Brazil
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How are Brazil's project finance players positioning themselves for 2023?

Bnamericas Published: Tuesday, December 20, 2022
How are Brazil's project finance players positioning themselves for 2023?

Brazil's extensive and varied infrastructure concessions in recent years are still expected to produce significant business opportunities for project finance players in 2023, allowing banks to continue expanding their activities in this area.

For years, project finance activity in the country was dominated by operations in the electricity sector, but business has become more diversified in recent years, with areas such as sanitation, logistics infrastructure and telecommunications, among others, gaining importance for banks.

Given this, the players have been able to define their own specific strategies to focus on what they consider to be the most convenient areas for their needs for a range of reasons. 

BNamericas spoke to the heads of the project finance area of some of the most active banks in the segment to find out more about their business strategies for next year. 

"One of the segments that we're concentrated is FPSOs [floating production, storage and offloading vessels]. Local banks aren't very competitive in financing FPSOs due to issues related to the exchange rate, so we looked at it and we're active at this sector," Daniel O'Czerny, director of global infrastructure finance for Latin America at Citigroup, told BNamericas. 

"Each FPSO currently represents US$2bn in business, and we have demand for around three or four FPSOs per year in Brazil. The most active banks in the FPSO segment have been European, Japanese and us. It’s a sector where we're leaders and we’ve also carried out lots of refinancing operations," he added.

Along with more traditional areas of business, project finance players also are looking at new frontiers, such as the telecommunications sector. 

Companies operating in the telecommunications industry "have always made lots of investments, but these operations were previously done with a corporate credit profile. Now we’re seeing a change in profile, with a lot of investment being made in fiber optics, as well as a great deal of investment made by independent telecom operators, which are companies that offer infrastructure to large companies," Edson Ogawa, head of the project finance area at Banco Santander Brasil, told BNamericas. 

"Big companies used to do everything, they didn't share infrastructure. Now that has changed and these independent companies seek financing that's more closely linked to the cash flow of the projects and not using their balance sheet," he added.

LOCAL GIANTS 

The positive outlook for project finance business next year is also attracting Brazil's big banks, such as Itaú Unibanco and Bradesco.

Already active in various areas, such as sanitation, infrastructure and telecommunications, Itaú sees the electricity sector as very promising for next year due to an expected change in regulation.

"We're paying attention to the reform of the electricity sector, which has already been discussed for some time and it seems to me to be at a mature stage for a vote [in congress]. This reform, if it happens, will probably spark a revolution in the electricity sector," Marcelo Girão, head of project finance at Itaú BBA, the investment arm of Itaú Unibanco, said.

"The sector is currently focused on long-term contract auctions and many of the projects financed are backed by these contracts. Now what's under discussion is the opening of this market so that retail consumers can also choose to buy energy in the free market," he continued.

"This will be transformative for the dynamics of the sector. We're already seeing a migration of investment from the regulated market to the free market and, by opening up this sector even more, there will be even greater movement," Girão added.

In the meantime, Itaú's local rival, Banco Bradesco is tightening its focus on the sanitation sector, among others. 

“In the sanitation area alone in 2023, there's a need for refinancing operations for at least 15bn reais [US$2.8bn]. This amount involves the financing operations that sanitation companies used to pay fees to local governments in the concession auctions and this financing now needs to be renewed," Andréia Bentim, project finance director at Banco Bradesco's investment banking arm, Bradesco BBI, told BNamericas.

According to Bentim, water and sewerage concessions will continue to be offered to investors and the sector will continue to be highly active for financing operations, as states such as São Paulo, Rio Grande do Sul and Minas Gerais plan to privatize their publicly-owned water utilities.

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