The Brazilian Development Bank (BNDES) will invest up to R$2.5 billion in infrastructure funds, which will be selected through a competitive process. The state-owned bank opens a call for proposals this Monday to choose up to five funds. A maximum of R$500 million will be allocated to each of them. The bank expects, however, to draw at least R$5 billion more from the private sector through the effort.
Asset managers interested in receiving funds will have until March 4 to submit their proposals. The choice will be made by the bank, which will evaluate the fund’s investment thesis, governance and costs, as well as the manager and the team involved. The selection is expected to be concluded by the first half of this year.
It is a new investment mechanism of the bank. “The BNDES’s central objective is to increase its instruments for operating in infrastructure. We already have direct investments, financing, and now we want to allocate resources through funds,” said Bruno Laskowsky, head of shareholding, capital market and indirect credit at BNDES.
The plan is to boost both debt funds, destined to finance projects and companies, and equity funds, which will directly invest in the capital of the businesses. Of the five chosen, up to two will be debt funds and three equity funds.
The BNDES will give priority to investments in basic sanitation and urban mobility, segments that have a greater social impact. There is also a preference for funds from institutional investors (who manage third-party money) and with criteria for measuring social and environmental impact.
Mr. Laskowsky highlights two other focuses sought by the BNDES. The first is “project finance” operations, that is, in which the project is capable of “self-financing,” providing its cash flow as a guarantee. “We want to privilege the risk-taking of the project, and not necessarily the risk of the larger guarantor.”
The second goal is to lengthen the term of the loans. “We are looking for structures that follow the long-term timing of infrastructure projects, which is more like 15, 20 years, while the term of bank loans in general is 7, 8 years,” he said.
For this, the idea is that the funds are closed-end, with a minimum term of eight years, and up to 15 years (equity funds) and 20 years (debt funds), said Filipe Borsato, head of fund investments at BNDES. “The idea is, in the short term, to serve these companies and projects benefited, but also, in the long term, to bring institutional investors to the country and give them more security to put funds into infrastructure projects in Brazil,” he said.
The idea is for the BNDES to be a “relevant minority shareholder” in these funds, and for the allocation decision – that is, which projects or companies will receive the investments – to be made by the private-sector manager, the executives highlight.
“The choice of specific projects will be made by private-sector managers, not by the BNDES. Typically, the term for the allocation of funds is three to six years, so the benefited projects will be structured and selected over the next few years. It is not something thought out for the projects of 2022,” Mr. Borsato said.
For this reason, the fact that the process takes place in an election year will not be a problem, and potential changes in the bank’s direction is not a concern, Mr. Laskowsky said.
“We are talking about 15, 20-year projects. This goes beyond any administration. And the country has a huge gap in infrastructure. The math done when it comes to thinking about investments is: there are people prepared to execute the works, there are good project structurers, there is financing and there is demand. These factors are not trivial. Stability helps a lot, of course, but the central theme here is not electoral volatility,” he said.
As for BNDESPar the move is part of its “capital recycling” process, Mr. Laskowsky said. Since 2019, the development bank’s equity arm has been disposing of its shares in companies such as meatpacker JBS, paper and pulp maker Klabin and mining giant Vale, among others. The idea, the executive said, is to rebuild the portfolio having as guidelines innovation, environmental and social impact.
The investment in infrastructure funds will be a first experience in this investment model, which may be extended to other areas of BNDES’s operations. “This is the first call. We will understand how the process will work out. But one possibility is to give guidance, which could be annual, biannual, or triennial, and the bank will make subsequent calls in different strategic sectors, not just infrastructure,” he said.
Source: Valor international