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Infrastructure: Demonstrations in Brazil do not affect infrastructure group's investment plans.
Infrastructure groups continue interested in federal auctions
By Fábio Pupo | São Paulo
Even with changes in the economic scenario and a clearer perception of risk in the infrastructure concession business, which increased the tension among investors in the industry, big corporations maintain their plans of bidding in the federal government’s auctions planned for this year. Although they mention more wariness and even more difficulty in raising capital, executives say the interest continues.
Odebrecht TransPort CEO Paulo Cesena
Odebrecht TransPort CEO Paulo Cesena rules out strategy changes at the company for the auctions due to slower-than-expected economic growth or exchange-rate swings. “Facing certain events, there is always some type of exaggerated reaction. But it’s normal to have volatility” in the economic scenario, he says.
Street demonstrations are also not expected to bring about change. “I’ve been through moments such as September 11, the wake of Lehman’s collapse. Those were macro-events. What is happening now is compatible with the exposure of long-term businesses. I haven’t seen cooling interest from anyone,” he says.
Mr. Cesena says he also doesn’t see signs of higher cost of capital for the company and for the industry. “I have not had any negative indication. On the contrary, there remains strong investor interest exactly because it’s about long-term projects,” he says.
Odebrecth TransPort is studying all federal highway and airport projects, and plans to make significant bids for “two or three” roads — which start to be auctioned in September. For the concessions of the airports of Galeão, in Rio de Janeiro, and Confins, in Minas Gerais, in October, Mr. Cesena says the company will sign a partnership with Asian operator Changi within the next 60 days. The company also has interest in growing in the port sector and is negotiating the purchase of a grain terminal in the Northeast region.
Carlo Alberto Bottarelli, president of Triunfo Participações e Investimentos (TPI), also says the company is keeping its plans to compete for this year’s contracts. “We have been in Brazil for a long time. The appetite continues the same,” he sums up. Mr. Bottarelli dismisses difficulties with the alleged higher cost of capital needed for these projects, saying that funds — mostly — don’t need to be raised on the market. “Most of the capital is public,” he says. State banks, especially the Brazilian Development Bank (BNDES), will be able to finance up to 70% of the investment.
But Mr. Bottarelli argues that projects should have some improvements to become more attractive. He says that the projects’ debts should not be consolidated into the companies’ balance sheets, staying instead restricted to the project’s liabilities. “It’s the same problem that other companies face. It’s a common agenda,” he says. In a recent event on infrastructure, Ricardo Castanheira, vice president of CCR, made similar comments. He said companies can’t “put their own balance sheet as guarantee” for the developments. He said CCR was talking about the issue with state banks and government authorities.
The CEO of Construcap, Roberto Ribeiro Capobianco, says the company may face a higher cost of money. “Indeed, the latest [political and economic] developments bring an additional cost and risk to concessions,” he says. But he adds that this doesn’t alter the company’s plans. “Our preference is having a good concession contract,” he says. “In highway concessions there have already been several decisions to reduce and eliminate taxes. This is a normal process.” Construcap is the eight-largest construction company in Brazil by sales, according to trade magazine O Empreiteiro.
Among market analysts and observers, the concern with a possible cooling of interest in the auctions gained traction after protests against the increase in public transport’s fares. Because of the protests, São Paulo Governor Geraldo Alckmin decided to freeze highway tolls in the state, causing a drop in the sector’s stock prices.
HSBC argues that even if it doesn’t mean losses to concessionaires, the decision taken by the São Paulo state government to prevent toll price hikes is risky. “One of the main risks of decline continues being regulatory intervention. We believe the possible continuity of government interference creates the potential for future economic unbalances,” says a report by analysts Alexandre Falcão and Ravi Jain. On the other hand, affected companies released statements saying they accept the proposal to rebalance their contracts.
Companies including CCR (which is controlled by groups Andrade Gutierrez, Camargo Corrêa and Soares Penido), EcoRodovias (CR Almeida) and Invepar (OAS and pension funds) preferred not to comment the subject. Behind the scenes, it’s known that the last few weeks’ developments left executives in doubt about the government’s next steps for the sector. Some companies are expecting to be called to Brasília to talk.
But executives themselves interpret that the developments didn’t interfere directly in the plans. What groups are requesting is essentially the same as before the demonstrations. Some companies, for example, still fear the tight timeframes for investments. The government’s Planning and Logistics Company (EPL) and the National Land Transport Agency (ANTT), which coordinate the matter, ruled out altering the schedule and change return rates.