Who’s Who Legal brings in leading expert Pablo Sorj at Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados to discuss issues facing project finance lawyers and their clients in the industry today.
What have been the most active sectors for projects work in your jurisdiction over the past year, and why?
The power sector has been the most active in 2018. We have seen sponsors, including foreign investors, developing large renewable energy projects and entering the transmission line space. Just to give an example, solar projects raised almost US$2 billion in 2018, doubling the installed capacity to 2,295MW. We have also seen the development and financing of large gas-fired power plants, including LNG-to-power projects. We expect this trend to continue in 2019. The power sector has a very steady, stable cash flow and its well-developed regulatory framework has attracted investors.
In 2018, the bid rounds for oil fields attracted huge interest. In the bid round for the pre-salt area alone, the government raised approximately US$1.5 billion in signature bonuses.
How has the role of alternative finance providers developed in the project finance space in the past few years?
The Brazilian Development Bank (BNDES) has been the main source of financing for infrastructure projects in Brazil. Due to the Brazilian fiscal crisis and a more liberal agenda, BNDES is moving to a market interest rate and reducing its presence. As a result, sponsors have been looking at other sources of financing for energy and infrastructure projects, mainly though the debt capital markets, multilaterals and export credit agencies.
In 2018, we saw projects raising 100 per cent of funding needs through debentures issued in the local capital markets; and IDBInvest providing BRL loans and issuing guarantees to debentures and BRL bonds issued in the international capital markets backed by an export credit agency. We have seen many first-of-a-kind financing structures in 2018.
What is the greatest challenge currently facing projects lawyers in your jurisdiction?
Projects are moving from single-sourced to multi-sourced financings, often with a major cross-border component. This requires not only deep knowledge of local and international project finance standards, but also the ability to navigate multiple cultures and bridge the gaps between the different parties involved in the transaction.
Many sources have noted an uptick in activity in the secondary markets – is this something you have noticed? What would you say is driving this?
The divestment programme of Petrobras, and the financial difficulties faced by companies involved in the Operation Car Wash corruption scandal, have enabled some opportunities in the secondary market. The new government has announced a very ambitious privatisation agenda and we expect the secondary market to remain very active.
How do you envisage the projects space developing in the next 12 to 18 months?
There will be plenty of opportunities at the federal and state levels for investors willing to enter the Brazilian market.
I expect the trend for multi-source financing to continue, bringing BNDES, multilaterals, ECAs, commercial banks and bond investors to the same project. As discussed, this will bring complexity and will require additional skills from project lawyers.
In the next 12 to 18 months, I believe international and private equity sponsors will continue to push for a more limited-recourse structure in Brazil. This will force lenders to be more creative and project lawyers to identify, analyse and allocate project risks adequately.