Keeping an eye on the situation of the country, multilateral institutions are looking at Brazil as an interesting investment, as investors look for alternatives to the BNDES bank.
On March 31st, the Brazilian National Bank of Social and Economic Development (BNDES) announced change of policy regarding the granting of financial support to infrastructure projects.
The new rules foresee the creation of higher interest rates, and a lowering of the amount of financial aid given to projects. The expected consequence of this decision is to allow private players to grow their operations in the country, thus creating more jobs.
Hector Gomez, general manager of International Finance Corporation (IFC), commented: “We come from a period in which the dominance of BNDES demotivated private players from investing in Brazil.” While these changes may still receive some tweaks, it is unlikely that the bank will maintain the market share it held in the past, due to these government restrictions. Until 2016, BNDES was responsible for approximately 90% of infrastructure financing in the country.
Foreign institutions have become an alternative to BNDES for long-term financing and in the nourishing of instruments of capital markets, such as infrastructure bonds. The Inter-American Investment Corporation (IIC), branch of private investments of the Inter-American Development Bank, aims to take advantage of the situation. Already in 2017 it has set up an office in Sao Paulo and hired three people for its infrastructure and energy division in Brazil. “This will strengthen our capacity to launch and supervise projects,” stated Javier Rodriguez de Colmenares, head of the infrastructure and energy section of the ICC’s department of investments.
The IIC is working on the financing of projects that were auctioned this year, such as the airports of Porto Alegre, Florianopolis, Salvador and Fortaleza and the highways of Sao Paulo state. “In response to the limited sources of long-term financing in Brazil and to the scarcity of foreign investors willing to offer loans in reais, the IIC offers alternative sources of financing, such as long-term financing in the national currency and warranties that support the issuance of infrastructure debentures to support Brazilian investors,” he added.
The bank’s portfolio includes seven infrastructure projects and more than $700 million in assets in Brazil. “We have a very ambitious portfolio for 2017 and 2018 with more than 20 opportunities, of which six have already been formally accepted,” stressed Mr. Colmenares.
The IIC has been seeking projects in the fields of renewable energy, gas, transmission lines, energy efficiency, sewage, education and health, roads, urban mobility, ports and airports in Brazil. “We are particularly interested in innovation in the production of renewable energy and energy efficiency,” he added.
The IFC, on the other hand, has been talking to local banks, looking for solutions to reduce the risks associated with the construction phase of its projects. Their aim is to offer warranties for the issuance of debentures for the project. “Multilateral banks can work as an anchor investor to take this type of risk and provide support to the buyers of the debentures,” claims Gomez.
In the closing of the fiscal yeartoJune 2016, the IFC had $4.1 billion invested in Brazil ‒ $2.7 billion from its own resources. Out of that amount, 27% was destined for the infrastructure sector. “Our expectation is that this figure will increase further,” said Gomez.
The BNDES is still negotiating with the World Bank for a line of $500 million aimed at financing the pre-completion stage of projects of sustainability in the field of infrastructure. The resources are earmarked for the structuring of a fund to grant issuances of debentures connected to these investments. “We are talking to numerous export agencies and development banks and our objective is to develop the market,” said Eliane Lustosa, head of the capital markets department at BNDES.
The Brazilian bank is also discussing its participation in the Fund of Investments of the Creditor Rights (FIDC) of R$500 million with BNP Paribas and the Development Bank of Latin America for the purchase of debentures of infrastructure. The FIDC will be launched in the second semester of 2017 and BNP should retain 2.5% of the fund. “The idea is that the fund can keep the leeway for individuals and will rely on different levels of quotas,” claimed Luiz Eugenio Junqueira Figueiredo, responsible for the department of alternative investments of BNP Paribas Asset Management Brasil.
Apart from multilateral entities, Santander has also been working with export agencies in the offering credit insurance for this financing. Santander closed a deal to finance $1.2 billion with Bank of China for the development of a renewable park in the north-east Brazil. “This financing was in dollars and it was made into a hedge to convert it to reais. But we realized the credit agencies are open to making financings in reais,” said Thomas Manning Berkes, superintendent of structured financings of Santander.
Mr. Berkes stressed that the increased presence of Chinese companies in the field of electric energy should also grow the participation of export agencies from China in the financing of these structures. The auctions of transmission of energy, for instance, no longer rely on the financings with rates subsides by BNDES. “From the moment BNDES reduced the financing in TJLP, it opened space for the private sector,” said Ms. Lustosa, the head of the department of capital markets of BNDES.
On top of the participation through export agencies, the Chinese government is launching a $20 billion fund in partnership with the Brazilian government to invest in projects of the Program of Partnerships in Investments.