Why Brazil's infra sector is headed for consolidation

The Brazilian infrastructure sector is yet again on a consolidation path, as players grapple with high interest rates and inflation.

Before the Lava Jato scandal broke, the market was dominated by few conglomerates.

"We are seeing a favorable scenario for a consolidation movement, since many companies in some segments have leveraged themselves excessively. With the very aggressive rise in interest rates worldwide, we will tend to see companies looking for alternatives, even to sell or join operations with others," Douglas Bassi, director and partner at Brazilian financial advisory firm Virtus BR Partners, told BNamericas. 

Consolidation is especially pronounced in the highway segment, because many companies that acquired federal and state concessions are struggling to control costs amid above-inflation asphalt and cement prices. 

Brazilian highway concessionaire Arteris, controlled by Abertis Infraestructuras-Brookfield JV Partícipes, is evaluating a sale.

"Partícipes is carrying out a market sounding exercise with a view to identify third parties who may be interested in investing in Arteris," the company said in a statement. 

Indirect consolidation has already started as recent auctions registered scant competition, with only infrastructure firms CCR and Ecorodovias winning the biggest assets.

Other segments that used to attract bidders, such as sanitation and streetlighting, will see similar consolidation developments.

Sanitation concessions are won by few companies, such as Aegea Saneamento, Iguá Saneamento and Saneamento Ambiental Águas do Brasil(SAAB), although regulation was changed in 2020 to facilitate competition and private investment.

Consolidation may also occur through acquisitions. Rising interest rates have made it difficult for sector players to advance share offerings, which would have been an option to finance investment plans.

In the streetlighting segment, which saw multiple PPPs in past years, a similar movement will emerge.

"In the next two or three years, with new contracts being offered, I think we will have new players entering the market. After this period of new contracts, revised or not, we should start to see a move toward market consolidation," Pedro Vicente Iacovino, president of private streetlighting concessionaire association Abcip, told BNamericas.