SAO PAULO, BRA: Brazilian power firms are increasing a record amount of debt in local markets this year to fund construction of generation assets and transmission lines.
Tax-exempt local infrastructure bonds have been the primary instrument to finance power investment in the country. Power firms have given 12 billion reais ($2.9 billion) of the local bonds in the first seven months of 2019, 83% percent of the total amount issued across all industries.
Banco Santander Brasil expects the power market to represent about 80% of issuance this year. Tax-exempt infrastructure bond issuance may hit 30 billion reais ($7.3 billion) this year, Edson Ogawa, the company’s head of infrastructure financing estimated.
The energy industry may be Brazil’s first to fund a larger amount of its projects via capital markets than through development banks such as BNDES.
“This was unthinkable six months ago”, Ogawa added.
Local infrastructure bonds have attained 20-year maturities for transmission lines, an extraordinary long-term debt instrument for local Brazilian debt markets.
Some of the companies funding their expansion via capital markets include transmission company Tropicalia, controlled by funds managed by Banco BTG Pactual SA, state-controlled Centrais Eletricas de Minas Gerais- Cemig and transmission firm Transmissora Alianca de Energia Electrica, commonly known as Taesa, and EDP Energias Brasil.
The move to capital markets is in its early stages, and BNDES still plays a vital role in funding power companies.
In 2018, BNDES underwrite 25.6 billion reais ($6.1 billion) in energy projects, more than the 15.7 billion reais ($3.7 billion) financed in 2017, but far from the record 39.8 billion reais in 2012.
As minimum interest rates in Brazil fall to their record low ever, however, and the development bank has cut subsidies, the two alternatives have grown quite the same in cost, said Marcelo Girao, project financing chief at investment bank Itau BBA.