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With BNDES reigned in, questions over infrastructure investment in Brazil remain

With reform on the horizon for BNDES, investment opportunities are likely to open up for private banks. Infrastructure projects will still receive assistance from the country’s state development bank, but in a less direct manner, experts suggest.

Jun 14, 2016 // 4:59PM

Maria Silvia Bastos, former CEO of steelmaker CSN has been named by Brazil’s interim President Michel Temer as the new head of BNDES, the country’s state development bank.

“The bank is currently reviewing how it will support infrastructure projects in the country going forward,” said BNDES’ Head of Finance, Selmo Aronovich.

BNDES also faces the repayment of BRL100bn (US$28bn) worth of debt to the country’s treasury over the next 3 years, which could impact its ability to lend to many projects.

Aronovich noted, however, that BNDES is still a highly liquid sustainable bank, with a substantial inflow of resources expected over the coming years. Although BNDES is theoretically able to lend, there is a drive to increase the participation of other lenders within Brazil’s markets.

“In the last 5 years infrastructure projects in Brazil have been partially financed by corporate securities issued by companies from different sectors such as utilities, railroads and toll roads,” said Flavia Martins, Credit Research Manager at XP Investimentos.

She added that these issuances were aimed at private banks.

Aronovich noted that BNDES will focus capital deployment on segments of the market that do not currently receive significant amounts of interest, such as infrastructure projects with long maturities or large capital requirements and greenfield investments.

The Bank has developed several initiatives to attract private capital towards infrastructure projects. These include the sharing of collateral and cross-default measures as well as a credit line to finance up to 2-years of interest payments for infrastructure debentures.

“This will make new projects less dependent on BNDES credit lines to be viable,” Aronovich said.

BNDES is also considering bidding for minority stakes of up to 20% in subordinated infrastructure debentures.

“The subordinated infrastructure debenture market in Brazil is small, and the idea is to enhance it,” he added.

An economic recovery in Brazil would also lead to an increasing number of infrastructure projects in which companies would launch corporate securities regardless of BNDES credit lines, according to Martins. 

“Of course, BNDES will remain a key entity for the financing of projects in Brazil, but it’s hard to measure what its stake in the market will be.” 

Americas Projects & Infrastructure

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