After five years of planning and fundraising, Darby Overseas Investments, the private equity division of investment manager Franklin Templeton Investments, has closed its Brazil Mezzanine Infrastructure Fund on R$387.5 million ($204 million, €141 million).
The fund, a joint venture between Darby and Brazilian private equity manager and advisor Stratus Group, is the first mezzanine fund to be devoted exclusively to Brazilian infrastructure. Eduardo Farhat, formerly the executive director of Brazilian private equity infrastructure fund AG Angra, will head the initiative.
Darby, which has been investing in Brazil since the 1990s, had led similar efforts in the past. In June 1999, the firm launched its $195 million Darby Latin America Mezzanine Fund, which at the time was the only dedicated source of mezzanine capital in the region.
Darby and Stratus joined forces in 2003 to create the infrastructure fund, which was targeted for at least a $200 million equivalent in the local currency. Fernando Gentil, a managing director in Darby’s São Paulo office, said the firms spent the first three years talking to investors about the concept and refining the legal structure of the fund in light of regulatory changes. The firms started the formal fundraising process about two years ago, he said.
Given Stratus’ local knowledge and connections, the firm was more involved on the fundraising side of the business, while Darby, due to its previous experience in mezzanine financing, will be more involved in making investments. The fund has not yet invested any of its committed capital but is currently considering four targets.
The fund’s investor base is made up mostly of Brazilian pension funds such as Banesprev, Funcef and
The mezzanine structure is very compatible and appropriate for the Brazil infrastructure sector because in Brazil you have a lot of greenfields.
Funcesp as well as the Brazilian Development Bank.
Gentil said that besides the predictable cashflow qualities of infrastructure projects that attract pension investors, his fund’s mezzanine structure makes it an even better deal since it is a particularly good fit for the Brazilian infrastructure market.
“The mezzanine structure is very compatible and appropriate for the Brazil infrastructure sector because in Brazil you have a lot of greenfields,” said Gentil. Darby’s mezzanine fund will target greenfields, which are early stage infrastructure projects. “The project developers or sponsors would rather take on mezzanine in the early stage as opposed to equity because it does not dilute them at an early stage in the process and allows them then to go and raise senior debt.”
Gentil said Darby’s next country-specific mezzanine infrastructure fund would probably be in Mexico.