Content area
Full text
Brazil needs huge sums to develop its infrastructure but long-term project finance is becoming harder to find as European banks pull back and the dominant role of development bank BNDES discourages local players.
|
|
|
Brazil guide index In early November senior financiers gathered in Sao Paulo for Project Finance magazine's annual Brazil conference. Against the background of Italy's government falling as markets pushed its bond yields over 7% and a technocratic government being installed in Greece, the prospect for continued long-term debt from European banks - a key provider for Brazilian projects - looks uncertain.
The agenda had been written in advance, of course, but the panel discussing who would fund the gap in BNDES looked to be focusing on the wrong source: a more pressing question is who will fund the withdrawal of long-term bank debt from the international banks. Brazilian bank debt is still short term; debt securities issued in the local capital markets rarely go beyond tenors of eight years and there is still a question-mark about whether an investor base of both international and domestic capital markets will develop a risk appetite to fund projects.
The demand is there: infrastructure and power projects have long been cited as a bottleneck on the country's growth potential and the upcoming FIFA World Cup and Olympic Games in 2014 and 2016 have just increased the urgency for investment. In anticipation, the country's three largest airports are going through a partial privatization, with the bids expected to be announced early next year. Beyond that there are huge capital requirements for the oil and gas sector. Petrobras's capex for the next three years is $174 billion and will create the need for huge investment from its suppliers. The country is developing its own drill ship construction project and that alone is expected to need at least $6 billion in financing.
Luckily for Brazilian-based projects, BNDES as a source is not likely to diminish any time soon. In 2010 BNDES disbursed R$549 billion, of which 42% was channelled into 195 energy and infrastructure projects. The projected increase for 2011 is 19%.
But the sheer scale of capital expenditure needed means fresh sources must be found. Diogo Casto e Silva, executive vice president of investment banking for Banco Caixa...