First infra debt fund begins trading in Brazil

Nearly 2,700 investors committed to the infrastructure fund launched by BB DTVM, the asset management division of Banco do Brasil, in partnership with Banco Votorantim and US-based Highland Capital. This resulted in a BRL315 million (€104.3 million; $141.9 million) infrastructure debt fund, the first of its kind to be listed on the São Paulo stock exchange, BM&F Bovespa.

The FIDC BB Votorantim Highland Infraestrutura fund is structured as a Fundo de Investimento em Direitos Creditorios (FIDC), a type of fund composed of credit receivables.

The decision to list the fund was made in order to provide investors with liquidity and the option to invest for a shorter period than the fund’s 10-year mandatory timeframe.

“Liquidity is a very significant issue for Brazilian investors and they usually like to invest in short-term funds,” BB DTVM’s chief executive Carlos Massaru Takahashi told Infrastructure Investor.

The fund, which the three partners started raising in January and closed at the end of May, is exclusively dedicated to Brazilian infrastructure.

In June 2011, Brazil passed Law 12.431 in an effort to encourage investment in the country’s infrastructure sector. To achieve this end, the law provides a set of tax incentives to those launching vehicles such as debentures or FIDCs.

In addition to the government approval required for these types of financial instruments to qualify for defined tax benefits, the projects in which the fund invests must also undergo government review.

“The project has to be in a sector included in the legislation, then we have to show the project to the respective Ministry and get their approval that it is indeed a qualifying infrastructure project,” Takahashi explained.

The sectors that are eligible to qualify for these tax benefits under Law 12.431 are transport/logistics, energy/power utilities, mass transit, telecommunications, and water utilities. In June, the government added several other sectors, including education and health care.

The fund has three tranches: junior, mezzanine and senior. BB DTVM, Votorantim and Highland Capital, as the fund’s three partners, invested the same amount in junior quotas, according to Takahashi, who did not disclose the specific amounts invested.

As for the fund’s other investors, they are ‘qualified investors,’ which, according to Takahashi, are individual investors who have at least BRL300,000 to invest.

“In terms of Brazilian banking segmentation, they are affluent clients. We believe that they have more possibilities to diversify their portfolio and they are better educated about investments,” Takahashi said.

Foreign investors did not participate in this round of fundraising. However, BB DTVM and Votorantim hope to grow the fund to BRL1 billion.

“Probably in the next tranche we will try and attract investors from outside Brazil,” he said.

Founded in 1986, BB DTVM is a wholly-owned subsidiary of state-owned Banco do Brasil. Since 1994, the bank’s asset management division has maintained a leading position in the financial funds industry, with a market share of approximately 21 percent, according to its website.

As of May 31, 2014, BB DTVM had BRL525 billion in assets under management, according to a firm spokesperson, making it the largest fund manager in the Latin American country.