Mattos Filho partners Pablo Sorj and Thiago Moreira speak with Kurt Stumpo about their roles on the Hidrovias do Brasil Pará waterway and the project development market in Brazil
Can you run me through the background of the project?
Sorj: Hidrovias’ North Operation meets an important demand for transportation and outflow of grains from the Central-Western region through the Northern Arc of Brazil using the country’s waterway potential. With investments of about BRL1.5 billion, the waterway operation in the state of Pará should reach the total operational capacity of six and half million in 2020.
The project involved the construction of a cargo trans-shipment station (ETC), located in Miritituba, and the private use terminal (TUP), located in Barcarena, relying on five main pusher tugs, seven sets of 20 barges, one auxiliary pusher tug for Boiuçu Strait, besides four pusher tugs for harbor manoeuvres.
We faced a number of challenges in this project. First, the project is comprised of three SPVs - one responsible for the shipping activities, another one to manage the port activities and the third one responsible for the silos and interior navigation. This feature, coupled with the different loans to each SPV added a lot of complexity to the deal. Second, the project´s bankability relies heavily on tailor-made take-or-pay agreements. Third, the bank syndicate for this deal was quite unique: Banco do Amazonia, BNDES, Banco do Brasil and Itau BBA. Finally, as all other private equity firms, Patria needed the project to be as non-recourse as possible, so we developed a number of structures to accommodate that requirement.
What does the level of FDI in Brazilian infrastructure projects currently look like? Do either of you expect that to change at all?
Moreira: This year we had airport concessions with foreign players. We were acting for Vinci Airports for instance, a French operator. Perhaps for transmission lines we are going to have an auction by the end of April and maybe another one in October. We are expecting foreign players to participate. For instance Brookfield which is a foreign player that has been in Brazil for many years, didn’t participate in this last auction, but we have heard that they’re going to enter again. The government should announce by the end of this year four more airports for concession. Probably a foreign player will participate as well in such auctions. in the oil and gas sector we are going to have new bids that certainly will involve FDI.
Sorj: I think that the interest, as Thiago mentioned, in the airport bid last month was substantial with three new European faces and we think we’ll see more investors coming, especially from Europe and Asia. We think that the Chinese will continue to invest in infrastructure, as they have been doing.
What is it that makes Brazil so appealing for investors?
Sorj: Assets are still relatively cheap with everything that has been happening in Brazil. I also think that big institutional investors are really looking in the long-term and they know that Brazil has been through cycles.
Moreira: It also depends on the sector; on the airport side, those big players, like Vinci and Fraport, don’t have many opportunities around the world right now, so Brazil this year or maybe the next two to three years is the only country privatising big airports. Likewise, there are not many opportunities around the world now in the oil and gas sector. Brazil right now is a mix between cheap assets and good opportunities.
Have any of the recent political events like Lava Jato had any direct effects on energy and infrastructure deal-making?
Moreira: Of course. Everyone has being more careful. Compliance clauses and aspects of deals have been carefully negotiated. But, as Pablo and I said, some of these players have been in Brazil for a long time and they know that the country goes through cycles. People are more cautious, not only because of the events of Lava Jato, but also because everyone is waiting for the government announced reforms and next year we have elections. I think that the deals have to move on and opportunities exist.
Are these reforms seen as conducive to deal making in energy and infrastructure?
Moreira: I think everyone is waiting for that to get going so the country can grow. For instance, in the energy generation market, the problem is that last year it didn’t show much growth. This year the government is probably not announcing any auction of that specific sector because the prices are not good at the moment, but the country has to grow again. The demand is growing, and it depends upon that at the end of the day.
In terms of Brazilian law firms, is energy and infrastructure a crowded field or do you come across the same firms a lot?
Sorj: I think there are many firms that do a piece of the work. So, if you look exclusively at project finance, you’ll see some firms. If you look exclusively at project development, you will see some other firms. If you look at public law, PPP, there is another subset [of firms], and if you go even deeper analysing industries, for example oil and gas, you’ll see totally different firms in that space. It is very hard to find a firm like us that can honestly claim to have full coverage of the infrastructure
and energy sector, covering the life cycle of the project across different industries.
Do you expect a greater presence from international firms going forward, or for things to remain as they’ve are?
Moreira: I don’t think we’ll see a greater presence. I think what we will see is shift on the focus and maybe a growth in the existing firms here. I think that capital markets are coming back, and most of those firms are capital markets-centric, but I do believe that some of the firms see an opportunity in compliance and projects, two areas that will continue to be active.
FURTHER INFORMATION
Hidrovias do Brasil Pará waterway
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