Mar 31, 2021

The Brazilian Development Bank (BNDES) announced on Wednesday March 31st, its conditions to support investments for future sanitation concessions in the state of Rio de Janeiro. BNDES may participate, under market conditions, with up to 55% of the value of investments, directly, to be made by the winners of International Competition Nº. 01/2020 of the state. The auctions foresee the provision of public services involving water supply and sewage in the municipalities that joined the project, distributed over four separate contracts.

BNDES, which has been structuring the concessions with the government of Rio, will also be able to support part of the payment of the fixed grant via financing. The maximum amount to be financed is up to 30% of the minimum fixed grant provided for in the notice. The highest grant value offered by competitors is what will indicate the winner of each of the blocks, but if there is agio on the minimum amount established, BNDES will not increase the volume of grant funds financed. Thus, the maximum amount financed by BNDES per block will not vary according to the appetite of investors.

If the future concession holder chooses BNDES’s support to pay less than 30% of the minimum fixed grant, the remaining amount may be used to support the investments of the block. However, the total amount of funds financed cannot exceed the support limit of up to 65% of investments in the direct modality, nor include items outside the list of items that can be financed.

It should also be noted that the ratio between R$ 1,00 of investment to R$ 1,00 of fixed grant payment must be followed, observing BNDES’s standards;  This means that the investor will not be able to finance a larger volume of resources for the grant than for investments using BNDES’s resources.

Participation in the indirect financing modality may also be evaluated by BNDES, which is the one through the transfer of resources via partner financial agents. If approved, the financing, in this indirect modality, may be used as an addition to the limits of direct participation described above, in view of the margins of accredited financial agents and Operational Policies. This is because, in these cases of financing via agents, the person at risk of loans is the partner, not BNDES.

The winners of the auction, which is scheduled to take place on April 30th at B3, in the city of São Paulo, are expected to universalize water supply and sewage services for more than 12.8 million people within 12 years. The project, which is the largest of its kind in Brazil, is expected to generate 45,000 jobs, investments of about R$ 30 billion in the 35 years of the concession and at least R$ 10.6 billion in fixed grant payments by companies for the state of Rio de Janeiro and the 35 municipalities in Rio de Janeiro that joined the project. With the universalization of the service, about 5.7 million people will have access to sewage collection and treatment.

Market support – Due to the significant volume of investments to be made for many years in each of the blocks, as provided for in the Concession Notice, BNDES intends to act jointly with other long-term financiers and guarantors, with whom the Bank can share funding, risk and guarantees.  BNDES’s participation in the investments may be via the granting of long-term credit within the scope of the BNDES Finem product (in the Corporate Finance and/or Project Finance modalities), by granting guarantees under the BNDES Guarantee Product and/or by the subscription of debentures.

BNDES’s participation in the financing of the grant will preferably take place through the subscription of infrastructure debentures or corporate debentures, together with other subscription types, and the term of the operation, the conditions and cost of the issue of debentures will follow market dynamics.

Long-term financing – To enable the participation of other creditors and optimize the creation of guarantees over the course of the project, which provides for large volumes of investments mainly in the first 12 years, BNDES can also evaluate the feasibility of establishing consecutive subcredits, with different conditions and periods of disbursements and grace, depending on the risk profile and capacity of the project and its shareholders. This means that the Bank can structure different financing types for the different phases of investment to ensure the continuity of the project.  The release of financing will be conditional on compliance with the contract and the financial balance of the operation, in addition to the limit of 55% established for the project.

The investments are intended for the execution of infrastructure works in water supply and sewage, as well as the promotion of operational improvements (reduction of losses, energy efficiency, among others), acquisition of national material and equipment accredited by BNDES or imported if no national options exist, according to the classification of items eligible for financing found in BNDES’s Operational Policies.

The conditions are the same for all four blocks indicated in the notice. For each of them, a Special Purpose Society (SPE) must be set up, even if the economic group of the winning bidder is the same for more than one block.

Four blocks will be tendered, comprising about 90% of the population covered by Cedae, which will remain responsible for collecting, treating and supplying water to the companies of the Guandu and Imunana/Laranjal systems. The duration of the concession contract is 35 years for operation of the services. The social tariff applied by Cedae, destined to the lower income population, which today is charged from 0.54% of the units, should be expanded to up to 5% without any impacts on the economic-financial balance of the contract.

The complete document, with the financing conditions in the different available lines, can be found here.

About BNDES – Founded in 1952 and currently linked to the Ministry of Economy, BNDES is the main instrument of the Federal Government to promote long-term investments in the Brazilian economy. BNDES’s actions focus on the socioenvironmental and economic impact in Brazil. BNDES offers special conditions for micro-, small- and medium-sized enterprises, as well as social investment lines, directed at education and health, family agriculture, sanitation and urban transport.  In crisis situations, BNDES acts in an anticyclical manner and assists in the formulation of solutions for the resumption of economic growth.