Mining: Brazilian government advances plans to lead mineral survey

Brasília advances plans to lead mineral survey

By André Borges Brasília
The government plans to take responsibility for surveying minerals considered strategic and, from these studies, auction the country's mines. The controversial proposal - which eliminates the current system of authorization for prospecting and mining - is part of the new regulatory framework for the mining sector. The question is whether the Union can handle such bold changes. 
The plan is to have mapping of Brazilian deposits carried out by the Companhia de Pesquisa de Recursos Minerais (CPRM),  a state-owned agency linked to the Ministry of Mines and Energy (MME), which has the task of organizing the geological knowledge of the country. Today, mineral exploration is done primarily by the private sector, mainly small businesses that conduct research and then sell their projects to major mining companies. 
Through the Access to Information Act, Valor has obtained data on CPRM’s structure and its limitations. Over the past five years, the number of CPRM’s employees practically has not changed. Today the agency has 1,474 permanent employees and 456 contractors. The annual budget, which in 2009 was R$307 million, reached R$468 million this year. Despite the growth, some experts consider that the amount is still low to carry out the new project.
CPRM said that it"already has made this diagnosis and noted the need for expansion" of its staff. The agency has been authorized to recruit, through public tender, 355 professionals from different areas. Today, most CPRM’s researchers (184 people) are focused on hydrometeorological issues. Only 130 professionals work in geological surveys.
Asked about the impact of proposed changes, the company said that, once confirmed, "there will be certainly the need to increase the budget. This costs review, however, will depend on the volume of Areas of Relevant Mineral Interest (Arim), which will be under its responsibility. "CPRM has been depleted for a long time. The scenario shows that they are trying to operationalize the state-owned agency, but [the intention] falls far short of what is intended. The company is able to assume the role that today belongs to the private sector”, says Bruno Feigelson, mining expert and partner at Ribeiro Lima Advogados. "There is a clear move to try to nationalize mineral exploration in the country. Is this really the government’s role, focusing on mineral exploration? See that oil prospecting goes in the opposite direction, giving room for companies”, he says.
This is not a simple endeavor. Data from the Brazilian Mining Institute (Ibram) point out that, to date, less than 30% of the country is known by geological surveys according to a scale appropriated to the activity. Last year, investments in mineral research totaled $321 million in Brazil, while Peru, which has a territory seven times smaller, invested $535 million. 
The government's decision affects not only the future of small surveying companies (juniors, as they are known). The industry’s concern is that, in some way, the government takes over studies already conducted and sent by companies to the National Department of Mineral Research (DNPM).

Antonio Cruz/ABrEdison Lobão
In an interview with Valor, Edison Lobão, minister of Mines and Energy, said "CPRM today has the largest collection of geological and mineral resources of Latin America" and keeps "a complete database with geological surveys throughout Brazil.”
Mr. Lobão says CPRM has obtained authorization from the Ministry of Planning to conduct its tender, which should take place in August. Among the new professionals, the government will select 208 new geosciences researchers "to strengthen the technical staff and meet the current institutional functions of CPRM and those arising from the new legislation."
According to the MME, CPRM’s geological mapping activities, which have been included in the Growth Acceleration Program (PAC), are up to date. By the end of 2014, the agency wants to map about 900,000 square kilometers of the national territory, expanding by 25% the areas currently covered by geological maps. Aerial-geophysical surveys, which also generate important data on geology and mineral resources, are expected to be completed next year, covering over 1.4 million square kilometers.
Although betting on CPRM’s ability to take the national research, the government has taken steps to ensure the implementation of the studies. The agency has asked the Ministry of Planning to make "adjustments in its institutional law." Changes will allow CPRM to bid services related to the company’s end activities, i.e., outsource its work. Besides that, CPRM can use a “special regime for contracting specialized technical services.”
Meanwhile, the government has changed the industry’s rules through ministerial orders. This week DNPM reduced the deadline for companies to do their mineral researches. Time dropped to one year from three years. The government says that it has not given up the new regulatory frame and that, by the end of June, the promised project will be sent to Congress.

© 2000 – 2012. All rights reserved to Valor Econômico S. A. . Read our terms and conditions on http://www.valor.com.br/international/about-legals/terms-conditions. This material cannot be published, rewritten, redistributed or broadcasted without authorization from Valor Econômico.

Read more:

Transports: Brazilian government raises tolls of federal highways on auction block in order to attract private investors

Government raises tolls of federal highways on auction block

By Leandra Peres Brasília
Tolls charged from users at federal highways that will be handed over to the private sector are likely to become up to 62.33% more expensive than initially planned by the government. The increase in values set in tender rules, which are in final discussions, was the option found by Brasília to offer a higher return rate and attract investors to the auctions.
This percentage will be applied to those who bid for the concession of BR-153 in Goiás and Tocantins states. The maximum toll was R$5.84 for 100km stretches in the public hearing that released the auction notices. After the latest revision, the government estimates maximum toll at R$9.48 for 100km stretch.
The lowest increase among the seven stretches that will be auctioned is of 33.38% for BR-153 in Mato Grosso do Sul. The initial government estimate was a toll of R$7.10 for 100km stretch, raised to R$9.47, according to a report by the National Land Transport Agency (ANTT).
In the road-concession auction model, the government sets a maximum value for the toll and the winner is the company offering the biggest discount, or the lowest rate for the auctioned stretches.
This means that users may pay a lower toll than those set in the invitation for bids. But the value gives a measure of what the government considers acceptable in each stretch and by how much it accepts to remunerate investors.
ANTT director Natália Marcassa says toll values may still be altered because of fine tuning. “I don’t believe there will be big oscillations,” she says. But the definition will only happen after analysis by the Federal Audit Court.
“The toll value is simply the result of assumptions we’ve adopted. Since we’ve changed some assumptions, this affects the rate,” Ms. Marcassa says.
To have an idea of what the new toll rates mean, it’s possible to compare them to already-privatized roads. Although this doesn’t allow one to conclude if the set rate now is low or high, it’s possible to gauge what will leave the user’s pocket in each of the models.
The toll price is a direct function of required investment, financing conditions and volume of cars that run in each highway. This way, it’s natural that when the government requires big investments in building additional lanes, as is the case of the current model, the toll value is higher.
A car that travels from São Paulo to Rio de Janeiro on Rodovia Dutra pays R$49.80, which means R$12.38 for 100km stretch. The highway was privatized in 1996, during the administration of Fernando Henrique Cardoso, of the Brazilian Social Democracy Party (PSDB). The model, in which the auction winner was the company offering the highest upfront payment to the government, is criticized by the current Workers’ Party (PT) government because of high toll rates.
In 2001, when President Luiz Inácio Lula da Silva privatized Fernão Dias, road that connects Minas Gerais to São Paulo, the idea was to have low toll prices. Today, who travels there pays R$1.99 per 100km stretch.
The rules set by President Dilma Rousseff end up, in some cases, closer to the toll charged by concessions granted in the PSDB model than in the PT model. Among the seven lots that will offered in the next auctions, tolls vary from R$11.51/100km to R$4.66/100km.
“It’s necessary to know what is being offered to the user. In the second-stage concessions [which include Fernão Dias] lane expansions had already been made by the government. Time conditions are also different. In the 1990s, the regulatory risk was much higher than now,” Ms. Marcassa says.
Since the notice was released, in August last year, the government has already revised twice the maximum toll rates. Initially, it kept the internal rate of return at 5.5% a year, but increased the concession timespan and improved project-financing terms, including interest rates of 1.5% above the Long Term Interest Rate (TJLP), now at 5%.
These changes reflected on toll prices, which rose. The maximum toll at BR-262 in Espírito Santo and Minas Gerais states, for example, was raised to R$10.15/100km from R$7.82/100km.
Since this return improvement was not enough to ensure the auctions’ success, the government decided to change again the terms and this time increase the return rate of investors to 7.2% a year from 5.5%.
According to this latest revision, the highest toll may be charged at BR-101 in Bahia — R$11.51 per 100km stretch; and the lowest is of BR-153 in Mato Grosso, estimated at R$4.66.
The government also kept the demand that all lane expansions have to be performed in the first five years of concessions and that toll charges start only after 10% of planned investments are made.

© 2000 – 2012. All rights reserved to Valor Econômico S. A. . Read our terms and conditions on http://www.valor.com.br/international/about-legals/terms-conditions. This material cannot be published, rewritten, redistributed or broadcasted without authorization from Valor Econômico.

Read more:


Oil & Gas: Oil & Gas financing porfolio at BNDES reaches over $40bn.

Oil & gas financing portfolio at BNDES reaches R$83bn

By Chico Santos Rio de Janeiro
Still very focused on Petrobras in volume terms, the oil and gas portfolio of the Brazilian Development Bank (BNDES), including the industry's production chain, has reached R$83 billion including loans signed and still being prospected. The bank has signed contracts for approximately R$41.8 billion, of which 60% belong to Petrobras and its subsidiaries, even after excluding the R$25 billion extended in 2009 to the state-owned company's Growth Acceleration Program (PAC) projects.
BNDES more than doubled the loan volume to the oil and gas industry, reaching R$7.8 billion from R$3.3 billion in 2011. In 2012 the bank started granting loans through the Department of Oil & Gas and Production Chain, created a little over two years ago to stimulate development of supply chains, having the pre-salt finds and a domestic content policy as main goals.
Renzo Gostoli/Bloomberg
Petrobras rig P-51 at the Keppel-Fels Shipyard in Angra dos Reis
Priscila Branquinho das Dores, head of the Department Oil & Gas and Made-to-order Capital Goods, estimates that last year's loan growth represented a groundbreaking shift in levels. She estimates that from now to the next four years, her department plans to extend another R$8 billion in financing. Similarly to Ricardo Cunha, head of the bank's Department Oil & Gas and Production Sector, she estimates that her area will lend R$500 million to R$800 million this year, stabilizing around R$1 billion a year in the next few years to a total of R$9 billion for the industry and its suppliers, or 5.8% of the R$156 billion financed by BNDES last year.
Ms. Das Dores explains that from the R$40 billion in new loans signed by her department and now being cleared for payment, approximately 35% (R$14 billion) correspond to dispersed contracts, especially for the shipbuilding industry. OSX, the shipyard of Eike Batista's EBX group, is one of the clients of the state-owned bank, as well as Queiroz Galvão Exploração e Produção (QGEP), the latter to the construction of a rig in Bahia's “Manati” gas field.
The remaining 65% of the contracts consist of loans to Petrobras and its subsidiaries. According to the oil company's third-quarter earnings, BNDES owned 25% of Petrobras's total debt of R$196.9 billion, or R$49.2 billion.
Most of that debt involves a contract in 2009 for the PAC workers. The money was split between the Abreu e Lima Refinery (Pernambuco), with R$9.9 billion, the Transportadora Associada de Gás (TAG), with R$5.7 billion. And the Petrobras “holding company,” with R$9.4 billion. A 40% share of the Abreu e Lima loan is still awaiting Venezuelan state-owned oil company PDVSA to finalize its promises to hold a stake in the plant.
Ms. Das Dores, heading the BNDES department directly focused on the oil and gas industry, said that the concentration of new loans in the refining area last year (R$4.4 billion) will tend to decrease in the next few years, creating space for diversifying the portfolio. The strong share of refining investments in the financing portfolio is due to the ongoing modernization program of the Petrobras refining complex.
The BNDES official also said that the long interval between the last auction of exploration and production areas by the National Petroleum Agency (ANP) had no influence in the formation or cash flow of the bank's credit portfolio in the industry. “Petrobras continues to invest in areas under onerous concession (oil fields ceded during the company's capitalization) and in already auctioned pre-salt areas,” she said.
Ms. Das Dores said that financing for offshore support ships, made with capital from the Merchant Marine Fund (FMM), will also be reinforced. That is also unrelated to the lack of ANP auctions since 2008 up to this month, but with tender bids by Petrobras itself to seek services that she says are made in “batches.”
The recently created Department of Oil & Gas and Production Sector has much more modest but still growing numbers. “Because of the pre-salt, BNDES has decided it needed to deal more carefully with the oil and gas production chain,” said Mr. Cunha. The big difference is that in that area around 8% are small and midsized companies, with up to R$100 million in yearly revenue, while most of the companies handled in its sister department are large sized.
Mr. Cunha says supporting that segment of the industry required learning and flexibility from BNDES, including the interaction with business associations to help companies prepare their credit requests and formalize them. BNDES has also started to accept supply contracts as collateral for financing, since financial data of companies are many times incompatible with their requests.
Mr. Cunha's department has already created a portfolio with 27 ongoing loans totaling a balance of R$2.9 billion. Of that total, R$1.8 billion have been signed, 69% of the R$2.56 billion planned to be spent financing 15 projects.

© 2000 – 2012. All rights reserved to Valor Econômico S. A. . Read our terms and conditions on http://www.valor.com.br/international/about-legals/terms-conditions. This material cannot be published, rewritten, redistributed or broadcasted without authorization from Valor Econômico.

Read more:


Airports: New Brazilian airports auction attracts 20 companies

New airports auction attracts 20 companies

By Fabio Pupo São Paulo
While the government is forced to cede in the concession model of other infrastructure auctions to attract more competition, private sector interest in airports continues to be strong. All eleven groups that competed in the last auction of the segment, in 2012, have representatives among companies interested in the new round of bidding. Altogether, at least 20 companies are reviewing the assets and talking behind the scenes to bid for Galeão, in Rio de Janeiro, and Confins, in the state of Minas Gerais, in the auction scheduled to take place in September. 
Valor has learned that ADC&HAS, an American airports operator, has partnered with Brazilian construction company Fidens to bid in the next round, repeating the consortium formed for the last auction – which finished in third place in the auction of Brasília's airport. Both companies want to bid for Confins and are also seeking a third partner with financial links.
Construction company Queiroz Galvão also plans to take part in the new round. Behind the scenes, it’s already known the company will again join Spain’s Ferrovial – which manages airports in the UK and several other global locations, and has decided to take part in this year bidding for Brazilian airports.
Italian toll giant Atlantia, which already has stakes in road concessions in Brazil, also wants to bid for Galeão and Confins, after the merger with local peer Gemina (which controls the Rome airport). The merger was authorized on Wednesday by Italian regulators. 
Germany’s Fraport and Brazil's EcoRodovias have also partnered. Another group on the loop, Odebrecht, will likely partner with Singapore’s Changi, although the Asian partner is still awaiting definitive rules to decide on its participation. CCR, which bid in the previous round with Swiss firm Flughafen Zürich, is searching for another partner, which must have experience managing more than 35 million passengers a year. CCR executives have met with National Civil Aviation Agency (Anac) officials to comment their interest in the project.
Carioca Engenharia and GP Investimentos have also formed a partnership with two foreigner operators: Schiphol, which manages the Amsterdam airport and Aéroports de Paris (ADP, which manages assets such as Charles de Gaulle and Orly). Rio de Janeiro’s Libra has also expressed a clear interest in bidding for airports. Asset management firm Advent is believed to be among competitors, but it declined to comment on the issue.
Generally, companies still say they are waiting for the final bidding documents to set their effective participation in the round. Groups, especially the smaller ones, have only one great fear about the rules: the minimum amount for bid awards – what the company pays for concessions rights. For these companies, if the government interferes too much in setting this value, the auction can cool off. Galeão is already widely expected to have a higher bid award than Guarulhos, the most sought after airport – the government asked for a minimum R$3.4 billion but the asset ended up drawing R$16 billion. Confins is expected to feature a similar minimum bid to estimates for Brasília's airport – with a price floor of R$582 million, it ended up being sold for R$4.5 billion.
The government has already announced stricter rules in relation to the last auction. Now, consortiums must be formed by an operator that manages an airport with at least 35 million passengers a year (experience that only foreigners have). In the last auction, this requirement was only of 5 million passengers a year. In addition, the operator must have at least a 25% stake in the partnership (before it was only 10%). These stricter rules have pleased especially larger groups, which were already in contact with major world operators. 
The fact that state-owned Infraero will remain as a partner of the airport, with a 49% stake of the concession, is now generally well accepted. The requirement was a cause of serious concerns at one point. Infraero will carry half of the investments made by the private sector, plus half of the bid award. Likewise, it will proportionally receive dividends generated by the winners. 
Companies interested in the bidding are worried with the possibility that the government will continue to ban winners of previous auctions from bidding in the next round. During the announcement of concessions for Galeão and Confins, president Dilma Rousseff confirmed the ban. The idea is fostering competition between privatized terminals. But as the veto involves pension funds (that won the control of Guarulhos through the Invepar consortium), the market still sees the possibility of some concession. Besides being typical long-term investors, the funds – Previ, Funcef and Petros - have close ties to the government.
Valor has learned that the three controlling groups of airports auctioned in 2012 – Invepar, Triunfo and Engevix – are eyeing Galeão and Confins, but await the government’s decision. Including the three winners so far, the auction already has 19 interested parties (Fidens, ADC&HAS, Queiroz Galvão, Ferrovial, Atlantia/Gemina, EcoRodovias, Fraport, Odebrecht, Changi, CCR, Carioca, GP, Schiphol, ADP, Libra and Advent, besides Invepar, Triunfo and Engevix). Onnly Atlantia and Gemina didn't take part in the last round.
Studies conducted by the government's Brazilian Project Structuring Company (EBP) were presented at the end of last week. The first invitation for bids is scheduled for May 24th, when public hearings will start to be held. After 30 days of hearings, the studies will be forwarded to the Federal Audit Court (TCU) for a final review. The definitive document is expected to be published in September.

© 2000 – 2012. All rights reserved to Valor Econômico S. A. . Read our terms and conditions on http://www.valor.com.br/international/about-legals/terms-conditions. This material cannot be published, rewritten, redistributed or broadcasted without authorization from Valor Econômico.

Read more:


Oil & Gas: Brazil raises record $1.5bn in auction of oil exploration blocks

Government raises record R$2.8bn in auction of oil exploration blocks

By Chico Santos, Cláudia Schüffner, Rodrigo Polito and Marta Nogueira Rio de Janeiro
Magda Chambriard
The 11th round of auctions of areas for oil and gas exploration scheduled by the National Oil Agency (ANP) to end Wednesday was concluded on a single day, Tuesday, and caused intense government celebration. The amount raised, to be deposited by August 6th, is a record R$2.8 billion in upfront bonuses, more than R$700 million above the R$2.1 billion obtained in November 2007, in the 9th round. It was also a new bid record for a single block, with R$345.9 million offered for FZA-M-57, a block at the mouth of the Amazon River that went to a consortium formed by France’s Total, Brazil’s Petrobras and the UK’s BP.
As expected, there was intense dispute for blocks in ultra-deep waters of the equatorial bank, which include the states of Pará, Maranhão, Ceará and Rio Grande do Norte and attracted bids from giants including Chevron, Exxon, Shell (unsuccessful), BP, BHP Billiton and Petrobras. The total premium over the minimum bid for the exploration rights was 797.81%, and the expectation of investments only in exploration of the 142 blocks auctioned, of 289 offered, is R$7 billion.
“This is stunning, really great and grand,” celebrated Magda Chambriard, director of ANP. She demonstrated particular satisfaction with the appetite of companies for promising onshore areas of gas in the states of Maranhão, Piauí, Paraíba and Bahia. In her view, this appetite creates strong prospect of success for the 12th round of auctions, planned for October, whose focus will be natural gas production, including promising shale gas reserves, currently a big attraction on the international hydrocarbon market. For November it’s scheduled the first round of auctions for the pre-salt layer, already under the rule of production sharing and not as concession, which is used for auctions of other sedimentary basins excluding the pre-salt one.
“The Brazilian regime is really a concession. Pre-salt is an exception that generates fields with 5 billion, 8 billion, 10 billion barrels of recoverable volume and this is an exception from any country in the world,” Ms. Chambriard said when commenting a statement by Senator Francisco Dornelles (Progressive Party, Rio de Janeiro) that the success of Tuesday’s auction was due to the concession regime, which should prevail over production sharing. “The exception will be treated as exception,” she said, after stressing that the pre-salt accounts for only 2% of Brazilian sedimentary basins.
The presence of 18 companies from 11 countries among the 30 winners of the auctions was another aspect highlighted by the ANP director as evidence of the round’s success. Not even the absences of companies from China and Japan that were registered — GDF Suez didn’t place bids either — shook the executive’s confidence. She was unable to explain the reasons for their absence, especially the Chinese, bud didn’t admit the hypothesis that they had opted to prepare for the pre-salt auction.
Ms. Chambriard preferred to celebrate the return of Total to Brazilian auctions, the consolidation of BG as a deep-water operator — it won ten blocks, six of them alone and four in partnership with Petrobras and Petrogal — and the strong presence of the controversial OGX of businessman Eike Batista and the emergence of Petra, a national oil company, as an onshore operator, and of BP as offshore operator. Another aspect highlighted was that blocks were sold in all 23 sectors of the 11 sedimentary basins offered. 
Ms. Chambriard said upfront bonuses will have to be paid by August 6th, when 13 years sinc the signing of contracts from the round zero will be completed, reason for which it was chosen as the  contract signing date for Tuesday’s auction.
João Carlos De Luca, president of the Brazilian Oil Institute (IBP), said the strong presence of OGX in the 11th round was something he already expected. “Every company needs to open exploratory fronts, needs to have portfolio, generate new opportunities,” he said. Mr. Batista’s company won 13 exploration blocks, 3 of which alone.
Two blocks won by OGX were in consortium with Exxon, company which didn’t have exploration and production assets in Brazil. They bought the rights for POT-M-762, in the Potiguar Basin (next to Rio Grande do Norte state), and CE-M-603, in the Ceará Basin. The consortium, Mr. De Luca said, shows Exxon’s respect for OGX. As for the Asian no-show, Mr. De Luca recalled that they have a profile of seeking assets that offer shorter term returns.
Mr. De Luca didn’t considered Petrobras’s participation small. “Petrobras played its role, which was bigger than I expected,” he said. He added that the arrival of new players is important for the Brazilian market and brings more dynamism to the industry as a whole. Petrobras won in consortium or alone more than 30 blocks, but opted in most of the consortia to give up the role of operator.
After being notified by Brazilian authorities due to two leaks detected in the Frade Field of the Campos Basin, in November 2011 and March 2012, Chevron won one block in the Ceará Basin, CE-M-715, as operator in a consortium with Ecopetrol.
Mr. De Luca said the success of the 11th round may be attributed to exploration opportunities, with potential to find reserves, and a stable political situation.

© 2000 – 2012. All rights reserved to Valor Econômico S. A. . Read our terms and conditions on http://www.valor.com.br/international/about-legals/terms-conditions. This material cannot be published, rewritten, redistributed or broadcasted without authorization from Valor Econômico.

Read more:


Road Concessions: Brasilia increases return rate of highway concessions by 31%.

10 hours and 42 minutes ago

Brasília increases return rate of highway concessions by 31%

By Leandra Peres, Edna Simão, Eduardo Cardoso and Lucas Marchesini Brasília
In another attempt to guarantee the success of the government’s concession program, officials announced Wednesday a 31% increase in the profitability of highway projects, besides allowing the Brazilian Development Bank (BNDES) to become a partner in companies that win the auctions, something that wasn’t included in the first versions of the program. 
Minister Guido Mantega
Finance Minister Guido Mantega said that the Internal Rate of Return (TIR) of the highway concession projects will be increased to 7.2% from 5.5%. That will increase the return on shareholder equity, which should vary from 12% to 15%, to something between 16% and 20%. “We’re making the concessions very attractive so that there won’t only be investments, but also competition. The more profit prospects, the more investors will be attracted,” Mr. Mantega said.
Increasing the return of investors means that the government will raise the maximum toll price. But Mr. Mantega believes that competition during the auctions could lead to lower tolls and return rates than the tender’s rules project.
The improvement in the return rates of the projects was considered “minimally acceptable” by the private sector. The president of the National Union of the Heavy Construction Industry (Sinicon), Rodolpho Tourinho Neto, said that the private sector was defending a TIR of 8%.
The participation of BNDES as partner of the auction winners still hasn’t been decided. Luciano Coutinho,  president of BNDES, said there’s a greater chance that BNDESPar, the bank’s investment arm, will have stakes in the special-purpose partnerships (SPEs) that will be created by the consortia to compete for the highway, railway and seaport concessions.
“We do can analyze how to strengthen the capital structure of logistics operators. That’s an agenda that interests Brazil,” Mr. Coutinho explained after a meeting with Senators.
Mr. Coutinho says the investment demand of the concession program is too high and “there are few large enough companies” able to run those projects. He also said that in those cases, BNDES can join the ventures to help make possible partnerships, consortia or to attract foreign partners.
The new return rates announced Wednesday will reduce to 70% from 80% the maximum share of subsidized loans the government can offer, known as the leverage rate. Mr. Mantega said the government will maintain the financing term at 25 years, with a five-year grace period, the interest rate limited to the Long Term Interest Rate (TJLP) and rates of at most 1.5% a year.
The conditions for the tenders involving railroad concessions and the high-speed train program have been postponed. Mr. Mantega said they will be defined in “other occasions.”
The new deadline for the auctions, previously expected for January and not postponed until September, was again confirmed by the government.
This is the third version of the government’s package for 7,500 kilometers in highways. When it was launched, last August, the highways were supposed to be privatized for 25 years, while loans could not go beyond 20 years and the return rate was 5.5%. Investors reacted negatively and the first auctions were postponed to the risk there wouldn’t be any interested.
Since then, the government has been ceding to private-sector demands. The first changes announced in February improved financing conditions, raising the return on equity rate, but not the overall TIR rate. The government then extended the concession to 30 from 25 years, and increase the financing terms to 25 from 20 years, while the leverage rate fell to 65% from 80%.
In the most recent version, the general conditions were maintained, but the maximum toll was raised to guarantee there will be more competition at the auctions.

© 2000 – 2012. All rights reserved to Valor Econômico S. A. . Read our terms and conditions on http://www.valor.com.br/international/about-legals/terms-conditions. This material cannot be published, rewritten, redistributed or broadcasted without authorization from Valor Econômico.

Read more:


Infrastructure: Officials see new delays in infrastructure concession plans

Officials see new delays in infrastructure concession plans

By Rodrigo Pedroso and Guilherme Soares Dias São Paulo
Bernardo Figueiredo
The federal government's plans to offer infrastructure work concessions will be delayed, the president of the government's Planning and Logistics Company (EPL), Bernardo Figueiredo, said. The delay for the highways will be smaller than four months, but part of the auctions for the railway sector may only be held in 2014.
Regarding highway projects, Mr. Figueiredo said that the tender's rules for the 7,500 kilometers of federal highways to be privatized will be announced by August. The auctions, he said, will start in September. “The first lot of seven highways will begin to be offered in July; it was initially to be in March. It's four months late, but it's going to happen,” he said Monday during the 8th Logistics and Transport Meeting promoted by the São Paulo State Federation of Industries (Fiesp). A total of 13 federal highways will be offered, divided into nine lots.
Mr. Figueiredo also said that the “timetable exists to be followed,” but admitted there are limitations and a “learning curve” for the auctions. He says the tenders for BRs (as federal highways are known in Brazil) 116 and 040, suspended due to technical errors, are being redone.
In the railway transport industry, Mr. Figueiredo said that part of the 10,000 km of railways expected to be privatized that were included in the integrated logistics package announced by the federal government last year, may be auctioned only in 2014. “We want to publish the rules and hold the auctions this year, but something could be left for next year,” he said.
He recalled that the first 2,600 km of railroads, of which the rules were expected for March, are still awaiting the conclusion of studies. Part of that group involves the north and south stretches of the São Paulo Ferroanel, a set of tracks circling the metropolis, and the access to the Port of Santos (São Paulo), the Lucas do Rio Verde (Mato Grosso) to Uruaçu stretch, as well as the Estrela d’Oeste (São Paulo)-Panorama (São Paulo)-Maracaju (Mato Grosso do Sul), Açailândia (Maranhão)-Vila do Conde (Pará) railroads.
Meanwhile, the second group of concessions, totaling 7,400 km, is still undergoing the public hearing process. “Projects are moving, but we're reviewing the schedules, since the rules for those tenders were supposed to be announced this May,” he says.
The delay apparently cannot be attributed to a lack of funds. People in two financing banks – the Brazilian Development Bank (BNDES) and the Inter-American Development Bank (IDB) – said they have been increasing lending activity to logistics businesses.
Last year, 30% of BNDES loans were destined to projects linked to logistics, according to BNDES director Roberto Machado. In 2008, that amount of credit represented 12%. Mr. Machado notes that financing trend in logistics projects is for the bank to increase available credit in the next few years.
Another event participant, IDB infrastructure and environmental manager Alexandre Rosa, said that 50% of the bank's loans go to infrastructure-linked projects. The share of bank money destined to the sector points to the main drivers of growth in the Brazilian and Latin American economies, he says.
Mr. Rosa also said Latin American investment in infrastructure needs to and will catch up in the next few decades. “We have made studies and found that the region's countries, including Brazil, invest around 3% of GDP in infrastructure. To compete with South Korea, for instance, the rate would have to be 5%. With China, the rate would have to be 7%,” he said.
According to the IDB's evaluation, four main factors led to the incipient investment rate of the region in the last two decades: The lack of an integrated vision for transportation, absence of public planning, scarce private projects and a legislation that inhibited sector investments. Mr. Rosa said infrastructure is going to be the main engine of Brazilian growth in the next few years. “As well as the rise of the class C, social inclusion and growing consumer spending were responsible for the country's growth in the last ten years, infrastructure investment will now take on that role,” he said.
EPL's Mr. Figueiredo also said that São Paulo's Ferroanel is another project that may only be offered to private interests next year. “It's better if you can actually do a study. We started the licensing process and delayed the concession. Ferroanel is one of the projects in which that may happen, but it's not the only one,” he said.
When the logistics package was announced by the federal government in August, then Transportation Minister Paulo Passos had said that the goal was the Ferroanel project to leave the drawing board by July. The new projection is for the tender rules to be announced in July and the auction to take place in October, but the government studies may delay the concession even more. 
Mr. Figueiredo noted that the federal government will sign an agreement in the next few days with the São Paulo government, so that the construction in the north stretch of the Ferroanel can take place at the same time as work for the Rodoanel, a ring road for São Paulo, with a parallel lane that would take advantage of some eminent domain and environmental licensing work.
The EPL president also said that the government must negotiate with MRS and ALL, the private-sector companies that managed the railway to the Port of Santos, to invest in links to the seaport and take control of them. Asked if he believes that the companies will let go of those stretches, Mr. Figueiredo said it would depend on the compensation.  “If you improve traffic conditions, it could become better for the companies than to operate alone under the current conditions,” he says.

© 2000 – 2012. All rights reserved to Valor Econômico S. A. . Read our terms and conditions on http://www.valor.com.br/international/about-legals/terms-conditions. This material cannot be published, rewritten, redistributed or broadcasted without authorization from Valor Econômico.

Read more:


Roads: Rodovias do Tietê wants to issue 18-year infrastructure bonds.

Rodovias do Tietê wants to issue 18-year infrastructure bonds

By Vinícius Pinheiro São Paulo
After a failed attempt to conduct the first offering of infrastructure bonds, which have tax benefits for foreign and individual investors, highway concessionaire Rodovias do Tietê will return to market with an issue of at least R$1.07 billion. To convince investors, the company has remodeled its offering and reinforced guarantees. The bonds, Valor has learned, are expected to have 15 to 18 years maturity, something unprecedented on the Brazilian market.
Rodovias do Tietê is owned in equal stakes by groups Atlantia Bertin, from Brazil, and Ascendi, from Portugal. The company, which operates a road in the state of São Paulo, has decided to bet on foreign demand and will hold the offering under American rule 144A, which allows the sale of securities to a wider public in the US. It’s a similar procedure to IPOs of companies not listed on American stock exchanges.
Previous issues of tax-exempt bonds which had sales efforts abroad, conducted by road concessionaires Raposo Tavares and Ecovias, didn’t have the 144A. Because of this, they were not able, for example, to offer information material, such as the prospectus, in English, leading to investor complaints. Still, about 10% of their sales were to foreigners.
The bonds are likely to be issued in a single series, which should ensure more liquidity, another demand from international investors. The maximum interest rate is expected to be around 8% a year, plus inflation adjustment as measured by the Extended Consumer Price Index (IPCA), according to market sources.
Last year, Rodovias do Tietê tried to hold what would be the first infrastructure-bond offering. But the transaction faced a series of legal uncertainties, including whether proceeds could be used to pay down debt previous to the issue, as the company intended to do.
After the issue’s failure, BTG Pactual assumed the debt and is now the lead coordinator of the new issue. Part of the capital to be raised will be used to pay down the debt with the bank. Both the company and the lender can’t comment on the issue because of their quiet period.
Because of investors’ doubts, the government modified the law to make clear that companies may use proceeds to pay for expenses contracted up to two years before, as long as related to the project. In the case of Rodovias do Tietê, the debt rolled over in 2012 by BTG refers to commitments assumed at the time of the concession contract’s signature, in 2009. But there is an understanding that the time is counted from the last debt contracted, not the original one.

© 2000 – 2012. All rights reserved to Valor Econômico S. A. . Read our terms and conditions on http://www.valor.com.br/international/about-legals/terms-conditions. This material cannot be published, rewritten, redistributed or broadcasted without authorization from Valor Econômico.

Read more:


Corporate Financing: Brazilian corporations increase their foreign debt

Brazilian corporations increase their foreign debt

By Alessandra Bellotto and Silvia Rosa São Paulo
With easier conditions to raise funds abroad, publicly held Brazilian companies increased the share of foreign debt in their total liabilities, from 33.6% in 2011 to 37.6% last year. This is the finding of a study including 266 public companies, prepared by Einar Rivero, of Economática, in partnership with Valor.
Randon's Geraldo Santa Catharina
For this year, the expectation is that companies will raise less money abroad, since they’re capitalized and the cost for borrowing, including hedging, has risen. The exception is bilateral credit lines linked to exports, whose terms continue to be attractive.
In 2012, foreign-currency debt at public companies rose 35% and reached R$315.8 billion. Most of such increase comes from new debt sales and borrowings abroad, since the dollar rose 9.3% against the real in the period.
Only with bond issues, public companies raised $25 billion. Lower costs were the main motivation for companies in their transactions abroad.
Companies that were prepared, especially investment-grade issuers, took the opportunity to improve their debt profile, elongating their debt, says Mauricio Tancredi, chief of corporate finance at Bank of America Merrill Lynch.
“The most liquid market for bonds abroad is for ten-year issues, whereas in Brazil liquidity is more concentrated in transactions with up-to-seven-year maturities, with an average duration of five years,” says Alexandre Guião, chief of global banking at HSBC.
Chemical concern Braskem, said Marcela Drehmer, its finance vice president, was one company that took advantage of the capital markets to reduce its debt costs. Altogether, it raised $1.25 billion selling bonds last year, including the reopening of three issues, of 10 and 30 years, and one of perpetual notes, and a new ten-year transaction — in all of them the company paid less.
With the new transactions, the share of capital markets, basically foreign, in Braskem’s total debt rose from 40% in 2011 to 53% at the end of 2012. On the other hand, banking debt had its share in Braskem’s total debt reduced to 27% from 37% over the same period. The remaining debt is with multilateral agencies and development entities, which tends to stay stable, according to Ms. Drehmer.
Another consequence was that in Braskem’s gross debt, the share of foreign currency-denominated debt rose to 68% from 63%. This is not considered a problem. Even though 65% of the company’s revenue comes from the domestic market, prices are in dollar, giving it a natural hedge. “It makes sense for us to have exposure to the dollar, since an appreciation of the real may negatively affect the company’s cash position,” Ms. Drehmer said.
Moreover, the strategy allowed the company to reduce financial expenses with interest (excluding currency oscillation and inflation) by R$26 million from the previous year. The average debt maturity was also extended to 15 from 12 years.
Telecom company Oi was another to take advantage of liquidity in external markets to extend its debt’s average maturity, at competitive costs. Last year, says Bayard Gontijo, Oi’s director of treasury and investor relations, the company raised $1.5 billion in ten-year bonds at a rate of 5.75%. With this, its average debt maturity, which in 2008 and 2009, years of crisis, was 2.5 years, was raised to 5 years. “The international market was important for extending debt durations and diversifying financing sources,” he says. This is because the local capital market, he says, was indexed to the CDI rate, which reflects short-term interbank transactions, and maturities were not over five years.
Companies with lower ratings and thus more limited access to capital markets also resorted to bond issues, even paying less competitive rates, to extend debt maturities. This was the case of Minerva, beef processor which has been working for three years to improve its capital structure, something that includes management of liabilities, says finance chief Edson Ticle. 
Growing at least 20% a year, the company demands cash for new projects and working capital, and has sought out the capital markets to reduce financial leverage and elongate debts. In 2012, Minerva raised $450 million issuing bonds abroad last year. This way, bonds accounted for 70% of its gross debt in December, compared to 30% at the end of 2011.
In January this year, Minerva raised another $850 million in a ten-year issue, reducing the cost of bonds to 8% from 11% of those issued last year — proceeds were used to exchange securities maturing in 2017, 2019 and 2022. With these debt sales, the average duration of Minerva debt rose to seven years from five and a half in 2010. “The Brazilian capital market is not yet developed enough for ten-year issues,” Mr. Ticle says.
With falling interest rates and more liquidity on international markets, the cost of contracting financing overseas also became more attractive, especially in export-linked transactions. In some cases, financing rates of some external lines were even below those offered by the Brazilian Development Bank (BNDES).
Agricultural company SLC Agrícola found that when it got a financing line in dollar directly with John Deere for the import of machines. The effective cost of the line, linked to Libor, the London interbank rate, was at 5.74%, compared to 6.31% the company was paying in the Finame program of financing for equipment purchases from BNDES, says Ivo Marcon Brum, finance and investor-relations director at SLC.
Today, Mr. Brum says, costs offered by BNDES in the Finame program are more competitive, because of a reduction last September of the fixed interest rate for purchase of machines and equipment to 2.5% from 5.5%, as part of the Investment Support Program (PSI). “The problem is that there is no clear policy of BNDES and what this rate will be in the future, which makes it difficult for long-term investments,” he says.
Since exports account for about 60% of SLC’s production, the company opted for not hedging these transactions. Mr. Brum says that the company’s main funding source is money from farm credit and constitutional funds. “These lines, though, are not sufficient to finance farm production and we have to complement the funding with export-financing lines.”
Last year, the company contracted R$90.2 million with Export Credit Notes (NCE) to meet its short-term cash needs. “These lines continue to have attractive cost when compared to the cost of loans on the domestic market,” Mr. Brum says.
Today, about 50% of the company’s debt is linked to foreign currency debt. In 2010, this share accounted for 15% of total debts.
Lines from export-credit agencies and development banks, such as the China Development Bank, also became more attractive last year with the lower cost. But cost is not always the most important thing. Some companies seek financing abroad for the possibility of getting a longer-term loan, and of bigger volume, than it would be possible on the Brazilian market. 
Randon Implementos e Participações, for example, contracted last year external long-term lines with the goal of elongating its debt profile and raising capital to fuel export growth. The company, which makes transport equipment, raised $150 million through NCEs at a cost of 2% to 5.7% a year and average duration of five years. This way, its share of debt in foreign currency rose from 12.4% in 2011 to 27.75% last year. “These transactions allowed us to extend the average total debt maturity from 1.5 to 2 years to 4-5 years,” says Geraldo Santa Catharina, finance and investor-relations chief at Randon. Exports and operations overseas account for 20% of the company’s revenues.
Even though BNDES’s line for financing production of goods and services aimed at exports has a competitive cost, of 5.5%, Randon doesn’t rule out borrowing abroad again, because it can get longer-term loans than the BNDES line, which is of three years.
Even companies without dollar revenues took advantage of attractive terms to borrow money overseas. In these cases, the loan is made under Law 4131, which includes lines that don’t demand backing by trade transactions. “These transactions may be interesting, but they depend a lot on hedging costs,” Mr. Guião, with HSBC, says.
One example is a $200 million loan extended by BofA Merrill Lynch to Coelba, a power utility owned by group Neoenergia, last December. BofA’s Mr. Tancredi says that, even though the power industry has access to the local capital market, companies seek in foreign credit a diversification of financing sources, even if the cost is equivalent.
Last year, in certain periods, the international market got much more competitive than the local one, already considering the cost of the forward rate agreement for hedging and the income tax of 15% paid on interest remittance — these loans have Libor, which is low, as reference rate.
Other advantages of foreign credit, Mr. Tancredit says, include agility in closing transactions and flexibility in amortization terms, since contracts are bilateral. In the Coelba transaction, he says, BofA adapted the loan amortization to the company’s cash flow. In the case of a bond, he compares, in addition to the cost of structuring, there’s no flexibility in payment and the transaction may take 90 days to get off the drawing board, because of legal proceedings associated to a public offering.

© 2000 – 2012. All rights reserved to Valor Econômico S. A. . Read our terms and conditions on http://www.valor.com.br/international/about-legals/terms-conditions. This material cannot be published, rewritten, redistributed or broadcasted without authorization from Valor Econômico.

Read more: