Transport giant signals moves into local debt markets

19/03/2012 | John Rumsey

Odebrecht eyes bond markets to fuel its infrastructure funding plans

Odebrecht Transport, part of Latin America’s largest construction and engineering group, is actively considering further project finance bonds and finding local banks more willing to lend at longer tenors and lower rates.

The move, which echoes a wider trend in parts of the region, was partly linked to the decline of short-term interest rates in Brazil, Marcelo Felberg, its financial director, told Emerging Markets in an exclusive interview.

The Brazilian central bank cut its benchmark Selic rate by 75 basis points to 9.75% on March 7. High rates had long been seen as a factor that crimped lending by Brazil’s commercial banks as it prevented them competing with international banks offering loans in US dollars and with subsidized loans from the state development bank BNDES.

For now, tenors are typically capped at 10 years. However, the large banks that dominate the market are starting to consider longer loans, which Felberg expected to become available soon

Odebrecht is also actively looking at tapping the project finance bond market again. The company was a pioneer two years ago when it financed a subsidiary carrying out a road concession in São Paulo state with a R$1.1 billion ($605 million) non-recourse 12-year inflation-linked bond, he said.

Non-recourse loans, where lenders shoulder more risk as sponsors do not put up collateral, imply high levels of lender trust.

His company would evaluate the pricing, tenor availability and liquidity among institutional investors in deciding whether to move ahead with such financing, he said.

That message of diversifying funding is echoed by banks who are telling sponsors in countries with liquidity, that they can plug the funding gap as the European crisis bites in Latin America.

Financial institutions from Europe have either absented themselves altogether or charge higher rates as they struggle to find reasonable access to US dollar financing and hoard capital to ensure they can ride through the sovereign debt crisis.

Fuensanta Diaz Cobacha, managing director at European bank WestLB, said the number of banks involved in the sector has dropped dramatically since 2005, from some 40 to fewer than ten.

But she said there were still plenty of sources for project finance funding in the region, including local institutions and capital markets. Mexico is looking to refinance a number of existing road assets through the bond markets, she noted.

Local banks are increasingly sophisticated and hiring senior bankers to mount proper project financing teams although most are only available for relatively small tickets in a deal.

Local pension funds are also increasingly coveted as a source of financing, while Asian institutions, particularly export credit agencies and development banks, were also becoming more active, Cobacha said.

Multilaterals too are playing a greater role in financing project finance deals and helping to consolidate these new players in the market.

However Everton Walters, managing director at Barbados port, said demand for financing of infrastructure outweighed supply and that project feasibility studies often led to cancellation of projects.

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