Raising money in global markets may not become an attractive option for some Brazilian issuers even if borrowing costs drop in the US, according to a leading corporate financier in the South American country.
Waldo Perez, the CFO of infrastructure company CCR, said in an interview that currency risk will continue to make global issuances unattractive for the firm, even if the Federal Reserve cuts rates in the next few months.
The contracts for concessions managed by CCR are denominated in local currency, and any financing structures in dollar would cause a mismatch between debt repayments and revenues.
“That would be the case even if rates drop one or two points in the US,” he told LatinFinance. “CCR has a conservative risk management policy, and that means that we would have to hedge all the debt.”
That is where things get complicated, as the hedging instrument would have to cover the length of the issuance, which would likely range between seven and ten years.
“It implies an huge increase in the costs of the deal,” Perez said. “The rate would hover around CDI plus 4.5% and CDI plus 6%, depending on timing, and here in Brazil we can raise money for CDI plus 1.5% or 1.7%,” he said, referring to Brazil’s interbank rate. “The different is too big.”
This could be disappointing news for bankers and investors. CCR and other Brazilian logistics and transportation groups may require ample capital in the near future. Several concessions should hit the market in the next few months, and Perez said the company has its sights on transportation concessions worth a total of BRL120 billion ($21.8 billion), as well as on BRL70 billion in urban mobility projects.
Aside from the absence of currency risk, the local market also offers abundant liquidity as well as support from national development bank BNDES, which is playing a more active role in the structuring of capital markets-based financing structures for projects, according to market observes.
CCR has issued several debentures in the local market to finance investments in road and airport concessions across Brazil. In July, it closed a BRL10.75 billion financing package with BNDES for investments in a road concession between Rio de Janeiro and São Paulo, Brazil’s busiest transportation corridor. The structure involved the sale of BRL9.41 billion in debentures with tax benefits for investors — a major source of capital for local infrastructure investment.