A sizeable Brazilian local bond with a strong environmental feature wins the award for Sustainable Infrastructure Financing of the Year.
Sanitation company BRK Ambiental issued its 20-year, 1.95 billion reais ($400 million) infrastructure debenture in November 2022. Investors flocked to the largest and longest ever bond issued by a water and sanitation company in the Brazilian market.
The deal also marked the arrival of blue bonds in the Brazilian market. The proceeds were used to pay a bridge loan obtained by BRK Ambiental after winning a water and sanitation concession in the Northeastern coastal city of Maceió, in Alagoas, one of Brazil’s poorest states.
Felipe Cunha, BRK Ambiental’s CFO, believes that the deal was a triumph for the company, having achieved favorable terms on an issue that was 1.6 times oversubscribed despite its large size.
“We managed to place a 20-year bond, which is maturity in line with best long-term securities for infrastructure projects,” he says. “The pace of payments is relatively slow at the beginning of bond maturity and gathers steam as the project naturally develops and generates more cash flow.”
The bond pays an annual rate of 7.62% on top of inflation index IPCA. BTG Pactual, which acted as lead coordinator, says that the deal was the first sustainable and blue debenture ever issued by a private company in Latin America.
BRK Ambiental took the decision to raise money through a new security untested in the Brazilian market having concluded that a blue bond was a winning choice to expand the range of potential investors.
The concession terms stipulate that BRK Ambiental will manage and expand water and sanitation services in 13 regions around Maceió, a coastal state capital city, servicing some 1.5 million inhabitants.
It has a target to reach universalization of water treatment and increase the access to sewage to 90% of the population in 16 years. When it won the concession in 2020, the number was just 27%.
“We understood that Maceió’s metropolitan region has a substantial impact on ocean life and, therefore, the deal could be qualified as a blue bond,” says Carlos Almiro de Magalhães Melo, the head of Sustainability, ESG and Risk Management at BRK Ambiental.
“I believe the blue tag helped to draw interest and curiosity from investors, both institutionals and retail. It introduced a dose of originality into the market,” Cunha adds. “It was a very successful experience, so it would be natural for us to do it again for other assets, if necessary.”