Medina Osorio Advogados | View firm profile
The Brazilian infrastructure bond market has increasingly gained prominence as a critical source of financing for large-scale projects,particularly in the areas of urban mobility, sanitation, and sustainable energy. In 2023, the National Bank for Economic and Social Development (BNDES) emerged as one of the key players in this space, with a 44% increase in approved credit compared to the previous year, reaching R$ 218.5 billion. This growth is in line with the recent introduction of Law No. 14.801/24 and Decree No. 11.964, which regulate incentivized bonds and promise greater flexibility and liquidity in the market
BNDES plays a pivotal role in structuring these projects, providing long-term credit tailored to the unique demands of infrastructure initiatives, which often involve protracted bidding and construction phases. The institution’s capacity to inject capital during times of economic stress, without the pressure to quickly reallocate funds to more profitable ventures, underscores its position as a vital partner in fostering sustainable development. In 2023, 70% of the bonds structured by BNDES were certified as sustainable, earning the bank international accolades, including the “Bond Arranger of the Year” award for Latin America.
One of the primary challenges identified in the Brazilian infrastructure sector is the significant investment gap. Brazil’s infrastructure stock accounts for only 34% of its GDP, compared to 76% in China and 58% in India. To bridge this gap, Brazil needs to invest approximately R$ 450 billion annually in infrastructure, yet actual investment in 2023 reached only R$ 213 billion. In this context, infrastructure bonds emerge as a key solution, channeling private capital to complement public financing and mitigate the infrastructure deficit.
The structuring of these bonds involves ongoing dialogue between issuers and investors. During the pre-completion phase, construction risks dominate, requiring robust guarantees and a thorough analysis of project complexities. Post-completion, the risks shift to operational and political variables, making financial guarantees a vital condition for investors’ decision-making. In this regard, BNDES plays a fundamental role by taking on completion risks, providing an additional layer of security for investors.
From the issuer’s perspective, contractual flexibility is crucial for the success of infrastructure bonds. This flexibility allows for adjustments throughout the project cycle as risks are mitigated and market conditions evolve. Recent Brazilian legislation permitting the issuance of bonds abroad with tax benefits, such as “infrastructure bonds,” creates new opportunities for issuers to access international markets and attract additional capital.
Environmental, social, and governance (ESG) criteria have become an essential factor in investment decisions, particularly in infrastructure projects. Brazil, with its vast natural resources, renewable energy potential, and sophisticated financial market, is well-positioned to become a global hub for sustainable capital. The combination of renewable energy, agribusiness, and extensive waterway networks offers Brazil a competitive advantage, attracting investors seeking to align financial returns with sustainability goals.
In conclusion, BNDES, with its extensive history of supporting Brazil’s economic development, remains a strategic partner for issuers and investors in the infrastructure bond market. The recent regulatory changes, coupled with the bank’s expertise in long-term projects, have the potential to transform the Brazilian market, expanding investment opportunities and promoting sustainable development across the country.
Author: Fábio Medina Osório