A multi-billion package of highway auctions and acquisitions is expected to make news in 2022. At least nine bids are scheduled for this year, with estimated combined investments of R$80 billion. At the same time, three negotiations underway among private-sector companies are likely to combine for R$12 billion, sources say.

Among the roads in the hands of private-sector groups, AB Concessões, which has Bertin and the Italian company Atlantia as partners, and Abu Dhabi’s sovereign wealth fund Mubadala are in talks to sell their assets. In addition, construction company Andrade Gutierrez’s stake in CCR – which operates airports, highways and urban mobility businesses – is the target of dispute.

The agreement in the most advanced stage is the sale of Andrade Gutierrez’s 14.9% stake in CCR. Highways alone account for 61% of the gross revenue of the company, whose control block also includes Mover (formerly Camargo Corrêa) and the Soares Penido family.

Last week, the Peruvian group Aenza, controlled by asset manager IG4 Capital, entered the battle to buy a stake in the construction company, competing with Itaúsa, Opportunity and Votorantim, sources familiar with the matter say. BTG is in charge of the sale.

Andrade’s stake is worth R$3.7 billion, excluding the premium for control of the business, a person familiar with the matter says.

IG4 had already tried to buy Andrade’s stake in CCR last year. The groups reached a preliminary agreement, which provided a disbursement between R$4.6 billion and R$5 billion. Yet, the talks fell apart in November.

BTG Pactual oversees two other operations: the sales of Rota das Bandeiras, a concessionaire controlled by Mubudala, and of Atlantia’s 49.99% stake in AB Concessões. The negotiation for the 50.01% in AB owned by Bertin is advised by XP.

In 2019, Abu Dhabi’s fund and asset manager Farallon acquired 85% (split half and half) of the concessionaire Rota das Bandeiras for R$1.65 billion. Rota das Bandeiras runs Corredor Dom Pedro, which includes key highways in the interior of the State of São Paulo and belonged to Odebrecht Transport (OTP). Odebrecht group’s infrastructure arm is under judicial reorganization.

Two years later, Mubadala bought Farallon’s stake for about R$2 billion and took over the concession. Now, it intends to sell the business for R$4 billion amid an asset rotation drive, sources say. The deal attracted the interest of CCR, another person familiar with the matter says.

In the transaction that involves the sale of the shares of Bertin, which is under judicial reorganization, and Atlantia, the talks are seen as more complex, a source in the financial market says, partly because the shareholders did not agree to sell their stakes as a block.

Of the three assets under management, only the concessionaire Colinas, whose highways crosses 17 cities in the interior of São Paulo, including Campinas and Piracicaba, is considered interesting and could yield R$4 billion to the shareholders, a source says. The Triângulo do Sol concession expires in September and highway MG-050 needs investment.

Huge regulatory liabilities are a major obstacle to unlock the sale of concessions, including disputes around rebalancing and fines for non-compliance with construction works throughout the contract.

The problem is that pending issues often become a snowball as values are adjusted by the return rate of the project – in the case of Colinas, this is 19.5%. Even when concessions change hands, regulatory agencies are usually unwilling to negotiate liabilities, which burden the operation.

Among those highways for sale in the Southeast region, market players believe that the range of interested parties is limited since the region is already dominated by well-established operators, and new entrants would not have much room for expansion.

Despite the challenges, the acquisition of concessions is still seen as an attractive way by groups that want to have presence in the country. This was the move made by Monte Partners, which set up its platform for the sector, Monte Rodovias, from the acquisition of Odebrecht’s concessions in the Northeast region.

The group is preparing to bid in some state auctions this year, focusing on the Northeast and Central-West regions, said Julio Zogbi, founder of the asset management company. The company also continues to look for buying opportunities in the target regions.

“The acquisition of concessions with a remaining term is a great entry point. It proved to be the right model for us, because it brings a team with a track record. It is riskier to enter directly via auction,” the executive said.

The difficulties of attracting new operators to highway auctions has indeed drawn attention in the sector, especially in view of the huge supply of projects scheduled for 2022. Some are concerned that there are not enough investors for so many bids.

This must be taken into consideration by governments, said Marco Aurélio Barcelos, head of ABCR, an association of highway concessionaires. “It is a good problem, because we have many projects. But it is a problem. It is important that authorities ensure that the market will be able to absorb so many auctions. Maybe this scenario signals the need for more players to come,” he said.

The lack of interested parties in projects is a risk that may force governments to postpone challenging bids, said Massami Uyeda, a partner at law firm Arap, Nishi & Uyeda Advogados. This situation became clear last week when the federal government decided to cancel the auction of BR-381, a highway between Minas Gerais and Espírito Santo, which was scheduled for next Friday, due to lack of interested parties.

The lawyer believes that some smaller state auctions have the potential to draw more competition, because they attract consortiums of medium-sized companies and more local operations – companies with a different profile of large groups like CCR and Ecorodovias.

There are also new groups analyzing the auctions. However, it is unclear whether they will take part, said Marcos Ganut, a partner at law firm Alvarez & Marsal. “We have new interested companies, with different profiles, including funds and firms from other segments. But I’m not sure that they will take part.”

For Rogério Yamashita, head of infrastructure and logistics in Itaú BBA’s project finance team, new operators are likely to emerge, but auctions are not an easy way. “It is not so simple to participate in a highway auction without having a platform. Foreign groups will have to make an effort to enter the country.”

In his view, political instability and high interest rates in the short term have a limited weight in the auctions. “Whoever invests in 30-year concessions has to be prepared to shoulder market hiccups. I think structural issues are more worrying, such as construction costs or a possible shortage of inputs,” he said.

For Mr. Barcelos, with ABCR, the elections are unlikely to affect the 2022 auctions so much. The question mark, he said, is how the pipeline of projects will look like from next year onwards, with the change of government.

Andrade Gutierrez, Arteris, Bertin, CCR, Mubadala, Votorantim, BTG and XP declined to comment. Itaúsa said it does not comment on market rumors. Atlantia and Opportunity did not immediately reply to a request for comment.

Source: Valor International

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