Brazil: infrastructure project finance
Despite the uncertainties surrounding the Brazilian economy, there is a very important consensus in the country on the need to invest an extraordinary amount in infrastructure (highways, railroads, ports and airports) that could be as high as €500 billion under the infrastructure investment program recently launched by the Government.
To date, Banco Nacional de Desenvolvimento Econômico e Social (BNDES, Brazil’s official development bank) has been virtually the only institution that has provided long-term finance for infrastructure projects.
This begged the question as to whether, given the scale of the planned investments, BNDES was going to be able to carry on with this task on its own.
The answer seems to be no.
Aware of the situation in practice (and of the fact that investors interested in executing projects will not be able to bankroll all the projects on their own, either), the Government of Brazil has, according to recent news, struck a deal with the main private banks operating in Brazil (including Itaú Unibanco, Bradesco, Banco Santander, BTG Pactual, JP Morgan, Bank of America, Safra, Banco do Brasil and Caixa Econômica Federal) so that the banks play a more active role in infrastructure project finance.
The terms for funding the various projects are still being defined, although in the case of highways, it has been pointed out that the private banks are already apparently committed to financing up to 70% of the investments through long-term (30-year) credit facilities, with a five-year grace period and an interest rate of TJLP (the long-term rate set by the Conselho Monetário Nacional and which, between July and September 2013, stood at 5%) + 2%.
Bridge loans would also be offered to pay for investments during the project structuring phase and the Government is apparently considering the possibility of removing the impact of the tax on financial transactions (IOF) on infrastructure project finance, something which would also help encourage private banks to participate in such deals.
Although Brazil must undoubtedly continue working towards improving the regulatory and contractual frameworks for long-term investment in the country, the commitments and agreements secured seem to be a step in the right direction.
Garrigues Latin American Practice
You can find a version of this article in the October issue of Moneda Única magazine.