The arm-wrestling between the government and the market over the “Valec risk”, which still put a brake on new railroad concessions, finally seems to be heading towards a positive outcome. To definitively allay investors' fears, the government will always deposit payment guarantees five years in advance, shielding future concessionaires against possible defaults.
The guarantees will ensure “high liquidity resources” and “not subject to contingency” to the winners of the railway auctions. They will be backed by federal public debt securities and deposited in specific accounts by bid section.
The financial engineering was disclosed last night by the National Land Transport Agency (ANTT), in a letter signed by three banks – BNDES, Banco do Brasil and Caixa Econômica Federal – which details the financing conditions for the projects. Loans may cover up to 70% of investments and will be for 30 years (five years for grace period and 25 for amortization).
With this announcement, the government tries to resolve the doubts that still persisted in the market and make the first railroad auction possible in the mega concession program announced by President Dilma Rousseff in August 2012.
One of the points of greatest resistance among investors was the so-called “Valec risk”. In the sector's new model, the state company purchases 100% of the transport capacity from future concessionaires. Afterwards, it resells the rights to use the tracks on the market.
The problem is that, in contracts with a 35-year duration, investors still questioned the risks involved in payments promised by a state-owned company that had its image seriously affected by cases of corruption and inadequate management.
With a solution to the “Valec risk”, the government takes another step to bid for the Central-West Integration Railroad (Fico), which should inaugurate the auctions for new railroads. On Tuesday, it had already taken another decisive step, by regulating the figure of the independent railway operator (OFI), which will be able to freely use the railways to transport cargo.
Source: Valor Econômico
By Daniel Rittner | From Brasilia
