--Brazil airport investment will require billions of dollars of nongovernment funding

--Financing needs could be a test of a still-young long-term credit industry

--Commercial banks unable to provide rates competitive with state lending

By Paulo Winterstein



SAO PAULO -(Dow Jones)- The privatization of Brazil′s airports could prove to be a test of the country′s nascent long-term credit market, as investors look beyond the national development bank to fund the more than 22 billion Brazilian reais ($13 billion) that will be needed to modernize three major airports.


As Brazil′s burgeoning middle >
Brazil′s huge development bank, BNDES, has promised to finance as much as 80% of capital investments--excluding the price paid for licenses--but companies will still need to seek private sources of funding. Brazil′s sky-high interest rates means that the long-term funding which is so key to infrastructure projects isn′t easily available.

"Brazil′s banking system isn′t structured for these kinds of projects," said Kleber Zanchim, a partner at SABZ Advogados law firm in Sao Paulo. "There are some alternatives, with some infrastructure investment funds and interest from overseas investors."

But with some of the highest interest rates in the world--even as the central bank signals it is working to bring the benchmark Selic down to a single digit, from its current level of 10.5%--development of those alternative investment funds has been limited. Infrastructure projects traditionally sell bonds to qualified investors and, less frequently, make public offerings of debt. But those still account for a small share.

Although the government wants to involve the private sector, it will still end up footing most of the bill, through subsidized public-sector banks, which are far cheaper than the private sector.

Mauro Penteado, a partner at the Machado Meyer Sendacz & Opice law firm, said BNDES usually charges interest of around 8% or 9% per year; a recent bond sale by a toll-road operating unit of Brazil construction firm Odebrecht paid about 15%, he said.

Odebrecht, one of Brazil′s biggest construction companies, plans to take part in the auction together with Singapore′s Changi. Penteado said his firm provided legal assistance for another potential bidding group consisting of toll-road operator EcoRodovias and Germany′s Fraport.

Accessing overseas markets has also been limited as a global economic slump exacerbates currency volatility. In the case of the airport projects, however, Penteado said that the Inter-American Development Bank and the International Finance Corporation often include hedges in their lending, something that is uncommon--and expensive--for commercial banks to do.

In the case of Guarulhos, the international airport in the Sao Paulo metropolitan area, the government has set a minimum price of BRL3.4 billion for the contract, and estimates that the winner of the contract will have to invest another BRL4.6 billion over the 20-year life of the concession.

Guarulhos is considered to be the most attractive, because it already has a significant flow of travelers, and Brasilia is also fully operational. Campinas, on the other hand, will require the most investments, some BRL10.6 billion, because it′s still in ramp-up stages. Credit Suisse, an investment bank, said in a report that the government′s projections for passenger growth "seem a bit stretched."

Even as analysts see hearty appetite for lending to the winners of the airport auction contracts, a lot of the success in securing financing will depend on the returns that the winning groups offer.

At least 11 groups turned in the required paperwork on Thursday to participate in the auction.

"Investors will have to take a close look and see how much confidence they have in each company," Zanchim said. "They have to see if the company is more conservative, if it′s more aggressive, or if it′s a fly-by-night operation. Competition will certainly lower margins, but there′s a limit. No reasonable company will carry out a project that is harmful to their business."

-By Paulo Winterstein, Dow Jones Newswires; 55-11-3544-7073; This email address is being protected from spambots. You need JavaScript enabled to view it. [ 02-03-12 1504ET ]

(http://online.wsj.com 03.02.2012)

(Notícia na Íntegra)