Reuters/Brasilia
As Brazil looks for private bids for major public infrastructure projects, it may have to raise the rates of return being offered to keep investors interested at a time of market turmoil and higher risk.
Investors have grown wary of Brazil, as a decade-long commodities boom has come to a screeching halt.
On Thursday, billionaire Eike Batista’s Grupo EBX, once a high-flying industrial conglomerate, began breaking up, the latest victim of the market turmoil.
President Dilma Rousseff has already sweetened the terms of concessions for airports, seaports, roads and railways as the government seeks more than $100bn in private capital to fix dilapidated infrastructure that has become a hurdle to growth of the world’s sixth largest economy.
But a liquidity crunch has fanned worries about the long-term investment outlook after an exodus of foreign investors spooked by weak growth and rising inflation, and a plunge in local stocks exacerbated by the woes facing EBX’s six listed companies, known locally as the “X” companies.
“The case of the ‘X’ companies has added to the pessimism that we see in Brazilian capital markets and that is a concern,” said a source who is directly involved in the planning of concession auctions that are expected to start in September.
“As of now there are no changes to the rate of return” on road, airport and railroad projects, the official said, “but that doesn’t mean we are not monitoring the situation.”
The official, who requested anonymity, said the government is evaluating whether deterioration of financing conditions merits an increase in the minimum rates of return guaranteed for infrastructure projects.
In May, the government raised the rate of return for toll road concession projects to 7.2% from 5.5%.
The government is placing its hopes on the next round of concessions to revive activity and bolster anemic investment. Road operators and massive construction firms like Ecorodovias SA, CCR SA, Odebrecht TransPort SA, Invepar SA and Andrade Gutierrez SA are expected to participate in the coming auctions for roads, ports and railways.
Some major investors have renewed calls for better return rates to make up for the sharp increase in risk. As Brazil’s growth stalled, the country’s stock exchange has fallen 27.3% this year, the weakest performance among major world indexes.
“The era of abundant credit is over,” Paulo Godoy, the head of Brazil’s Association of Infrastructure Companies, said. “Investors and international funds are being much more selective on where they place their money. The profitability of these projects should be adapted to that new reality.”