A $50 Billion Building Plan Gets Tepid Reception From CCR

  • Biggest Brazil road operator says new projects are tough sell
  • Brazil needs to resume below-market lending to lure bidders

Brazil’s government says it has a $50 billion infrastructure plan to help kick-start its struggling economy. The nation’s biggest road operator says it may not be interested.

CCR SA Chief Executive Officer Renato Vale said he’s weary of taking on new projects after borrowing costs surged and state development bank BNDES scaled back cheap financing as the government grapples with a crippling budget deficit. The last time the company tapped local credit markets, it offered twice the interest rate it had to before Brazil’s crisis started.

“Nobody gives you eight-year financing today,” Vale said in an interview at Bloomberg’s Sao Paulo office. “For a company like CCR, it’s just too expensive.”

Companies across industries, from shipyards to service providers, are struggling after investors fled Latin America’s largest economy amid a bribery scandal involving state-run oil giant Petroleo Brasileiro SA and the nation’s biggest builders. The average yield on corporate dollar debt for Brazilian companies has climbed 4.18 percentage points to 11.97 percent in the past year, data compiled by JPMorgan Chase & Co. show.

At the same time, BNDES is no longer willing to shoulder the bulk of financing costs for many projects after it cut lending by 28 percent in 2015. That’s a reversal from recent years when BNDES was seen as the key engine of growth in Latin America’s biggest economy, funding major projects at below-market rates from the 30 billion-real Belo Monte hydroelectric dam to stadiums for the 2014 World Cup games.

That threatens to complicate any effort by President Dilma Rousseff to lure investment back to Brazil to help the nation emerge from its worst recession in a century. Rousseff on Feb. 2 announced a plan to auction contracts for four airports, six highway stretches, 7,500 kilometers of railroads and 26 port terminals to boost logistics infrastructure that’s consistently ranked by the International Monetary Fund as among the world’s worst. The plan is expected to attract $50 billion in investments for these projects.

BNDES said in an e-mailed response to questions that it’s working to adjust its operational policy to support investments, including infrastructure projects.

CCR, of course, is always looking for opportunities, Vale said. But unless the government offers clearer rules, more favorable financing and better rates of return than in years past, it’s going to be a tough sell, he said.

BNDES is currently financing about 40 percent of the total cost for infrastructure projects, CCR Chief Financial Officer Arthur Piotto Filho said in the same interview. That needs to be closer to 60 percent to make the new projects attractive, according to him. BNDES typically lends cash using the so-called TJLP rate, which at 7.5 percent a year is a little more than half the overnight benchmark rate, known as the Selic.

CCR tapped local credit markets in December, when it sold 400 million reais ($100 million) of three-year notes to yield about 17.68 percent. In April 2013, it sold three-year notes yielding about 7.87 percent, according to data compiled by Bloomberg.

Sao Paulo-based CCR received an “interesting” offer for its 34 percent stake in toll-collection system STP, Vale said. CCR bought the stake more than a decade ago for 9 million reais and now the company as a whole is worth more than 3 billion reais, Vale said.

As it rethinks its investment strategy, CCR may consider shifting its focus from highways, Vale said. “Airports are the business of the future.” he said. But that doesn’t mean it’s necessarily interested in bidding for any of the four airport licenses announced by Rousseff -- the projects simply don’t have enough international exposure.

Instead, the company is seeking federal approval for a 12 billion-real project to build a third airport for the Sao Paulo metropolitan area on a plot of land that it bought for 387.4 million reais on Feb. 5.

CCR shares rose 1.6 percent to 12.75 reais at 12:42 p.m. in Sao Paulo trading, after jumping as much as 2.5 percent to the highest intraday level in a week.

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