
Citigroup sees potential for project finance growth in Latin America

Citigroup sees Brazil and Chile as the main countries in Latin America for project finance in 2023, driven by strong demand for financing for electric power projects, while in Brazil areas such as sanitation and FPSOs have also been showing growth.
Mexico is also expected to be fertile ground for project finance next year, says Daniel O'Czerny, director of global infrastructure finance for Latin America at the US banking giant.
BNamericas: Which countries in Latin America are currently responsible for the largest volume of business in terms of infrastructure financing for Citi and how should the area perform in 2023?
O'Czerny: Our scope of action in the area of infrastructure here at Citi is linked to both greenfield and brownfield projects. This also includes advisory services for M&As where a solution in terms of project finance is required.
Looking from these two perspectives, the biggest generators of business for project finance operations have been Brazil and Chile.
Apart from these two countries, I would say there are other big ones in the region, which are going through a political situation that is a little more delicate, like Mexico and Argentina, while in Colombia, despite being an active country in terms of projects, they’re not that big.
Talking about the 2023 scenario, I see a very similar situation, with Brazil and Chile being responsible for the largest volume of operations.
One aspect that I would also draw attention to would be the fact that in 2023 we’ll start to see a little more attention paid to Mexico, given the expectations of elections that will be held in the country [in mid-2024], with an eye on a change of government.
BNamericas: In the countries that you mention, project finance operations are concentrated in which segments?
O'Czerny: In Brazil and Chile we have some similarities regarding sectors, since, for example, the electricity sector has been a great generator of operations.
In Chile, the largest operations are concentrated in energy transmission projects and in Brazil, in addition to transmission, there is a lot going on in renewable energy generation as well.
I would also like to highlight, from a positive point of view, the operations linked to the road sector in Colombia.
BNamericas: According to Brazilian government sources, with Ilan Goldfajn as president of IDB, the bank will support structural projects in the region, such as the connection of the Vaca Muerta gas fields, in Argentina, to Brazil through a gas pipeline and a railroad, and a logistics corridor between Brazil and Peru. Do you see chances for such projects to advance?
O'Czerny: There is a need for structural projects in the region, but the way to achieve this must start with good project structuring.
Clearly, projects as large as the ones you mention will need the participation of multilateral institutions, but for this to go forward, it will be necessary to allocate risks to be negotiated between the countries. I think that currently there is a complex scenario in Argentina, where there’s a low level of investment in infrastructure, so this needs to be thought through very carefully.
Ilan, at IDB, can help untie some knots given his competence and, in addition, there is also Martha Seillier at IDB, who worked at the PPI [a Brazilian federal department that structures projects] and has considerable experience in project structuring.
BNamericas: Speaking now more about Brazil, what are the sectors that are likely to generate more business for infrastructure financiers?
O'Czerny: The energy sector I already mentioned and in addition to that I would highlight two other sectors.
One of these is sanitation, which has undergone a major transformation in Brazil and has generated a large volume of operations, and currently we’re very focused on this sector.
Another sector that we focus on is oil and gas and here I divide the segment into two. One is the business that was generated from the Petrobras divestment plan, which brought independent companies to the sector, which are investing.
The other positive aspect of the segment is FPSOs [floating production, storage and offloading vessels]. Local banks are not very competitive in financing FPSOs due to issues related to the exchange rate, so we looked at this sector.
Each FPSO currently represents US$2bn in business and we have demand of 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 are leaders and we’ve also carried out many refinancing operations.
BNamericas: How could any attempt of the incoming government to implement more local content rules in the oil and gas sector affect the financing of projects?
O'Czerny: The changes in this sector took a long time to happen, because local content is defined at the time the bidding takes place.
Between the time a bid is won and the demand for the FPSO, we are referring to an average period of seven years. I would say that building an FPSO in Brazil is not a trivial decision.
Regarding the financing structure of these FPSOs, in the past, over the last 10 years, financing was long term, around 17 years. Now with some changes in the capital regulations for banks, I see banks being reticent to offer long-term financing.
BNamericas: Are there other segments that you look at with interest?
O'Czerny: We're also active in the telecommunications sector, especially I see operations happening in the fiber optics and datacenter areas. Meanwhile, the biggest investment in 5G will come from companies using a more corporate credit model [instead of project finance solutions]
BNamericas: What are your expectations regarding the concessions agenda in Brazil from 2023, with a new government?
O'Czerny: I believe there will be a continuation of the concessions agenda.
Even in previous [leftist] administrations of Lula and Dilma Rousseff, we saw a concessions program, mainly for highways and airports.
But it’s important to say that there are sectors that are already concluding the offer of assets, such as airports, where there are not many more assets to be offered.
In the roads sector, there are still many concessions to be offered.
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