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Financing Logistics Infrastructure in Brazil
Edson Dalto
Manager @ Dept. of Transport and Logistics
Agenda
BNDES and infrastructure outlook
Logistics sectoral analysis
BNDES’s support instruments
1
2
3
BNDES and infrastructure outlook1
50% 53%41% 43% 47% 47%
32% 31% 30% 27%
34% 31%
40% 39% 36% 31%
40%34% 33% 36%
9% 7%8% 6% 5%
6%7%
7% 10% 9%
8% 10% 12% 12% 13% 16% 21%28% 27% 28%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Industry Infrastructure Agriculture and Livestock Trade and Services
Brazilian Development Bank Disbursements by business sector
47,0 51,3 64,9
90,9
136,4
168,4
138,9
156,0
190,4 176,9
12,4 13,5 17,123,9
35,944,3
36,6 41,150,1 46,6
R$ bi
US$ bi
Currency3,80
4
Infrastructure Division Understanding BNDES’ structure
• BNDES’ Infrastructure Division comprises only part of the segments usually categorized as “Infrastructure”
InfrastructureDivision
Electric Power Industry
Transportation and Logistics
Renewable Energy
IndustrialDivision
Telecommunication
Oil and Gas
Social InfrastructureDivision
Urban mobility
Sanitation
5
Infrastructure Division Annual Disbursement
HydropowerThermalNuclearRenewable EnergyDistributorsTransmissionRailwaysHighwaysPortsNavigationAirportsOther
R$ million// 6
3.747
2003 2004
2.710
2006
4.875
2007 2008
8.638
16.017 15.280
3.366
7.116
2005 2009 2010 2011 2012
18.743
28.391 29.897
20142013
24.538
2015
33.000
6
13.445Performed
1st Semester
Disbursements in logistics
* Until 1 °/15
// 7
7
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
0,40,6
0,9 0,9
1,9
1,0
3,63,9
5,1
7,5
9,4
11,4
5,3
Warehouse
Airport & Air Transport
Pipeline
Navigation
Port
Road
Rail
R$ Billions
CAGR: 34,5%CAGR: 34,5%
Infrastructure Division Portfolio of projects (2003 to 2015.1) R$ Thousand
8
Sector Capacity# of
ProjectsFinancing
BNDES (R$ Mil)Investment
(R$ Mil)
Toll Roads 8.674 Km 50 18.946.730 37.021.349
Railways2.338 Km, 16.747 Wagons
and 485 Locomotives35 18.332.146 52.734.463
Ports 122.280.000 ton/year 42 12.012.575 21.257.678
Airports and Air Transport
54.800.000 Pax/year 13 8.969.918 15.253.752
Navigation 219 Vessels* 32 2.812.272 4.163.550
Pipeline 1.331 Km 1 1.902.700 8.690.000
Terminals and Warehouses
14.055.786 ton/year 22 962.374 1.319.447
Other - 1 6.481 7.277
TOTAL 196 63.945.195 140.447.516
Obs: (*) 90 barges 93 tugboats 16 push crafts 12costal vessels e 8 others
Logistics sectoral analysis2
Source: Instituto Ilos
Transport MatrixRoad cargo concentration
67,6% 64,8% 64,9% 65,6% 67,4%
18,4% 20,3% 19,9% 19,5% 18,2%
10,5% 11,1% 11,6% 11,4% 11,4%
3,5% 3,8% 3,5% 3,4% 3,0%
2004 2006 2008 2010 2012
Transport Matrix (% of TKU)
Roads Rail Water Pipeline Air
// 10
10
Broad process of concession
Roads, railways and ports (90’s); Roads (2007, 2012-13) and airports (2012-13)
Sectoral regulatory agencies
Land Transport and Ports (2001) and Civil Aviation (2005)
Regulatory framework in evolution
Concession Act (1995), Railroads (2011), Ports (1993, 2008 and 2013)
Sector in evolutionInstitutional and regulatory framework
Complex institutional structure
Several sectoral ministries and institutions involved (difficulty in understanding the organizational structure)
Make clear and efficient the role of government institutions
Policy guidelines, studies and modeling, regulation, planning and supervision
Promote competition in the bidding process
Remove barriers to new entrants (mainly foreigners) and disseminate information about auction (avoid use of RFP)
Evolution Challenges
11
Significant growth in demand over the past decade
Roads (10%), Ports (5%), Containers(8%), Railroads (5%), Airports (11%)
Integrated view of logistics infrastructure
EPL (2011)
Increasing the level of investment (GDP %)
PAC, PAC2, PIL, Private Investments
Prevalence of road transport (cargo and passengers)
Low modal integration
High emission and average age of vehicles
High economic costs in transport
Infrastructure concessions
National consensus, larger scope and PPPs instruments
Evolution Challenges
Sector in evolutionDemand for investment
12
Government sources of funding
BNDES is the main financing provider for long-term investments
Limited resources
Fiscal adjustment
Historical high interest rates
Savings competes with other fixed income products
Effort to attract capital market and co-financing
Infrastructure Debentures (12.431/2011 Act) and conditions for attracting commercial banks
Low participation of foreign capital
Predominantly in ports and railroads
Main investor: the construction industry
Many infrastructure concessionaires and few Economic Groups
Evolution Challenges
Sector in evolutionChallenges to Financing
13
18 Concessions
7.385 Km41 Concessions
12.078 Km
Union FederationsSource: ABCR
Toll roadsExisting road concessions
20 74
230 391
418
502
557
553
603
643
657
706
768 1.04
4
1.36
3
1.52
6
1.63
1
1.67
1 2.10
5
0
5
10
15
20
25
0
500
1.000
1.500
2.000
2.500
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Ext
ensi
on (
thou
sand
Km
)
Traf
fic (
mill
lion
of v
ehic
les)
Traffic
Extension
44 3030 5050# Concessionaires
19,463 Km
5959
5,9
2
6,7
6
8,2
3
10
,81
12
,94
14
,33
15
,37
15
,98
1,412,45
3,073,51 3,80
4,64
6,91 6,98
0
2
4
6
8
0
5
10
15
20
2007 2008 2009 2010 2011 2012 2013 2014
Revenue (R$ bilhões) Investments (R$ bilhões)
Re
ve
nu
es
(R$
bil
lio
n)
Inv
est
me
nts
(R
$ b
illi
on
)
14
// 15
Toll roadsRecent road concessions and new projects
R$ 66,1 bi PIL
15
Legend:
Existing concessions
Bid 2015
PMI 2016
PiquetCarneiro
IbotiramaLuís Eduardo
Barreiras
Imbituba
Ilhéus
Limeira
Lucas do Rio Verde
Vilhena
Tubarão
FTCPORTO ALEGRE
GOIÂNIA
AceguáPelotas
CAMPO GRANDE
TERESINA
Juazeiro Porto Realdo Colégio
Balsas
Rio Balsas
JurutiSantarém
Eliseu Martins
Itiquira
DF
Figueirópolis
RECIFE
JOÃO PESSOA
MACEIÓ
FLORIANÓPOLIS
CURITIBA
RIO DE JANEIRO
SÃO PAULO
VITÓRIA
PALMAS
MANAUS
BOA VISTA
NATAL
PORTO VELHO
SALVADOR
MACAPÁ
BELÉM SÃO LUÍS
FORTALEZA
Uruaçu
CUIABÁ
Salgueiro
Brumado da Bahia
Estreito
Açailândia
Araquari
Ribeirão Cascalheira
Carajás
Barcarena
Sobral
Oriximiná
Rio Grande
MacauMarabá
Caetité
Montes Claros
Estrela d’Oeste
Panorama
SorrisoAlto Boa Vista
Altamira
Santana do Livramento
Pres. Epitácio
Miritituba
Sinop
Rio Paranaíba
Eclusa deTucuruí
Gov. Valadares
Rondonópolis
Alto Araguaia
CorumbáEFVM
FCA
ALL Malha Sul
ALL Malha Paulista
ALL Malha Norte
Cianorte
Ferroeste
BELO HORIZONTE
ALL Malha OesteMaracaju
MRS
EFC
TLSA
FNS
(Tramo Norte)FNT
RailwaysCurrent network
183 206 222 238 257 267 245 278 292 302 297
20032004200520062007200820092010201120122013
billion TKU
12 Concessionaires (28,314 km)
Cargo Volumes
76% iron ore76% iron ore
ALL (4 stretches) 12,000 Km
VLI (2 stretches) 7,940 Km
Transnordestina 4,207 Km
Vale (2 stretches) 1,797 Km
MRS 1,674 Km
Other (2 stretches) 0,412 Km
16
RailwaysNew projects
// 17
• New concessions:
R$ 70,4 bi
• Investments in
existing concessions:
R$ 16,1 bi
• 7,535 kilometers of
new concessions
• 8 stretches
• Concession for 35
years
R$ 86,4 bi PIL
17
Legend:
Preview
PMI
Average production over the last 10 years: 3,751 wagons and 52 locomotivesForecast for the next years: 4,000 wagons and 200 locomotives (small and large)Average production over the last 10 years: 3,751 wagons and 52 locomotivesForecast for the next years: 4,000 wagons and 200 locomotives (small and large)
Source: Abifer
Railways – Brazilian industrySignificant production and high potential
Fleet EvolutionFleet Evolution Average age of fleet of wagonsAverage age of fleet of wagons
1990 422010 252020 18
1990 422010 252020 18 Source: ANTF
1.28
3
748 29
4
2.39
9 4.74
0
7.59
7
3.66
8
1.32
7
5.11
8
1.02
2
3.26
1
5.61
6
2.91
8
2.28
0
4.70
3
4.00
0
4.00
0
4.00
0
1 4 5 0 0 6 1430 30 22
68
113
7083 80 90
200 200
0
50
100
150
200
250
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Wagons Locomotives
1997 2014 CAGRLocomotives 1.154 3.118 6,0%Wagons 43.816 102.352 5,1%
18
Airports Conceded airports represents 46% of total pax
Legend :
Existing Concessions
4 Major Airports: R$ 8,4 bi (2016)
Regional Airports: R$ 78 mi
R$ 8,5 bi PIL
19
PortsDemand growth
571621
649693
755 768733
834886 904 929
969
Short Sea
Inland
Navigation0
200
400
600
800
1.000
1.200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mil
lio
n t
Interocean
TOTALTOTAL
4,2
5,0
5,7 6
,2 6,5 7
,0
6,1
6,8
7,9 8
,2
8,9 9
,3
0
1
2
3
4
5
6
7
8
9
10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mll
ion
TE
U
SOLID BULK
LIQUID BULK
BREAK BULKCONTAINER
0
200
400
600
800
1.000
1.200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mil
lio
n t
CAGR (%)
SOLID BULK 5,2
LIQUID BULK 3,3
BREAK BULK 3,7
CONTAINER 8,4
TOTAL 5,0
20
• 50 New concessions:
R$ 11,9 bi
• 63 New Private Terminals:
R$ 14,7 bi
• 24 Renewal of existing
concessions:
R$ 10,8 biLegend:
Block 1
Block 2
PIL R$ 37,4 bi
Ports Investments in new concessions, renewal and private terminals
21
Main export corridorsSoybean, soy meal and corn (2014/15 harvest)
Foz do Iguaçu
CURITIBAPorto de Paranaguá
Porto de São Fco do SulFLORIANÓPOLI
S
Araquari
Porto de Rio Grande
CAMPO GRANDE Porto de Vitória
BELÉMBarcarena
Cruzeirodo Sul
Porto de Santarém
Oriximiná
JurutiSantarém
MacauAçailândia
Porto Realdo Colégio
Juazeiro
PiquetCarneiro
SÃO LUÍS Sobral
TERESINA
BalsasEstreito
Caetité
IbotiramaLuís Eduardo
Barreiras
Lucas do Rio Verde Uruaçu
Rio Grande
AceguáPelotas
Santana do Livramento
PORTO ALEGRE
Montes ClarosGOIÂNIA
Limeira
Itiquira
DF
Figueirópolis
RECIFE
JOÃO PESSOA
MACEIÓ
RIO DE JANEIROSÃO PAULO
VITÓRIA
PALMAS
MANAUS
BOA VISTA
NATAL
PORTO VELHO
RIO BRANCO
SALVADOR
MACAPÁ
FORTALEZA
Porto de Itaqui
Porto de Salvador
Porto de Ilhéus
Porto de Itacoatiara
CUIABÁRondonópoli
s
Brumado da Bahia
Maracaju
Ribeirão Cascalheira
Carajás
Vilhena
Cianorte
Ilhéus
TubarãoImbituba
Estrela d’Oeste
Panorama
Rodrigues Alves
SorrisoAlto Boa Vista
Altamira
Pres. Epitáci
o
Miritituba
Sinop
Corumbá
Marabá
Eclusa deTucuruí
Rio Balsas
Rio Paranaíba
Porto de Porto Velho
Sabará
Gov. Valadares
Alto Araguaia
3,1
2,6
3
2,1
5,6
3,7
6,3
13,7
16,5
24,7
0,2
Porto de Santos
BELO HORIZONTE
Fonte: CONAB / MDIC / ANTAQ
Rurópolis
Porto de P. Alegre
Porto de Barcarena
1,6
0,3Porto de Indaiatuba
Total production:
178million ton
Exportation:
84million ton
Production of soybean + corn = 86%of the national grain production
Ports SE and S:
65,5 mi t78%
Ports NE:
6 mi t7%
Ports N
12,5 mi t15%
Million ton
RoadsRails
Flow routes
Transhipment points
Water
Production 96,2
MT 29%
PR 18%
RS 15%
GO 9%
Export 48
Santos (SP) 22%
Paranaguá (PR) 14%
Rio Grande (RS) 9%
Export 14
Paranaguá (PR) 36%
Santos (SP) 25%
Rio Grande (RS) 14%
Corn
Production 81,8
MT 23%
PR 19%
GO 11%
MS 10%
Export 22
Santos (SP) 37%
Paranaguá (PR) 17%
Tubarão (ES) 10%
Soybeans
Soybean Meal
22
Ports
BNDES’s support instruments3
insurance
Framework conditions for infrastructure financing
ConcessionaireConcessionaireequity debtDevelopersDevelopers
Equity/Mezzanine investors
Equity/Mezzanine investors
BNDESBNDES
Capital Market
BanksBanks
Users
ConstructionConstruction
Grantor
• Economic and legal stability• Detailed engineering information
(reducing construction risk)
• Environmental licensing risk• Unmanageable risks• Agility in rebalancing the contract
Adequate financing structure
(appropriated terms, competitive rates and
collaterals)
Attractive rate of return
Appropriate risk allocation
Strong demandQuality of service and affordable price
24
• Concessionaires
• Economic groups with assets in logistics infrastructure and transport
• Expand and modernize the transport infrastructure network
• Making the most economical and efficient logistics processes
• Promote low tariffs and increased competition among operators
• Integration of transport, in conjunction with the supply chains
Beneficiaries:
Objectives:
(3) Equity(2) Debentures(1) CreditComponents :
BNDES financial support to logistics
• DIRECT (over $ 20 million), INDIRECT (financial agents) or JOINT
• Project finance or financing with corporate collaterals (real and personal)
Ways to
support(credit):
• Corporate Finance
• Project Finance
Financing
structuration:
// 25
25
• Direct operation:
• Indirect operation:
• Term: usually 12 to 15 years
• Loan-bridge:
• Until 30% from long term debt
• Corporative or bank guarantee
• Term: 18 months
Financial costTJLP/Market
Basic spread: 1.5 or 1.2% p.a.*
Credit risk rate*
* up to 2,87% pa in accordance with company's rating
Conditions for financing logistics BNDES Finem
Financial intermed. 0,5% p.a.
Financial agent ´s spread
// 26
Financial costTJLP/Market
Basic spread: 1.5 or 1.2% p.a.*
* 1,2% p.a. for railways, waterways, ducts and 3PL’s and for market conditions
26
Financing conditionsTJLP increase with debentures issuance
27
Finem TJLP Finem Market
AssociateEquity/
Cash Flow
Finem Market Optional(others sources)
Debenture of
Infrastructure
TJLP additional
(Pro-Logistica)
HIGHWAYS
25% 30%
35% 30%35%without
debenture
with
maximum
debenture
issued
up to 70%
10% 35%
PORTS
35% 30%
30%25% 25%up to50% 20%
10% 25%
without
debenture
with
maximum
debenture
issued
27
28
AIRPORTS
35% 30%
30%15% 15%up to 30%
40%
20% 15%
without
debenture
with
maximum
debenture
issued
RAILWAYS and WATERWAYS
70% 30%up to 70%
Finem TJLP Finem Market
AssociateEquity/
Cash Flow
Finem Market Optional(others sources)
Debenture of
Infrastructure
TJLP additional
(Pro-Logistica)
Financing conditionsTJLP increase with debentures issuance
28
Standard project finance timeline
Auction
3 to 6 months
Contracts Signed/
Bridge Loan
Approved
LT Loan
Approved
6 to 12 months
30 months to 60 months
Project Completion
End of Concession
... 20 to 30 years total
Bridge LoanBridge Loan Long Term Loan (35-70%)Long Term Loan (35-70%)
Infrastructure Bonds (10-35%)
Equity and Mezzanine Debt (Strategic &
Financial Investors)
Financial Investors
Timeline
OtherBanks
Non-recourseLimited
recourse
&
Studies, project preparation, public
consultation, approvals…
Equity/Cashflow (20-30%)Equity/Cashflow (20-30%)
12 a 48 months
29
BNDES credit enhancement conditions
• With bond issuance
• Shared guarantees
• Cross-default
• Amortization curve to be based on French Amortization
System (Price Table) instead of Constant Amortization System.
• Increase of TJLP participation
• Support line of liquidity for debentures interest payment
• With partners insurance companies, working on a guarantee on
demand
// 30
30
Infrastructure financing Guarantees structure
Loan Tenure
Pre-Completion
• Debt service account (3 installments)
• Pledge of the SPC’s shares
• Pledge of receivables and rights (including any indemnity payment)
• Step in rights
• Commitment from shareholders (corporate guarantee, support agreement etc.)
• Package of insurance• Bank guarantees (guarantees,
liquidity lines etc.)
Post-Completion
• Operational and Financial Covenants
* Appropriate risk allocation allows a customized and balanced collateral structure
// 31
31
Ways to support:
• Possibility of BNDESPar to subscribe shares and/or other convertible securities;
Conditions for BNDESPar
Participation:
• Minimum investment of R$ 100 million;
• Maximum participation: up to 20% of the holding company´s equity outstanding; or 30% of the SPE’s equity (the lowest value)
• Adoption of best governance practices;
• Liquidity mechanisms: joint sale (tag along), IPO prediction or sale option for the controller (put).
Equity
32
Challenges to financing
Capital market attraction and co-financing
Collaterals on pre-completion phase (capital market in the construction
phase, credit enhancement)
Enhance attractiveness to investment for infrastructure (competition for
savings)
Attract new players (foreign capital and financial investors)
Improve sectoral regulatory framework
Detailing reference projects in order to mitigate risks and assertiveness
to cost and time
Fiscal space for the feasibility of challenging projects (greenfield,
railways)
// 33
BNDES will keep its commitment to support the expansion of infrastructure
33