As Brazil’s capital markets cooled over the past year, state development bank BNDES once again found itself the predominant financier of the country’s large infrastructure projects – a role which, until recently, it had sought to eschew in favor of private capital.
It comes as little surprise, then, that Brazil’s standout deals in the sector over that period – including the Local Currency Financing of the Year – were all supported by the public lender.
BNDES granted 3.16 billion reais in capex funding via an 8-year loan, to Ecovias do Araguaia, a 851 km-long toll road concession that connects 28 municipalities across the states of Goiás and Tocantins in central Brazil.
The bank had previously purchased the 600 million reais in infrastructure debentures issued by the company in July 2022, which provided the bulk of the funds the company needed to build a vital road that will serve some of the less developed parts of the country.
The debentures, which followed an earlier issuance in 2021, featured a 29-year tenor making it one of the longest such securities ever placed in the local market.
Says Andrea Fernandes, Chief Corporate Finance Officer at Ecorodovias, the project’s sponsor: “The second debentures issued by the Ecovias do Araguaia project enabled us to guarantee the funds necessary to fill the investment program for the first two years of the concession.”
The financial package, which closed in July 2022, also includes a 24-year, 461 million reais loan from Banco da Amazônia, another development bank. In total, Ecovias do Araguaia raised 4,221 billion reais. Adding the debenture issued in 2021 by the holding group as equity finance, the combined total funds raised for the concession comes to 5.6 billion reais ($1.130 billion) making it the largest ever toll road financing package in Brazil, according to Itaú BBA, which acted as financial advisor on the deal.
Fernandes says that financing was structured as a limited recourse project financing guaranteed by the concession’s future cash flow. This way, she says, there was no requirement to obtain additional guarantees, and the financial sustainability of the concession was ensured.
The BNDES loan has a rate of 7.75% above the inflation index IPCA, while the Banco da Amazônia tranche has a cost of IPCA plus 2.5%. The debentures pay IPCA plus 6.66%.
“The transactions were consistent with our goal of reducing the group’s fundraising costs,” Fernandes says.