Volume 2 • Issue 2
Project Finance
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This issue focuses on the global project finance markets.
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Getting the Deal Through invites leading practitioners to reflect on evolving legal and
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Getting the Deal Through
London
April 2015
information and opinions which it contains
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BRAZIL
Antonio Felix de Araujo Cintra
PROJECT FINANCE IN
BRAZIL
Head of the capital markets, banking
and finance, and infrastructure practice
groups at TozziniFreire Advogados,
Antonio Felix de Araujo Cintra has
extensive experience in capital market
operations, financings, securitisations,
project finance and foreign investment.
In 2014, his team advised AES Tietê
and AES Sul Distribuidora Gaúcha de
Energia, and assisted three Máquina
de Vendas group companies with
$393 million of debt issuances.
As head of TozziniFreire’s energy
practice group and co-head of the
defence and aerospace practice,
Pedro Seraphim advises clients on all
aspects of energy project development,
for traditional and renewable sources.
His work includes corporate and
regulatory issues and the structuring
of financing agreements and project
contracts. Norte Energia (Usina Belo
Monte), Comgás, AES Brasil, ERB and
SAAB are among Pedro’s clients.
The head of the government contracts
and projects/administrative law
practice group, Claudia Elena
Bonelli has significant expertise in
public‑private relations and her broad
experience in the infrastructure sector
covers bids-related issues, contracts
and administrative covenants, public
service concessions, public-private
partnerships and governmental
permits. She has worked on many of
Brazil’s largest infrastructure projects.
Heloisa Ferreira Andrade Scaramucci’s
practice focuses on the energy and
ethanol sectors and on infrastructure
projects. She has extensive experience
of greenfield and brownfield projects,
including facilitating project financing.
Highly respected for her knowledge
of regulatory, corporate and
contractual issues, Heloisa also has
significant involvement in mergers and
acquisitions and her clients include
AES Brasil, Comgás, Voltalia and ERB.
30www.gettingthedealthrough.com
© Law Business Research Ltd 2015
BRAZIL
Claudia Elena Bonelli
GTDT: What have been the trends over the
past year or so in terms of deal activity in the
project finance sector in your jurisdiction?
Antonio Felix de Araujo Cintra, Claudia Elena
Bonelli, Pedro Seraphim & Heloisa Ferreira
Andrade Scaramucci: 2014 was a difficult year
in Brazil for most types of project because it was
an atypical year. During the first half of the year
attention was focused on the FIFA World Cup
and in the second half of the year all players were
following the presidential election, which was
a very eventful process. Another important factor
was a large corruption investigation involving
Petrobras and several of its local and international
suppliers and contractors. All this happened in the
midst of a period of weaker economic activity in
the country, resulting from uncertainty regarding
inflation, higher interest rates and a generally
pessimistic mood in the market.
All the above factors impacted negatively on
the project finance sector. There were not many
projects being implemented. TozziniFreire was
involved in some of the few projects that moved
ahead, such as the financing of the Viracopos
Airport in the state of São Paulo, some work
on sanitation projects, and the debentures of
a prison project in a public-private partnership
structure. In the power sector we were involved
in the construction contracts of the Belo Monte
hydroelectric plant, which is the largest such plant
being built in the world today, various wind farms
and some biomass thermoelectric projects.
GTDT: In terms of project finance transactions,
which industry sectors have been the most
active and what have been the most significant
deals to close in your jurisdiction?
AFdAC, CEB, PS & HFAS: The most relevant
sector receiving funds during 2014 was the
airport sector. Funds came primarily from the
Brazilian Development Bank, BNDES, and among
the highlights were the 3.4 billion reais project
financing of GRU Airports, the concessionaire
of the Guarulhos Airport, which is the largest
airport in Latin America; the 1.5 billion reais
project financing of Aeroportos Brasil Viracopos,
concessionaire of the Viracopos Airport; and
the 1.1 billion reais bridge loan to Aeroporto Rio
de Janeiro SA, which is the concessionaire of
the Galeão Airport.
Relevant highway projects also received bridge
loans from BNDES, and the highlights in this
area included the 967 million reais bridge loan to
the concessionaire of the BR-040 highway; the
1.06 billion reais bridge loan to Rodovias Centrais
do Brasil SA (Concebra), the concessionaire
of the BR-060, BR-153 and BR-262 highways;
and the 95.8 million reais bridge loan to MGO
Rodovias, which is the concessionaire of the
BR‑050 highway.
Other projects also received financing,
especially urban mobility projects at both state
and municipal levels. Currently, there are also
new financing structures being considered for
the hospital sector.
GTDT: Market Intelligence – Project Finance
31
© Law Business Research Ltd 2015
BRAZIL
Brazilian government will manage the transition
towards private bank financing.
Now, on the sponsor side, we can find all
kinds of companies involved in projects, but really
the main players in the large projects are the
construction companies. Factors such as having
a strong balance sheet, together with an ultimate
interest in providing engineering, procurement
and construction services in these projects,
have made the involvement of the construction
companies a key element in enabling the
government to implement projects of importance
from the point of view of the infrastructure needs
of the country. However, this strategy seems to be
in its final days, given all the alleged corruption
cases that are being uncovered by the investigation
into Petrobras.
For a considerable time now the presence of
these strong construction companies, sometimes
with too‑close ties to government, has kept
international construction companies at bay,
reducing them to no more than a timid presence
in Brazil. Our feeling is that this will prove to be
the right moment for international construction
companies to enter the Brazilian market.
GTDT: What are the biggest challenges that
your clients face when implementing projects in
your jurisdiction?
Pedro Seraphim
GTDT: Which project sponsors have been most
active in driving activity? Which banks have
been most active in providing debt finance?
AFdAC, CEB, PS & HFAS: On the financing
side, BNDES still dominates the scene. BNDES
has been the key force driving infrastructure
investment in Brazil for many years, offering
terms and conditions (and rates!) that have been
driving private banks off the long-term market.
Disbursements by BNDES in the past 10 years
have been in the amount of, on average, $85 billion
per year. Because BNDES is funded by the
Brazilian National Treasury, many question how
long BNDES will be able to maintain this role, and,
even more so, when the time comes for BNDES
to reduce its dominance, how BNDES and the
AFdAC, CEB, PS & HFAS: Despite the political
and economic challenges, Brazil currently has an
improved legal system, with specific regulatory
frameworks for the relevant infrastructure
areas. However, several hurdles still exist and
there are various challenges for the sponsors
in the implementation of projects, depending
on the project’s nature, location, sector and the
profile of the players concerned. The biggest
challenges are generally related to regulatory, tax,
environmental, financing and compliance issues.
In the regulatory area, the challenge is to
understand the complex regulatory framework in
each sector, its potential changes over time and
the impact of those changes on the project. For
instance, the power sector regulation has changed
dramatically since the end of 2012, and these
changes, together with adverse climate conditions,
did bring the country to a situation close
to power rationing. That said, the government
is now reviewing certain policies to attract more
investment and to foster the implementation
of new projects to meet the demand at more
realistic tariffs.
In terms of transport and logistics, one of
the biggest challenges for Brazil to achieve
a mature transportation system is the fact that the
current regulatory framework involves various
governmental entities and agencies playing
different and sometimes overlapping roles in the
transportation sector.
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© Law Business Research Ltd 2015
BRAZIL
Some efforts to increase inter-modality and
allow this fragmentation to be overcome have
been made by the federal government, such as
setting up public company EPL – the Brazilian
Planning and Logistics Company – to assist the
government in planning the integration of the
nation’s logistics systems. EPL was also conceived
as an additional agent in the implementation
of strategic transport projects. This planning is
guided by the Brazilian Logistics Investment
Plan (PIL), a nationwide programme fostering
economic development by means of logistic
integration. The PIL has so far been most
successful with roads and airports.
Other significant challenges are related to
environmental licensing, tax planning and dealing
with national content requirements that exist in
some sectors and are a condition for obtaining
BNDES financing.
It is worth mentioning that compliance matters
are increasingly becoming more important in
Brazil, particularly with the enactment of the
Brazilian anti-corruption law and with high‑profile
investigations like the one currently being
conducted into Petrobras and several of its local
and international suppliers and contractors.
The impact from violations of anti-corruption or
antitrust laws can be huge and the resultant effects
may force changes to the profiles of players in the
infrastructure sector in Brazil.
GTDT: Are there any proposed legal or
regulatory changes that may give rise to
new opportunities in project development
and finance? Do you believe these changes
will open the market up to a broader range
of participants?
AFdAC, CEB, PS & HFAS: The health sector is
becoming an important and attractive area for
foreign investments. At the beginning of this year,
a provisional measure converted into law lifted
the prohibition against foreign capital in health
services in Brazil. With the enactment of Federal
Law No. 13,097/2015, companies seeking to install
and operate hospitals and clinics can be controlled
by foreign investors, either directly or indirectly.
At the end of last year, the federal government
made an attempt to convert into law a provisional
measure containing many regulatory changes
that could foster foreign investment in the airport
sector. At the centre of the provisional measure
was the removal of the current 20 per cent
restriction on foreign capital in airlines. Were
this provisional measure to be approved and
enacted as law, it would allow Brazilian airlines
to be 100 per cent owned by foreign companies.
Although the provisional measure was not
converted into law, the federal government
is expected to try to resurrect the proposal
again soon.
Heloisa Ferreira Andrade Scaramucci
“The biggest
challenges are
related to regulatory,
tax, environmental,
financing and
compliance issues.”
GTDT: Market Intelligence – Project Finance
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© Law Business Research Ltd 2015
BRAZIL
THE INSIDE TRACK
What three things should a client consider
when choosing counsel for a complex
project financing?
The capability to provide specialised advice on
all areas concerned (full service), a good track
record in the industry specific to the project,
and an ethical approach. Complex projects
involve several different areas, and the right
multidisciplinary team with experience in
the relevant industry will put the client in the
position to have an accurate picture of the issues
and risks involved and how to mitigate them.
An ethical firm is also crucial to provide the
comfort that there will be no compliance issues
or conflicts of interest on the part of counsel.
What are the most important factors
for a client to consider and address
to successfully implement a project in
your country?
There are several legal issues to be considered
and addressed depending on the nature, location
and industry of the project, and the investor’s
profile. Generally, the most important ones
are the regulatory issues involving the project,
the tax impacts and any possible incentives,
the environmental licensing requirements and
In the port sector, a new regulatory framework
was enacted in 2013, which is expected to bring
finally a new approach to the sector and to attract
the attention of foreign investors. This new
regulatory framework brings with it a project to
grant various relevant public port terminals to
new private operators, as well as to generate many
greenfield private port terminal projects. However,
although the new framework was introduced in
2013, the public port concession programme has
since then been awaiting Audit Court approval,
which is required for it to become effective.
GTDT: What trends have you been seeing
in terms of range of project participants?
What factors have influenced negotiations on
commercial terms and risk-allocation? Are there
any particularly innovative features?
AFdAC, CEB, PS & HFAS: The Petrobras
investigation and the actions of the Brazilian
Ministry of Finance to reduce the fiscal deficit
are likely to be the main drivers of change in
the coming months, and maybe years. The
Petrobras contractors and suppliers involved in
associated investment obligations, the project
suppliers and off-takers, compliance matters
involving the project, and financing alternatives
and requirements.
What was the most noteworthy deal that you
have worked on recently and what features
were of key interest?
We have been assisting SAAB AB in the
negotiation of several contracts related to the
development and supply of 36 SAAB Gripen NG
supersonic fighter aircraft to the Brazilian Air
Force. It is a unique transaction in many aspects,
especially because it involves the development
of a new highly technological product, in an
environment of extreme national security
concerns. The main contract, a $5.4 billion
deal, was signed in October 2014, and we are
now working on the fulfilment of the conditions
precedent, including international financing, and
also setting up local partners for SAAB.
Heloisa Ferreira Andrade Scaramucci, Pedro
Seraphim, Antonio Felix de Araujo Cintra
& Claudia Elena Bonelli
TozziniFreire Advogados
São Paulo
www.tozzinifreire.com.br
the investigations (which include many of the
main construction companies in Brazil) may, if
found guilty, suffer severe penalties and even be
barred from contracting with the public sector in
Brazil. Many of them are already in the process of
selling assets and cutting down their operations
because they have had their credit ratings reduced
and are having difficulty refinancing their debts.
The importance of this to project finance as
a whole is that these companies are not only
large contractors with Petrobras, but also part
of economic groups that play a very important
role in the infrastructure sector as a whole, with
investments in energy, sanitation, toll roads, ports,
urban mobility and so forth. Many of the projects
in these areas are already in the market and their
purchasers will most probably be the new players
in the Brazilian infrastructure and project finance
arena. In addition, it is expected that the federal
government will reduce the extent of the frequent
capitalisations of BNDES. As mentioned before,
in recent years, private banks have been unable
to compete with BNDES because of the heavily
subsidised rates offered by it. It is expected that
the role of BNDES will be reduced and new players
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© Law Business Research Ltd 2015
BRAZIL
coming from the private sector (either local
or international banks), as well as multilateral
agencies, will fill that gap.
GTDT: What are the major changes in activity
levels or new trends you anticipate over the
next year or so?
“Willing
investors may
be able to
find good
assets, many
of them
already
operational,
in the market
during the
course of
this year.”
GTDT: Market Intelligence – Project Finance
Photo: LaureniFochetto/iStock/Thinkstock
AFdAC, CEB, PS & HFAS: As you can infer from
our earlier answers, 2015 will be an atypical year
in Brazil. The investigations involving Petrobras
and its suppliers will continue to unfold and the
full consequences of the matter are still uncertain.
At present, several former Petrobras officers and
managers, as well as controlling shareholders,
directors and officers of Petrobras contractors and
suppliers, are facing provisional prison sentences.
The next step of the investigation will focus on
members of Congress and other government
officials and politicians.
This whole matter has started to adversely
impact on the implementation of important
infrastructure projects in Brazil because of the
general uncertainty it has engendered, but more
specifically because of a credit crunch that is
affecting the companies under investigation.
Banks are now understandably more cautious
when evaluating the risks of extending credit to
these companies, which include major players
from most of the infrastructure sectors in Brazil
(involved in projects related to energy generation
and transmission, ports and airports, urban
mobility, sanitation and virtually everything else).
The other side of this coin is that – as the old
saying goes – crisis brings opportunities for those
who are prepared to act. There are two main fronts
where opportunities are present. The first derives
from the credit crunch and the problems facing
the private sector companies, which are causing
some to start selling their assets in different
sectors. Willing investors may be able to find
good assets, many of them already operational,
in the market during the course of this year. The
second opportunity may arise if the federal, state
and municipal governments move ahead with
their plans to grant concessions or public-private
partnerships in public services. This may involve
projects in urban transportation, sanitation,
waste management, toll roads and other areas.
Considering the strain the large local companies
in Brazil are under in present circumstances,
there will probably be room for new international
players to enter the market.
Finally, it is worth mentioning again that
government actions to reduce the fiscal deficit are
likely to reduce the funding available for BNDES
to provide funds to project finance in Brazil. This
may open a space that could be filled by private
sector financial institutions, either Brazilian or
foreign, and by multilateral institutions.
35
© Law Business Research Ltd 2015
Reproduced with permission from Law Business Research Ltd.
This article was first published in
Getting the Deal Through: Market Intelligence (Volume 2, Issue 2)
Project Finance,(published inApril 2015;
Panel Leader: Phillip Fletcher & Alan Davies, Milbank, Tweed, Hadley &
McCloy LLP).
For further information please visit:
www.gettingthedealthrough.com.
Also available online
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