The National Bank for Economic and Social Development (BNDES) settled an agreement at the end of June to share guarantees with public and private banks that act as guarantors in infrastructure projects. The measure allows for greater predictability in the allocation of risks to these banks and reinforces the funding of projects. The objective is to increase financing to the infrastructure sector by attracting new investors, especially large international financial institutions.
The initiative was a response to the market's criticism of BNDES’s positions that ended up hindering some financing projects. This was because, at the same time that it required too much collateral or corporate assets of the companies or their partners, BNDES also obliged commercial banks to accept mere subrogation as the only form of guarantee.
The new practice will apply to financial institutions that individually or jointly guarantee at least 40% of the total amount of the financing of a project or individually hold at least a 20% stake. With these financial institutions, BNDES will now begin to share the rights emerging from the projects, as well as the corporate guarantees.
The agreement reached satisfies three requirements necessary for infrastructure projects:
- Security in the granting of guarantees in the pre-completion phase, prior to completion of the project’s works and, therefore, of greater risk. In previous practices, there was an informational, conditional, and temporal asymmetry due to the fact that the companies offered sureties in the proportion that they had disbursements to receive, which compromised this security.
- Reduction in financing costs, due to greater competitiveness among banks, given that issues such as sharing of guarantees, greater predictability, and better (and fairer) allocation of risks are ensured.
- Extension of the term of concession of sureties, which, according to BNDES's note, previously did not cover the four or five years required for projects to acquire operational viability.
In order for sharing to take place and banks to no longer be exposing themselves to project risk, the conditions for declaring the physical and financial completion of the projects' works have also been agreed upon with BNDES, which meets the aforementioned requirements and provides greater predictability. For this, it will be necessary for a project (i) to be completed and generate the anticipated cash flow and (ii) to provide a minimum debt service coverage ratio of 1.3 times cash generation for the last two financial years.
The new BNDES guarantee-sharing policy follows in lock-step the federal government's initiatives to attract capital and solve the deficit problem with the public coffers through a series of reforms and projects. One of the last measures in this direction was the opening of a credit line of approximately R$ 12 billion to support infrastructure projects in states and municipalities in the sectors of urban transport, public lighting, basic sanitation, and solid waste treatment.
The sharing of the BNDES guarantees with other banks will already be applied to the financing of the concessions for the Fortaleza, Salvador, Porto Alegre, and Florianópolis airports and the São Paulo State highways. Other projects may also benefit from the new policy.
This measure certainly represents a major step towards ensuring predictability and security in the financing of infrastructure projects. However, the market and investors in general are waiting for BNDES’ position on the next financing operations to confirm the actual implementation of this new policy in the programs favored by the federal government.