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Brazil’s Project Bonds – The First of Many More

04-01-2011 07:44 PM CET | Business, Economy, Finances, Banking & Insurance

Press release from: InfraAmericas



Brazil’s current economic environment is impressive with GDP growing, a strengthening real, increased investment and a relatively low debt to GDP ratio. The country’s combination of left of centre policies, promotion of the oil and petrochemical sectors, a focus on social development, especially education, has enabled the nation to advance considerably, with scope for many further opportunities. Recent Brazilian economic history has improved materially since the “lost decade” of the early 80s to the late 90s, and it continues to show an outstanding resilience in this latest one. From a meager annual GDP of 1.5% per year (on average), Brazil has enjoyed an enviable growth rate of 5.70% on average (excluding 2009) in the last five years. Unemployment has decreased to 6.7% – the lowest figure since records began. At the same pace, investments have increased substantially, driven by demand requirements across a full range of industries and markets. Considering only infrastructure, the government’s sustainable growth plan (PAC), of more than USD500bn in the next five years, has demonstrated not only the focus of the federal government, but also the critical role in finding solutions to enable such investment. This infrastructure goal represents a major opportunity for both the economy and investors.

For the first time in decades, there is a real feeling that the country can deliver a sustainable economic growth plan and will be regarded as one of the global players in the financial markets.

This new trend has been reflected in the appetite of international investors for local assets, both in debt and equity capital markets. For the latter, the IPOs of initially large-sized, and more recently, medium-sized companies have highlighted the strong interest from foreign investors for good quality growth-driven markets. Since 2007, the volume of new offerings achieved a remarkable annual average level of USD24.6bn. In volume terms, the Brazilian equity markets compared to all other LatAm countries account for 76.8% of market share, whereas the GDP ratio is roughly 40%.

The debt capital markets, both at the local and international levels have also supported investment and appear poised to deliver solutions in the near future. Despite the well-established importance of the local development agencies (such as BNDES) for long-term financing in reals, the increasing volume of either corporate or project-related bonds has been breathtaking. Corporate-related local bonds, called debêntures, have steadily increased, reaching a total volume of more than USD20bn in 2010. Conversely, the issuance of international bonds of the same nature has experienced a dramatic surge in recent years totaling a record USD37.2bn in 2010. BNDES is still a critical financing source with an astonishing level of support of USD84.5bn, the largest among all other international financing agencies.

Project Finance Bonds
Given the increasing liquidity, sophistication and specific demand for infrastructure debt financing instruments, the development of project-related debt financing within the local and international capital markets should follow suit.

In 2010, we witnessed the development of specific structures to meet the needs of long tenors, customized amortization profiles and interest rates required for key infrastructure projects. Locally, a key project was the financing for Rotas das Bandeiras, a brownfield toll-road sponsored by Odebrecht. At BRL1.1bn (USD623m), the 12-year debenture tailored for local pension funds was priced at CPI+9.57% with a final book exceeding the original target issuance. Rota das Bandeiras is the first true project bond financing for infrastructure in Brazil. It opens a new method to financing projects, especially toll-roads. Other projects, including Sao Paulo’s Rodoanel Sul and Leste toll road concession, can possibly turn to local bonds as a viable concession funding option. This has been particularly representative of the new trend given the strong interest from local pension funds for brownfield assets with a focused and acceptable range of risk.

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For more information about InfraAmericas ( and find out if you are eligible for a free trial call Ken McAllister on + 44 (0) 207 786 9282 or e-mail at Please remember to quote your reference: IAPR4OPR.

InfraAmericas is the most relevant, timely & accurate provider of news, analysis & research about the latest greenfield & brownfield infrastructure projects & deals across the American continent.

Inframation Ltd, 1st Floor, 4 City Road, London EC1Y 2AA, UK

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