The federal government is preparing a package to try to launch infrastructure projects that are hampered by problems of financial guarantees.
The initiative includes a Provisional Measure that standardizes the use of the equity support agreement (ESA), a mechanism that gives more guarantees to project financers, freeing contractors from having to use their own capital, a source with direct knowledge of the matter told Reuters.
One of the most immediate targets of the initiative is the railroads, a sector in which the government intends to bid for around 11 kilometers this year, but which has so far been stalled, among other reasons for the uncertainties linked to financial guarantees.
The ESA was the solution found to resolve the Arena Corinthians issue, which entered into an impasse because the bank, in this case Caixa Econômica Federal, did not accept the guarantees offered by the club in exchange for the loan of around 400 million reais made by the BNDES for the construction of the stadium.
The agreement was obtained after Caixa received guarantees that practically make it controller of the complex in case of default by the club.
"It would be an intermediate solution for the country's needs until the 'project finance' mechanism becomes a common instrument in the market", said the source, who requested anonymity.
MP, however, does not alone solve the problem.
Market institutions such as insurance companies, independent auditors and even regulatory bodies have turned their noses up at the use of the instrument. This is because its use creates a kind of legal vacuum, which leaves the financer vulnerable if the project does not succeed.
Under the traditional design of 'project finance', the contractor should offer assets as collateral until the project begins to generate revenue. However, said the source, there is a limited financial capacity of Brazilian construction companies, only seven, capable of taking on large works using this model.
To close the account, the government beckons with the participation of the Brazilian Funds and Guarantees Management Agency (ABGF) as a kind of last resort in exceptional cases. The body, created last year, should operate infrastructure financing (FGIE), with an amount of up to 11 billion reais with resources from the government and private banks.
To explain the model, government representatives will soon start to give a roadshow to investors, risk rating agencies, insurers and independent auditing firms.
The government knows that it may not be able to implement the idea in all concession projects, due to the specificities of each one and possible implications of this on the appetite of investors.
In the case of railroads, there is skepticism in the market regarding the financial capacity of Valec, a state-owned company that would be responsible for buying 100 percent of the railroads' cargo capacity and reselling it, to guarantee demand to the concessionaire.
Source: Reuters
