A Brazilian plan to increase Banco Nacional Desenvolvimento Economico e Social's ( BNDES ) role in subsidised infrastructure finance lending “may make the programme more dependent on the federal government amid the country's economic volatility and political stalemate,” Fitch said in a statement yesterday.
The plan to expand subsidised infrastructure lending is also a reversal of the infrastructure programme's initial goals, the ratings agency noted.
“The infrastructure programme, which was announced last year, would have a better chance of success if it relied less on subsidies or guarantees from the government,” Fitch said in the statement. “Moreover, changes in project-specific economics, such as raising tariff ceilings and lowering minimum concession fees, could achieve similar results more efficiently.”
Currently, the Brazilian development bank's financing rate is set at 7.5 percent per year and the plan aims to lower all-in project financing rates by anywhere from 120 basis points to 200 on water, railway, toll road, airport and port projects-putting rates on projects in these sectors “well below” the country's benchmark BACEN SELIC rate of 14.25 percent.
Fitch's grim outlook on the Brazilian infrastructure sector included predictions that credit fundamentals at “several operating infrastructure assets” are likely to continue their decline over the midterm. The agency expects toll roads to show weak traffic performance in the coming 12 months and maintains its negative outlook on Brazilian airports based on a “sluggish growth forecast”.
Further complicating matters, Fitch noted that the programme “could be marred by the fact that several local infrastructure sponsors are facing corruption charges within the Lava Jato investigations and international sponsors face difficulties in finding reputable partners with local expertise”.
At a press conference held Monday to announce the plan, Brazilian Finance Minister Nelson Barbosa told reporters that the country is in “urgent need of some flexibility to pull the economy out of this recession [and] create jobs”. But Reuters and others have reported doubt among economists surrounding any economic plans at the moment due to impeachment proceedings against embattled Brazilian President Dilma Rousseff initiated in the lower house of Congress last week.
Pros among cons
Even amidst its worries, Fitch said that the plan could make projects with lower IRRs more feasible and address some of the financial strain seen by “many potential sponsors” in Brazilian infrastructure.
The agency also believes other recent market proposals by the Brazilian government “could relieve some pressure on Brazilian project finance”, including a change to Law 12.431 which would allow project companies to prepay or refinance Infrastructure Debentures and an effort to create a BRL 500 million (€121.5 million; $135.7 million) fund to guarantee political and regulatory risks.