Brazil gets serious on fixing its infrastructure: about time too.

Just how enthusiastic are Brazilian bankers about Brazil’s $66 billion infrastructure program?

It’s certainly ambitious. The existing package envisages 10,000 kilometers of new railways together with building or upgrading 7,500 kilometers of roads. Moreover, there is more to come: a package has been flagged for ports and waterways, which is to be announced imminently. Brazil is well behind on infrastructure. Conservatively, the country needs $300bn per year to sustain 5% annual GDP growth so the package is highly welcome.

There is much to whet the appetite of investors. After years of seeing infrastructure as a public sector game, the Rousseff government is keen to coopt private investors and has put them centre stage. The size of the programme should ensure a consistent flow of projects. The lower real should make investment more manageable for foreigners. And lower interest rates are likely to prick interest of Brazilians and foreigners alike.

Railways will dominate the programme, accounting for R$91bn and roads a more modest R$42 billion.  A second round of airports privatizations is likely to include Galeão, the international airport for Rio de Janeiro and Confins, the main airport for Belo Horizonte and maybe Salvador and/or Manaus.

There are some key obstacles to overcome. Some of Brazil’s concessions have been cack-handed, particularly the second round of Federal roads and the recently-completed airports. And the BNDES has effectively squeezed out private participation.

The government seems to be heeding foreign investor calls to reform structures. On roads, it is likely to pay more attention to ensuring investment plans are followed through with proper sanctions. It is also reviewing airport concessions and is likely to exclude the kind of smaller players that won in the first round.

The BNDES itself seems to recognize that it is not big enough to sustain all the investments and senior staff are making the right noises about working with foreign investors. The bank is looking to help structure debentures and is committed to guarantee sharing. The development of fixed-income capital markets will allow sponsors to introduce leverage and reduce the need for commitments of sponsor equity over the medium term.

Bankers say a series of bonds are set to test the opening of the debenture market. They agree that initially pricing will be difficult and perhaps expensive but are confident that tenors will extend and prices come down quickly.

Foreign investors have reason to be cautious. Brazil has been hobbled by high interest rates, a lack of predictability, poorly written contracts and a distaste for private money. This time round it really does look different. This could be a game changer for Brazil.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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