How can a foreign resident purchase NTNB notes?
Printed From: Gringoes.com
Category: Brazil
Forum Name: Investing in Brazil
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URL: http://www.gringoes.com/forum/forum_posts.asp?TID=15378
Printed Date: 23 May 2013 at 14:56
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Topic: How can a foreign resident purchase NTNB notes?
Posted By: karapuzo
Subject: How can a foreign resident purchase NTNB notes?
Date Posted: 13 May 2012 at 08:32
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Hello All,
I am a non Brazilian resident, living in Europe. I am interested in buying and holding long term Brazilian NTNB bonds as part of my portfolio, long term. I am hoping someone here is knowledgeable about this issue and could perhaps offer me some assistance. Can this be done? Can a foreign resident open an account with Brazilian brokerages like www.investbolsa.com.br or www.banifinvest.com.br? If so how does transferring funds works? Do I have to have a bank account in Brazil? Can I do this without visiting Brazil? (mail in documents, etc) . Will I be able to buy NTNB bonds via the brokerage on the primary/secondary markets? Would I have to file taxes in Brazil (my country has a tax treaty with Brazil). Thanks in Advance. |
Replies:
Posted By: spongebob
Date Posted: 13 May 2012 at 12:07
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I'm pretty sure that you have to be a resident. Since it's basically the same as a bank account. The best way to do it, according to some good sites, is to set up an e-conta account at a bank that doesn't charge anything for a DOC (bank transfer). Then you set up an account at Baniff because they don't charge any custodial fee. If you do it this way, you keep 100% of the yield. I never actually finalised the either account because the banks won't set up an e-conta for me. Plus I'd rather NOT have money in my name. If you're looking for exposure to the Brazilian Real, there are a couple of funds that trade in the US that are based on the Real. Easier, IHO. My recommendation though is to pay attention to the events and exchange rate. Like someone said on here, those Japanese Grannies that were buying Reais at R$ 1,60 to the dollar are already sitting on big losses. Oh yeah, I found a thread one day where you buy Brazilian government debt outside of Brazil, in dollars I think. That was cool, but I have lost the link since. Maybe someone else has it. ------------- - ** Just sayin' ** ** Make lemonaid out of lemons. ** ** Trolls get old...** |
Posted By: GGTrek
Date Posted: 13 May 2012 at 12:36
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You can, you need to open a 2689 account. Please look at these official documents: http://www.bmfbovespa.com.br/en-us/international-investors/opening-an-account/opening-an-account.aspx?idioma=en-us - http://www.bmfbovespa.com.br/en-us/international-investors/opening-an-account/opening-an-account.aspx?idioma=en-us http://www.cvm.gov.br/port/relinter/ingles/info_invest_estrang-e.asp - http://www.cvm.gov.br/port/relinter/ingles/info_invest_estrang-e.asp http://www.portaldoinvestidor.gov.br/Investor/Investor/Howtoinvest/Howtoinvest/tabid/226/Default.aspx - http://www.portaldoinvestidor.gov.br/Investor/Investor/Howtoinvest/Howtoinvest/tabid/226/Default.aspx Problem is that unless you want to have a sizable exposure to Brazil bonds (we are talking several hundreds of thousands of BRL), the cost of opening and maintaining the account is not worth it (big fixed cost). I work in a financial institution here in Brazil and we have 2689 clients (very wealthy private banking clients or institutions) so I do know what I am talking about. The broker can help you to open the account, arrange custodian (that will provide the representation in Brazil) if he sees that you have a sizable amount of money to invest. There are also issues with IOF on the FX trades to fund the account which at its maximum rate will cut your returns unless you invest very long term: http://www.lsa.com.br/publication/cvm-limitates-possibility-of-fixed-income-investments-without-iof - http://www.lsa.com.br/publication/cvm-limitates-possibility-of-fixed-income-investments-without-iof There are quite a few offshore issuances of Brazil bonds that are much easier to purchase for a small foreign investor. There are also some foreign ETFs that invest in Brazil bonds onshore (clearly they have opened a 2689 for the fund). Google is your friend for this. Hope this helps |
Posted By: karapuzo
Date Posted: 13 May 2012 at 12:50
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Suppose I want to invest 300K BRL in long term inflation protected bonds (2035 maturity).
Could you explain what kind of fees we are talking about and approximately how much would I need to pay to whom? Account opening? Attorney costs? Accountant fees? If I get a CPF number via the consulate, can't I just open a normal brokerage account? The IOF tax is not clear to me, does it exist on long term investments in government bonds? I can find that it's 0.38%-6% thought it's not clear how this is reported and charged. At the time of foreign currency conversion process? How do they know what I am going to buy with it? Thank you for your help. I can see offshore issuance of Brazil bonds, thought it's not clear if these are inflation protected or not. For example this one: http://www.boerse-frankfurt.de/en/bonds/brazil+09+41+US105756BR01 - http://www.boerse-frankfurt.de/en/bonds/brazil+09+41+US105756BR01 |
Posted By: GGTrek
Date Posted: 13 May 2012 at 13:59
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If you have enough money to invest your broker is normally going to provide you with all the account opening services, including attorney and accountant. They will normally not explicitly charge you these costs (at least this is the practice at most brokers I deal with in my job) The smallest accounts I have seen brokerage invoices of approx. 2-3k BRL per month and there was a lot of complaining from local sales (i.e. customer was kept only because it was doing good business outside Brazil). So we are talking a min. of approx. 30k BRL per year of costs, that will kill off any decent returns on your "small" 300k investment. It might be that smaller brokers like the ones you listed might be fine with less fees, but I doubt it. Basically a 2689 account is equivalent to creating and maintaining a company in Brazil with a new CNPJ (Brazil tax ID) and there is a lot of paperwork involved: accounting, attorney and (very expensive) Brazil notary fees as well. A CPF number as a foreign resident will not allow you to open any kind of financial account (just to purchase real estate or perform other forms of direct investments in Brazil). At the moment IOF on FX to invest on Brazil gov bonds is 6% (unless gov changes its ideas which happens quite often). This is an additional heavy one-off cost for foreign residents (you pay it upfront). As you can see you need to be close to a 1M investment to start to have some decent returns and it would really be much better to be higher that that and with an investment horizon of a few years at least to alleviate the IOF charge. |
Posted By: Amsterdam
Date Posted: 13 May 2012 at 14:54
If these are like Selic bonds i dont think you do have to be a resident, but i might wrong, but it was something a friend of mine mentioned to me afew years ago. |
Posted By: karapuzo
Date Posted: 13 May 2012 at 15:49
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GGTrek,
Thank you for a detailed explanation. This is really awkward and complicated - in my opinion this type of bureaucratic crap is bad for everyone (except the brokers - thought maybe with simpler rules they would have more business). So in general if I bring a few partners and scrape together 1M or more - we would be able to open one company and save on the overhead costs? Or does every individual investor needs his own Brazilian company? |
Posted By: spongebob
Date Posted: 13 May 2012 at 17:12
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GGtrek - too cool. I learned something new today on a Sunday. But that is extremely cost-prohibitive. I found the old links I posted on here: ------ my old post ------ Actually, type in the ticker symbol BZF. I saw somewhere on the internet today that it is yielding 25-26%. I didn't check it out myself. I personally don't have this fund. Interesting link. It looks like you aquire these bonds through a US Broker. From the comments section with the CUSIPS: The Bank of America bond in Brazil is yield 12% is U0662KHW4 The Lloyd Bank bond yield over 10% is 5394E8AD1 JP Morgan 10% yield in Russin Rubels is U48065KT9 So in other words, a US or UK broker is easier. Karapuzo.. be careful whatever you do. Rates here are dropping, consumer demand is falling... so who knows where the Real will be next week, next month, etc.. ------------- - ** Just sayin' ** ** Make lemonaid out of lemons. ** ** Trolls get old...** |
Posted By: GGTrek
Date Posted: 13 May 2012 at 22:35
It is not the brokers that make this complicated, the head of the trading desk complains about this bureaucracy almost constantly  The complication and the high costs come directly from CVM (Comissão de Valores Mobiliários - i.e. equivalent to the SEC) the securities trading regulator and the Central Bank of Brazil the banks/gov bonds/foreign exchange regulator (regulates much more really), which are a direct emanation of the Brazil Federal Government. The Brazil Government wants a tight grip on capital flows for various political and fiscal reasons: no matters the cost and the bureaucracy for the foreign investors (that BTW do not vote in Brazil!) Regarding joining 3 CPF together in one 2689 account: you cannot do it, by law you would need to open 3 separate 2689 accounts. What you can do is set up an investment vehicle together with your investment partners in a low regulation jurisdiction/country/state (i.e. low cost/low bureaucracy investment company) and then the investment vehicle is used to open a 2689 account in Brazil. |
Posted By: karapuzo
Date Posted: 14 May 2012 at 03:17
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GGTrek
In this http://www.bmfbovespa.com.br/en-us/international-investors/opening-an-account/opening-an-account.aspx?idioma=en-us - link they describe an Omnibus account The nonresident investor may operate through the following types of accounts: as the Account Holder of his/her own account; or as an Account Holder of an Omnibus Account (Collective); and/or as a Participant (passenger) in an Omnibus Account. Adding clients as passengers to an existing omnibus accounts (2) involves a simplified process that can usually be accomplished within 24 to 48 hours if some conditions are met. So it looks like there is a way to link other people to the same account. The question is if the fixed costs for additional people are smaller than if each opens his own account. I understand the concept of establishing an offshore company (somewhere like Belize or Hong Kong) and then using that for the 2689 account. Though it complicates things somewhat in terms of each participant's personal taxes. Anyway, I got the picture, looks like the Brazilian Government doesn't want small investors on the market, which is a shame. |
Posted By: karapuzo
Date Posted: 14 May 2012 at 03:26
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spongebob
I can't find these CUSIPS in the Interactive Brokers' trading system. BZF is not actually what I was looking for. BZF looks like just a currency speculation ETF - they don't hold Brazilian bonds, just currency swap contracts. I was looking for long term inflation protected bonds. I don't really care about the US dollar or the Real - if the government doesn't screw the inflation index too much (and that's a big IF) then the depreciation of the Real should, at least, in part be reflected in the inflation index. I am just looking for a way to diversify a little outside the USD/EUR zone. |
Posted By: spongebob
Date Posted: 14 May 2012 at 07:41
If you REALLY want Brazilian bonds that bad, I would call IB tomorrow morning. Bloomberg also has some bonds quoted. I was reading somewhere for those cusips, you need something like $160.000. Even less risky, IMHO, is this site: http://www.cefconnect.com/Screener/FundScreener.aspx - http://www.cefconnect.com/Screener/FundScreener.aspx Screen on the international funds. There a many in the that list that have nice yields and sell at a discount to NAV. Here is another one: http://www.assetmanagement.hsbc.com/in/mutual-funds/fund-centre/brazil - http://www.assetmanagement.hsbc.com/in/mutual-funds/fund-centre/brazil I was just watching Bloomberg's video of Henique Mireilles. He said that "Brazil has to take measures to prevent 'excessive' money from coming into the country". How that will play out, we shall see. But I'm in no hurry to exchange dollars for Reais... ------------- - ** Just sayin' ** ** Make lemonaid out of lemons. ** ** Trolls get old...** |