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Highway auctions to generate investments of R$32bn

Market expects the five scheduled auctions to attract at least one offer each

08/06/2024

Viviane Esse — Foto: Gesival Nogueira Kebec/Valor

Viviane Esse — Foto: Gesival Nogueira Kebec/Valor

The highway concessions segment will see a series of large auctions in the second half of the year. At least five tenders by the São Paulo state and the federal government are planned and could total R$32.3 billion in investments. In addition to these, eight other projects could be launched in 2024, apart from the renegotiation of concessions, according to the Ministry of Transportation.

In the market, the main doubt regards the possibility of attracting investors in a scenario of high interest rates and with concessionaires already committed to investments in ongoing contracts. However, according to governments and analysts interviewed by Valor, at least the auctions that have already been scheduled are expected to attract proposals.

Even the concession of BR-381 in Minas Gerais, known as the “Road of Death,” is expected to attract interest. Following changes in the project, which mitigated geological and expropriation risks and increased the rate of return, the expectation is that the auction will attract at least one group.

“There have been four attempts to bid. Now it’s for real,” said Viviane Esse, national secretary of Road Transportation. According to her, there are a host of companies analyzing the project, at least three with a background in the construction sector, in addition to traditional highway concessionaires. One is J. Malucelli, according to a source. When contacted, the company said it uses its “structure and experience” in the construction and highway segment “to study the programs announced by the government.”

For Ms. Esse, the broad market interest has grown. “I see increased participation. That became clear in the BR-040 auction, which attracted four bidders. We have seen many groups studying it.”

For Rafael Benini, São Paulo’s secretary of investment partnerships, the size of the contracts helps attract interested parties. “I understand there is concern [about a lack of proponents] but the size of projects was reduced. Two years ago, there were auctions worth R$15 billion, like the Dutra highway. Now we have [projects of] R$7 billion, R$8 billion,” he points out.

The two São Paulo state auctions scheduled for this year—the Sorocabana and Nova Raposo lots—are seen as highlights. The bids will take place as a result of the approaching expiration of the ViaOeste concession, by CCR. They are considered attractive because traffic on the roads is known and tolls are already in operation.

According to Mr. Benini, Sorocabana is a traditional lot, which tends to attract well-known concessionaires. Nova Raposo, on the other hand, includes urban construction work, which will require complex expropriations, and therefore tends to attract groups in the construction segment.

Sorocabana has been studied by CCR, Pátria, Ecorodovias, EPR, and Via Appia (by Starboard). Nova Raposo has been evaluated by groups such as Acciona, CDL (Consladel), Via Appia, and a consortium comprising CCR and construction companies.

Via Appia says it is studying the projects but has not yet made a decision, according to CEO Brendon Ramos. The two blocks have their challenges but also synergies with concessions that the company already operates, he points out. When contacted, CCR said, “The auction pipeline is extensive and the company has carried out in-depth assessments.” EPR says it “has a habit of evaluating opportunities.” Ecorodovias said it continues to analyze projects “selectively, looking for opportunities with an attractive rate of return.” Pátria and CDL declined to comment.

The São Paulo state government has other projects underway, which will likely be scheduled for 2025. In the first half of the year, a concession for the Paranapanema lot (Raposo Tavares highway between Itapetininga and Ourinhos) should be tendered, with investments of R$2.5 billion to R$4 billion. In the second half of the year, the Mogiana and Circuito das Águas blocks should be tendered, as a result of the expiration of the Renovias concession. As with ViaOeste, the state will likely split the concession in two and incorporate new road stretches into each lot.

Other federal government auctions are scheduled for this year, including the Rota dos Cristais (BR-040 between Minas Gerais and Goiás) and the BR-262 in Minas Gerais. They are regarded as challenging projects but there is interest.

“The best stretch of BR-040 has been tendered and was taken by EPR. The other two lots are considered complex projects. However, EPR tends to be a proponent,” said Massami Uyeda Junior, a partner at Arap, Nishi & Uyeda.

Marco Aurélio de Barcelos, president of ABCR (Brazilian Association of Highway Concessionaires), said there has been progress in federal projects, with an increase in return rates and greater risk sharing in challenging projects. “The government did its job to increase attractiveness. The IRR [internal rate of return] became more attractive as the final model has resolved risks.”

As projects progress, the general perception in the market is that new players are increasingly entering the sector. “We have been approached by companies from abroad which are interested in learning about the concession environment. We have seen moves,” said Mr. Barcelos.

Rodrigo Campos, a partner at the Vernalha Pereira law firm, expects to see offers for all scheduled auctions. “We won’t see many bidders as the projects are many and with different profiles. However, I believe all projects will attract interest, including the BR-381.”

Letícia Queiroz, a partner at Queiroz Maluf Advogados, also sees interest in the sector but points out that there are challenges, mostly related to funding and hiring engineering work. Furthermore, she points out that auctions will likely occur simultaneously with the renegotiation of troubled concessions. “The pipeline will coincide with the number of contracts being renegotiated which are also expected to generate new investments. It’s a challenging calendar, with a lot of auctions, but I see moves in the market.”

*Por Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Construction companies regain ground in highway auctions

Engineering companies — which used to dominate highway concessions in Brazil — have regained strength, but now with a new profile: by the association of medium-sized construction companies. This type of consortium has become usual in auctions in the sector, especially in state ones.

Of eight state tenders since 2019, five were won by consortiums constituted by medium-sized construction companies — alone or in association with a larger group.

This is the case of the Way 306 Consortium, which won a highway auction in Mato Grosso do Sul at the end of 2019. The group is led by GLP (a Singapore-based logistics company), with participation from engineering companies Bandeirantes, TCL, and Senpar.

The most recent example is last Wednesday’s bid for Rio Grande do Sul’s highways, won by the Integrasul Consortium, comprised of Silva e Bertoli (of Neovia Engenharia) and Gregor (of Greca Asfaltos).

In the federal auctions held since 2019, the pattern that predominates is the relay between CCR and Ecorodovias. Of the five projects in the period, only one was left with a consortium led by Conasa, in partnership with engineering firms Zeta, Rocha Cavalcante, and M4.

On the one hand, the movement of the construction companies brings new players to the market and increases competition. On the other, there is concern about the financial and operational capacity of the companies, according to analysts and companies.

One of the biggest challenges is financial, says Danniel Zveiter, president of the National Association of Highway Construction Companies (Aneor). “The concessions market is very different and involves a complex financial component, both to obtain credit and for the day-to-day financial operation,” he says.

For Igino Zucchi de Mattos, head of Infrastructure at Integral Investimentos, it is important that the groups gather all the necessary skills, which go far beyond the execution of the work. “It is necessary to know how to implement billing, organize the cash flow, and take care of the environmental issues,” he says.

The medium-sized construction company consortiums have been gaining ground, but they are not new. The biggest reference is the concessionaire MGO, composed of nine medium-sized companies, which, in 2013, won the operation of BR-050, between Minas Gerais and Goiás.

At the time, there were doubts about the group’s capacity. In the end, the concessionaire became known for being one of the few to be successful among the contracts bid during president Dilma Rousseff’s administration. In 2018, the construction companies sold the asset to Ecorodovias. Since then, members of the consortium have appeared in different road auctions.

For example, Gregor (part of the group that won last week’s auction) was a shareholder in MGO, as were the three construction companies that partnered with GLP in the Way 306 Consortium. Vale do Rio Novo, another former member, led a consortium that won a lot of highways in Mato Grosso at the end of 2020.

In the past, large construction firms reigned in infrastructure concessions. After the revelation of corruption cases and the economic crisis in the country, most of them withdrew from the contracts and stopped participating in the auctions. The main survivor of this era is CCR, controlled by Mover (formerly Camargo Corrêa), Soares Penido and Andrade Gutierrez — the latter is in the process of selling its stake to Votorantim and Itaúsa.

The exit of the contractors left a void, which was gradually filled by the entry of financial groups and other segments, such as Pátria and GLP. However, with the recent multiplication of road auctions, the perception that it is necessary to attract more groups has gained strength.

“Today, it is necessary to form new highway concessionaires. This can happen by attracting foreigners, but also by developing national players,” says Mr. Mattos. For analysts, there is a risk that not all the construction consortiums will be successful. However, the movement is seen as a great opportunity to form new platforms in the country.

Source: Valor International

https://valorinternational.globo.com

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Highway auctions, acquisitions may total R$92bn this year

BR-381 auction has not attracted interest parties, and has been canceled — Foto: Alberto Ruy/Minfra
BR-381 auction has not attracted interest parties, and has been canceled — Foto: Alberto Ruy/Minfra

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

https://valorinternational.globo.com

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