazil/Department of Supervision and Registration of Foreign Capital (FIRCE), in accordance with current legislation.

3. The resources from the conversions addressed herein may be applied in the integration of capital of new companies, in the increase of capital of existing companies, in the purchase of corporate participations, or in securities, through "Conversion Funds - Foreign Capital", observing the provisions of Art. 11 of the Regulation approved by Resolution No. 1,460.

4. The amounts contractually due by the Central Bank of Brazil or deposited with it, including those under the protection of Circular No. 230 of 29.08.74 and Resolution No. 432 of 23.06.77, will be fully released for the purposes of conversion under the terms of Arts. 3 and 8 of the aforementioned Regulation.

5. The discount referred to in Art. 10 of the aforementioned Regulation will be established after each auction, based on the weighted average of the winning bids in each of the respective auctions - of a general nature and for the areas of SUDENE, SUDAM, Espírito Santo, and Jequitinhonha Valley - according to the area of application of the resources and will apply to the proposals presented between the date of these auctions, inclusive, and the business day preceding the realization of the following auctions.

6. For the purposes of investment registration, the discount will be obtained in the manner of the previous item or negotiated between the interested parties themselves, whichever is greater.

7. The debt registered by the public sector, as defined in Art. 5 of the cited Regulation, may be converted into investment with the debtor itself or in another company of the public sector.

8. The withdrawal of the resources contractually due by the Central Bank of Brazil or deposited with it will be processed by banking establishments authorized to operate in foreign exchange, observing the following procedure:

a) for the amounts and in the currencies of the purchases made to clients each day, through the realization of simultaneous foreign exchange sale operations to the Central Bank of Brazil;

b) the foreign exchange sale operations to the Central Bank of Brazil will be concluded at the exchange rate of transfer fixed for the currency on the date of its contracting, and may not be settled prior to the settlement of the purchases to clients to which they are linked.

9. The debts contracted in the modality of Resolution No. 63 of 21.08.67 may be converted into investment in companies of the private sector or the public sector, with those passed on to entities of the public sector being convertible only with this entity.

10. The deposits constituted under the protection of Circular No. 230 may also be converted into investment in companies of the private sector or the public sector.

11. The release of the deposits constituted under the protection of Circular No. 230 and Resolution No. 432 will observe the chronological order of presentation of the proposals from the date of this Circular and the monthly ceilings that may be established, for this purpose, by the Central Bank of Brazil.

12. Observing the provisions of the previous item, the withdrawal of the aforementioned deposits must be effected within a period of 30 (thirty) days from the date of authorization, after which the right to conversion will be automatically extinguished.

13. The resources related to already authorized conversion may be subject to non-remunerated deposits in foreign currency with the Central Bank of Brazil, as provided for in Article 19 of the Regulation annexed to Resolution No. 1,460, this option being to be used only once, before or after its capitalization, observing the following:

a) the deposits must be made within a period of 30 (thirty) days from the date of authorization for the conversion of the credits or their capitalization;

b) in any case, the withdrawal of the deposits will be effected according to the schedule to be adjusted with the Central Bank of Brazil/Department of Exchange, with the case of deposits of resources not yet capitalized, their withdrawal may only occur for the specific purpose of capitalization.

14. The deposits in foreign currency, made in consonance with the provisions of Art. 14 of the Regulation annexed to Resolution No. 1,460, will also not be remunerated.

15. The deposits referred to in this Circular are subject to the provisions of Circular No. 349 of 23.06.77.

16. The conversions of external credits of medium and long term, and respective charges, not covered by the provisions of the Regulation approved by Resolution No. 1,460, as well as short-term credits (up to 360 days), remain subject to the procedures contained in FIRCE Communication No. 28 of 10.04.78. Also included in the aforementioned credits are those originally granted by non-financial entities abroad to companies in the Country.

17. The resources deposited with the Central Bank of Brazil under the protection of Circular No. 600 of 22.01.81 and Resolution No. 229 of 01.09.72 may be converted into investments in companies of the private sector or the public sector, with the withdrawal of such resources occurring in the manner provided for in the pertinent regulation.

Brasília-DF, March 18, 1988

Arnim Lore
Director