Why 2022 will be the best year for Brazil infra auctions

Bnamericas Published: Monday, January 24, 2022
Why 2022 will be the best year for Brazil infra auctions

2022 will be the most robust year for Brazil's infrastructure concessions agenda. Contrary to some analysts, government officials don't believe that the electoral process will scare away investors.

Brazil is offering a large number of highways, airports, ports and railways, with investment funds and global infrastructure operators being the most likely bidders.

Development, planning and partnerships secretary Natália Marcassa talked with BNamericas about the concessions agenda, investors' concerns, and other topics.

BNamericas: What is the expectation for Brazil's concession agenda in 2022?

Marcassa: We have been building a robust infrastructure portfolio since 2016 with the creation of the PPI, which brought a new governance model to the projects, emphasizing that infrastructure projects were projects of the state and not of a single administration.

As of 2019, under the current infrastructure minister Tarcisio Gomes de Freitas, we’ve seen an even greater advance in these efforts. We have made huge progress with several auctions, large auctions, such as the Norte Sul railroad, the Nova Dutra highway, but we always leave the best for last.

That is why in 2022 we will likely offer more than 50 infrastructure assets. It will be the most robust year regarding the concessions portfolio.

In the airport sector, we will have the seventh round, which represents the offer of the last federal airport concessions that have not yet been awarded, and this round will have the crown jewels of the sector, which are the airports of Santos Dumont and Congonhas.

In the highways area, we will have various auctions, including the large auction for highways in Parana state, which involves very low-risk assets.

In the port area, we are going to privatize a port [administration] for the first time, on March 25, which is Codesa, and we have the auction of the port of Santos.

In the area of railways, we also have an important project for 2022, which is the early renewal of the MRS concession, of an extension of more than 1,600km of railways that passes through the states of Minas Gerais, Rio de Janeiro and São Paulo. This early renewal is already under review by [audit court] TCU and our forecast is to sign this renewal in late March or early April.

BNamericas: What are the main concerns international investors voice when participating in roadshows? How do you address these concerns?

Marcassa: Generally, the main doubts and risk perceptions are linked to foreign exchange risks. The new, recently signed foreign exchange law addresses many of the questions we received.

With the new exchange regulations, there is the possibility of projects carrying a natural hedge, as many forex contracts no longer need to undergo currency conversion.

In addition, in the concession contracts, we use part of the funds collected from the fees to cover the costs of hedging the projects' debt.

Another point that raises a lot of questions from investors is in relation to project financing. We have been working on two fronts.

There are requests for us to advance financing models that do not require corporate guarantees, but have guarantees linked to the project only.

One of the ongoing initiatives is a project that is already debated in the senate in relation to infrastructure debentures. In this proposal to be voted on, the debentures could also carry tax exemptions for financial institutions and pension funds, including funds abroad, not just for individuals. With this, there will be access to deeper pockets.

I believe that in this first half we will get approval for these new infrastructure debenture rules.

We are also working so banks can advance a project finance model that is not based on corporate guarantees.

For this, we are adopting mechanisms that do not carry demand risk, a protection mechanism for price variations in contracts. Recently, BNDES has approved a project finance operation with this characteristic for São Paulo’s metro line No. 6.

BNDES always takes the lead in these issues related to project finance, as it has access to very long-term financing. The bank will likely be the leader of other syndicated operations, with other banks, in this sense.

BNamericas: Which investors are most interested in Brazil's infrastructure portfolio?

Marcassa: We have different investor profiles.

When we refer to investors based in the US or in London, for example, we see interest from investment funds. Funds that are always looking for assets in Brazil are BlackRock, Macquarie, Lazard, among others, that is, they are funds that invest in infrastructure and want information on our project pipeline.

When we look specifically at Europe, we see interest from infrastructure operators such as Acciona, Sacyr, Aena, Arteris, Fraport, Vinci Airports, among others. 

Other types that look at Brazilian assets are Asian sovereign funds. We have also funds from the United Arab Emirates, Saudi Arabia. 

BNamericas: Will the elections limit the period for infrastructure auctions this year?

Marcassa: We don't have any legal restrictions to hold auctions in an election year.

I do not believe in the influence of elections on auctions. The auctions are for mature projects, which have already passed through public hearings, the analysis of the TCU, so I believe in little impact of the electoral process on this agenda.

BNamericas: What is the message for investors regarding the concessions agenda in this election year?

Marcassa: The message we give is that we have a portfolio of projects to be offered in 2023 and 2024 as well. Whatever the government [will be], the concessions agenda will continue. We have a tradition in Brazil of fulfilling contracts; we already have a long tradition in concessions.

In the 1990s, Brazil offered the Dutra highway concession. This contract passed through different governments, without changes. Last year, this contract was re-bid. This is a good example of the commitment of different administrations to concessions and to contracts.

Today, Brazil is the country that has the largest portfolio of highway and airport concessions in the world. This will not be reversed, the existing fiscal restrictions do not allow a reversal.

BNamericas: Are all airports likely to be auctioned in the next round, including the Santos Dumont facility, which created some controversy?

Marcassa: I believe we will get all the airports auctioned this year. We created a working group to have a more technical debate with the productive sector of Rio de Janeiro and I believe we will harmonize these issues.

BNamericas: And what type of investor is interested in assets like the Santos port?

Marcassa: We spoke with over 40 stakeholders potentially interested in the port of Santos. We expect this auction to take place in the fourth quarter of this year.

This asset will generate an investment of 16bn reais (US$2.91bn) during the contract period. Most of these investments are for dredging.

If we look at the duration of the concession contract and this total investment, it is not an asset which requires major investments throughout the period.

I would say that investors interested in this asset will [be mostly] investment funds, acting through consortiums with port operators, which have operational experience.

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