law offices carl kincaid mendes vianna advogados associados maritime infrastructure and investment...

LAW OFFICES CARL KINCAIDLAW OFFICES CARL KINCAIDMENDES VIANNA ADVOGADOS ASSOCIADOSMENDES VIANNA ADVOGADOS ASSOCIADOS

MARITIME INFRASTRUCTURE AND INVESTMENT MARITIME INFRASTRUCTURE AND INVESTMENT OPPORTUNITIES IN BRAZILOPPORTUNITIES IN BRAZIL

BRAZILIAN-AMERICAN CHAMBER OF COMMERCEBRAZILIAN-AMERICAN CHAMBER OF COMMERCE

NEW YORK - NOVEMBER, 2008NEW YORK - NOVEMBER, 2008

SHIPBUILDING INDUSTRY IN BRAZIL – HISTORY & SHIPBUILDING INDUSTRY IN BRAZIL – HISTORY & BACKGROUNDBACKGROUND

Starting 1999 - Petrobras launched several bids for Brazilian new flag vessels (offshore – PSV & AHTS & other), 2 years for construction plus 8 years time charter – 40 Brazilian flag off-shore vessels were built for local and foreign shipowners.

Investments from foreign shipyards – mainly in the State of Rio de Janeiro – Ex: AKER and FELS.

2001 – 2007 – Great increase in rig construction - Petrobras.

2007-2008 - Booming of the shipyard industry – all shipyards are working at 100% capacity.

New shipyards are under construction and already built to attend the Transpetro program – Ex: Atlantico Sul – Northeast of Brazil.

The PROMINP program – local content requirement (target: minimum of 65% Brazilian suppliers and services). Brazilian know-how and manpower.

Today’s challenge – price of the steel in the domestic market, price of the oil and economical crisis. The last meeting of CDFMM – US 3.5 BI on Yards and Shipping Projects – Minister Dilma Roussef also confirmed that Government will inject additional US 5 BI in the FMM.

2008 – 2012 – Tankers for TRANSPETRO and several new building projects for bulk carriers and container vessels.

BRAZILIAN SHIPBUILDING INDUSTRYBRAZILIAN SHIPBUILDING INDUSTRYBASIC STRUCTURE CHARTBASIC STRUCTURE CHART

Brazilian Shipbuilding Industry

Political

and Economic Stability

Employment and Importation

of Technology & Know- How

Technical Credibility of the

Local Shipyards

Tax Incentives and

Attractive Financing Conditions

PROMINP – Local Content

Joint Venture with Traditional

International Shipyards

BRAZILIAN OFFSHORE SECTOR - PETROBRAS´ BRAZILIAN OFFSHORE SECTOR - PETROBRAS´ DEMAND ON VESSEL AND RIGSDEMAND ON VESSEL AND RIGS

SOURCE: Brazil/Scanbrasil – Offshore – The Brazilian Offshore Market – March 2008.

PETROBRAS OSVs Fleet Renewal Program

2008-2014

Petrobras intends to have 146 new Brazilian OSVs chartered by granting 8 years firm T/C to Owners with up to 36 months delivery time.

The following vessels are said to be chartered/ordered:

08 x 21,000 BHP AHTS



49 x 3,000T DWT PSV

15 X 4,500T DWT PSV

18 X OSRVs

BRAZILIAN OFFSHORE SECTOR - PETROBRAS´ BRAZILIAN OFFSHORE SECTOR - PETROBRAS´ DEMAND ON VESSEL AND RIGSDEMAND ON VESSEL AND RIGS

TRANSPETRO – PROMEF 2 TANKERS 23

PETROBRAS (CHARTER) TANKERS 19

PETROBRAS SUPORT VESSELS (24 BIDDING) 146

PETROBRAS PRODUCTION PLATFORMS 8

PETROBRAS RIG VESSELS (DRILLING) 28

TOTAL 224

PETROBRAS - INVESTMENTS

ALREADY CONTRACTED:

TO BE CONTRACTED:

TRANSPETRO – PROMEF 1 TANKERS 26

PETROBRAS PRODUCTION PLATFORMS 6

PETROBRAS (CHARTER) VLCC 2

SOURCE: Navalshore Seminar. http://www.sinaval.org.br/navalshore2008.pdf. June 2008.

http://www.sinaval.org.br/navalshore2008.pdf

CONDITIONS FOR FINANCING THROUGH THE CONDITIONS FOR FINANCING THROUGH THE MERCHANT MARINE FUNDMERCHANT MARINE FUND

The Brazilian Government has a special program for the financing of the shipbuilding industry, which is funded by the Marine Merchant Fund and operated by the Brazilian Development Bank – BNDES, as main agent and lender, although other agents are also beginning to act, as Banco do Brasil.

THE LEGAL BENEFICIARIES OF THE FMM (art. 26 of Law 10.893/2004):

Brazilian Shipping Companies (“BSC”)

Brazilian Shipyards;

Brazilian Navy;


LEGAL REQUIREMENTS TO INCORPORATE A BSC:

The company can be fully controlled by foreigner investors, but the

administrator should be a Brazilian citizen or a foreigner individual

holding a permanent Brazilian visa.

The company can be incorporated as a corporation or as a limited liability

company and it is mandatory to have an office located within Brazilian

territory.


The shipping activity is regulated and controlled by Antaq (Federal Government

Agency for Inland and Ocean Navigation). The Resolution 843 issued by Antaq

states that to obtain an authorization to operate as a shipping company is

necessary to fulfill the following requirements:

(i) own or bareboat a Brazilian flag vessel of the same type for a period of more

than a year;

(ii) a minimum net worth of : (a) US$ 4,000,000.00 for high sea navigation; (b) US$

3,000,000,00 for cabotage navigation; (c) US$ 1,250,000.00 for maritime support and

port support navigation and;

(iii) positive equity level - equal 1 or more.

However, if the objective of the company is initially not to operate, but exclusively

to apply for the FMM financing and the construction of a Brazilian flag vessel in a

Brazilian shipyard, Antaq would waive the requirement mentioned above, and will

not be necessary to own or bareboat a Brazilian flag vessel beforehand.


BRAZILIAN FLAG BENEFITS

Law 9.432-97 – Brazilian Jones Act - Exclusivity of Brazilian flag vessels or bareboat alternative.

Tonnage rights – BB double foreign flag during construction (10% built) in local shipyard and afterwards may use half for BB purposes.

REB - Second and supplementary domestic register.

• Taxes – Very high costs on vessel importation - not feasible.

Fiscal Privileges – Import Tax, ICMS, PIS, COFINS and Maritime Education Fund.

Other Benefits – FMM Interest Rates, Insurance, Fuel Price, La bor.

PETROBRAS – Recent Tenders for OSVS are restricting to new Brazilian flag vessels, therefore built in local yards.

FMM – LOAN CONDITIONSFMM – LOAN CONDITIONS

Purpose Grace period Repayment Period

Maximum

BNDES Interest rates (% p.y.)Share

Brazilian Shipping Company

Construction of vessel Up tp 4 years Up to 20 years Up to 90% 2,5 to 5

Jumborization, conversion or modernization of own vessel Up to 4 years Up to 15 years Up t 90% 3 to 6

Acquisition and installation of equipment Up to 2 years Up to 5 years Up to 90%

3 to 6 if domestic content is over 60% = 3 to 4

Repair of own vessel Up to 1 year Up to 2 years Up to 90% 3 to 6

Projects for research and scientific or technological development and formation and improvement of human resources directed to Merchant Marine, construction or naval repair sectors Up to 2 years Up to 10 years Up to 90% 1 to 3

Other Brazilian Companies

Repair of own vessel for commercial, industrial or extractive application in Brazilian shipyard Up to 1 year Up to 2 years Up to 90% 3 to 6

Construction, jumborization, conversion or modernization of any type of own vessel, of commercial, industrial or extractive application Up to 4 years Up to 15 years Up to 90% 3 to 6


SOURCE: http://www.bndes.gov.br/programas/outros/naval.asp

FMM – LOAN CONDITIONSFMM – LOAN CONDITIONS

Shipping Company

Construction or production of vessel destined to fluvial transport of passengers, of high social interest Up to 4 years Up to 20 years Up to100% 1 to 3

Brazilian Shipyards

Repair of vessel Up to 1 year Up to 2 years Up to 90% 3 to 6

Production of vessel destined to a Brazilian navigation company or to export -

Until the 5th business day following the foreign exchange closing related to the payment of the vessel price or at the maturity date established in the Production Financing Agreement, whichever takes place first Up to 90% 3 to 5

Expansion and modernization of shipyard installations Up to 2 years Up to 10 years Up to 90% 3 to 5

Construction of new shipyard installations Up to 2 years Up to 20 years Up to 90% 3 to 5

Construction or production of vessel destined to fluvial transport of passengers, of high social interest Up to 4 years Up to 20 years Up to100% 1 to 3



FMM – LOAN CONDITIONS FMM – LOAN CONDITIONS

Public entities, research institutions and other agencies, including the class representatives of merchant marine and naval construction sectors

Construction of auxiliary, hydrographic and oceanographic vessels, in Brazilian shipyard

Up to 4 years Up to 15 years Up to100% 3 to 5

Projects for research and scientific or technological development and formation and improvement of human resources directed to Merchant Marine, construction or naval repair sectors (inclusive of Brazilian private entities, including the class representatives of merchant marine and naval construction sectors)

Up to 2 years Up to 10 years Up to 90% 1 to 3

Fishing

Individual or legal entity exploring artisanal fishingUp to 4 years Up to 20 years Up to 90% 1 to 3

Vessels Registered or Pre-Registered in the REB (Special Brazilian Registry)

PurposeGrace period

Amortization Period

MaximumBNDES Interest

(% p.y.)Participation

Construction of vesselsUp to 4 years Up to 20 years Up to 90% 3 to5

jumborization, conversion or modernization of vesselUp to 4 years Up to 15 years Up to 90% 3 to 6

Repair of vesselsUp to 2 years Up to 5 years Up to 90% 3 to 6

In case of financing to projects with domestic contents over 60%, there will be a 0.5% p.y. reduction in interest rate. Computation of local contents should follow the BNDES System's standards in force.



ARREST AND JUDICIAL SALE OF VESSELS UNDER BRAZILIAN JURISDICTION

Applicable Legislation and International Treaties

A. The Brazilian Commercial Code (1850)

B. The Brussels Convention for the Unification of Certain Rules relating to Maritime Liens and Mortgages (1926)

C. The Brazilian Procedural Code (CPC, 1939)

D. The International Arrest Convention (1999) – The Brazilian Government has not ratified it.


The arrest of ships under Brazilian jurisdiction – well defined procedure – in personam (general non privileged creditors) or in rem (maritime privileged creditors) – First precedent case is 100 years old - 1908 – Argentinian flag vessel called San Lorenzo.

The international jurisdiction of the Brazilian courts (CPC, article 88) – act or fact occurred in Brazil or the obligation to be performed in Brazil

The arrest as a specific precautionary measure (CPC, articles 813 and 814): hypotheses and requirements.

The arrest as a non-specific precautionary measure (in limine order) – broader possibility and court´s discretion on “fumus boni iuris” and “periculum in mora” (CPC, article 798).

The arrest is a preliminary procedure of a future recovery claim – Brazilian jurisdiction should apply to both actions.

Choice of jurisdiction and applicable law – relevant issue when contracting the security package.


CONTRACTUAL GUARANTEES:

I) FIDUCIARY ALIENATION

Applicable Law - Fiduciary alienation is ruled by article 66 of Law 4.728/69, Decree-Law 911/69, Law 9.514/97 (unmoveable assets) and also articles 1361 and following of the Brazilian Civil Code – Law 10.406/2002 and the Brazilian Procedural Code.

Definition of fiduciary alienation - The contract through which the debtor, in order to guarantee the payment of a debt, transfers to the creditor the fiduciary property of an asset, while retaining the direct possession of same, under the “resolutive condition” to pay the debt. Therefore, the transfer of such fiduciary property to the creditor is only valid and effective as long as the debtor has not fully paid in his debt. After the payment of the debt, the fiduciary property returns to the debtor.


MORTGAGE X FIDUCIARY ALIENATION

Enforcement procedures and creditor’s rights

In the event of debtor’s default, the creditor may exercise the rights as fiduciary owner, repossessing the vessel and promoting a private sale of the same, and shall use the product of such sale recover its credit (including, outstanding debt, interests, penalties and any and all costs incurred by creditor to collect payment from debtor). In case the product of the sale is superior to the accrued debt, such balance shall be returned to debtor.

This instrument is more effective and less bureaucratic than the traditional mortgage, as creditor will not need to proceed with long mortgage enforcement procedures in Court, which may entail several years.


Contractual guarantees (cont.):

II) Bank Guarantees;

III) Corporate Guarantees;

IV) Assignment of contractual revenues (ex: charter hires);

V) Share Pledge Agreements;

VI) Performance Bond (seguro garantia).

THE NAVAL CONSTRUCTION GUARANTEE THE NAVAL CONSTRUCTION GUARANTEE FUND - FGCNFUND - FGCN

LAW NO. 11.786 OF SEPTEMBER 26TH, 2008 (FGCN´S STRUCTURE) – IT IS STILL DEPENDING ON THE REGULATION BY DECREE.

PURPOSE

The FGCN serves to guarantee the credit risk of finance operations to naval construction carried out by financial agents authorized to operate with resources of the Merchant Marine Fund - FMM and restricted to the period of building of the vessel.

CONCLUSIONCONCLUSION

Brazil is nowadays the most important market for repair, conversion and ship/rig building projects in South America.

Over the last 10 years the shipyard industry and infrastructure were rebuilt, updating know-how and technology. The Government through Petrobras - and Transpetro more recently - is upgrading the level of quality and efficiency of the local industry based on the local content requirement. Sophisticated supply vessels, rigs and platforms have been already built and delivered on time in Brazil. Very attractive conditions for financing through the Merchant Marine Fund and tax incentives are also a positive element. We have been advising several foreign clients which recently built vessels/rigs in Brazil using the tax incentives and the financing facilities of the BNDES. They are successfully operating their Brazilian fleet within our trade limits.

Based on the current shortage of space in the traditional shipyard markets, Brazil is a reality and an interesting alternative venue of opportunities for foreign investors, shipowners and shipyards.

THANK YOU !THANK YOU !

LAW OFFICES CARL KINCAIDLAW OFFICES CARL KINCAIDMENDES VIANNA ADVOGADOS ASSOCIADOSMENDES VIANNA ADVOGADOS ASSOCIADOS

GODOFREDO MENDES VIANNAGODOFREDO MENDES VIANNAAV. RIO BRANCO, 25 – 1º ANDARAV. RIO BRANCO, 25 – 1º ANDAR

TEL. (21) 2223-4212TEL. (21) 2223-4212FAX: (21) 2253-4259FAX: (21) 2253-4259

E-MAIL: [email protected]: [email protected] SITE: WWW.KINCAID.COM.BRWEB SITE: WWW.KINCAID.COM.BR

law offices carl kincaid mendes vianna advogados associados maritime infrastructure and investment...

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