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Brazil approves US$3.8bn in debenture issues by sanitation firms

Bnamericas Published: Monday, November 28, 2022

Brazilian water and sanitation companies are preparing to over 20bn reais (US$3.8bn) from issues of what are known locally as infrastructure debentures.

The regional development ministry gave the green light in recent weeks to four companies to issue the bonds. As infrastructure debentures count with tax exemptions for investors, the operations must be approved by the ministry.

"Debentures have taken on a very important role in financing development projects, as there are limited long-term financing mechanisms for the sector," Percy Soares Neto, executive director of the Brazilian association for private concessionaires of public water and sewerage services (Abcon), told BNamericas. 

"A solution for this limited number of financing mechanisms for the sector tends to be [development bank] BNDES, which is likely to assume a more active role in long-term financing with the new administration [of Luiz Inácio Lula da Silva]," added the Abcon head. 

With the latest approvals, debenture issues to finance sanitation projects will reach 24bn reais this year, according to the ministry.

Since mid-2020, when congress approved changes in regulations to pave the way for the entrance of private sector firms in the sanitation sector, several companies have been awarded concessions for services by state governments and now are opting to issue debentures to finance their operations.

BNamericas takes a look at the most recent operations authorized.

CSA (Amapá state)

The ministry authorized Amapá's utility Concessionária de Saneamento do Amapá (CSA), controlled by Equatorial Energia and SAM Ambiental, to raise 1bn reais via the issue of debentures. CSA won the concession in a 2021 auction.

The funds to be raised have two main objectives. The first is to expand the urban coverage of water supply and sewerage services, in addition to reducing distribution losses and improving water supply in Macapá. Around 522,000 residents of the Amapá capital will benefit from the initiative, the regional development ministry said in a press release.

The second objective is the payment of more than 930mn reais related to the concession contract for water supply and sewage services in the 16 municipalities of the northern state.

Aegea (Rio de Janeiro state)

The ministry recently authorized concessionaire Águas do Rio, controlled by sanitation firm Aegea Saneamento, to raise up to 12.3bn reais to advance its investment plans in 27 municipalities in Rio de Janeiro, divided into two blocks.

In 2021, the Rio state government held an auction for sanitation concessions for four blocks and Aegea won two of them.

Of the total to be raised by Aegea, 6.56bn reais will be used for the first block, comprising 19 municipalities with 3.22mn residents.

The other 5.76bn reais authorized will be used for projects in nine cities, benefitting 6.7mn people.

Iguá (Rio de Janeiro state)

Sanitation firm Iguá Saneamento, which won one of the blocks offered by Rio de Janeiro last year, was authorized to raise 7.28bn reais from a debenture issue.

The proceeds will be used for projects that will benefit around 1.25mn people in the municipalities of Miguel Pereira and Paty dos Alferes, in addition to various neighborhoods in Rio de Janeiro city.

Águas de Niterói (Niterói)

The ministry also authorized concessionaire Aquas de Niterói, in the Rio de Janeiro city of Niterói, to raise up to 150mn reais via a debenture issue, of which 86mn reais will be allocated to water supply and 63.7mn to sewerage services. The works will benefit around 517,000 residents.

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