Infrastructure Bonds Positive for Brazilians: Moody’s

The tax-exempt debentures available to Brazilian infrastructure companies should be positive for balance sheets in the sector, Moody’s says, once companies start using them. The bonds – which offer tax incentives to debenture investors if the use of proceeds are marked for infrastructure – should provide a new source of long-term financing for Brazilian infrastructure companies and be credit positive since they may be issued to refinance previously incurred shorter-term, costlier debt, the agency says. The debentures may also be used to cover previously incurred project costs ineligible for BNDES financing, such as concession liability payments. “We expect approximately BRL124 billion [$61bn] to be invested by local pension funds and private investors in [infrastructure debentures], provided that eligibility thresholds for funds are met. This pool of capital could finance about 42% of Brazilian infrastructure needs from 2012 to 2014,” Moody’s says. Global buyers could be lured, too, by the tax exemptions, though the lack of liquidity and foreign currency exposure may be risks that foreign investors are unwilling to accept without higher returns, it says. So far the only attempt at issuing in the new asset class, a BRL650m 2024 from Rodovias do Tiete, was pulled in May. Bankers remain optimistic that the deals will happen. Moody’s says uncertainties in the framework should be cleared up with the passage of additional legislation, expected “in the coming weeks.”