With the Brazilian Government itself forecasting economic contraction, President Rousseff recently announced a $64bn infrastructure package alongside other measures, with the intention of stimulating private investment in the country’s economic infrastructure. The package is divided into different areas of focus, with $28bn earmarked for railroads, $21bn for highways, $12bn for ports and $2.7bn for airports.
As the chart above shows, appetite for Brazilian infrastructure has increased over the last eight years and especially over recent years; 63% of Brazil-based infrastructure deals since 2007 have taken place between 2012 and 2014. The average deal size has also substantially increased from a low of $128mn in 2010, to a high of $1.7bn in 2014. However, 2015 has seen only three deals completed so far this year for a reported aggregate deal value of $0.6bn. While this number is expected to rise as more deals come to light, it is unlikely that Brazilian infrastructure deals will pick up to match 2012-2014 figures.
In terms of the type of assets targeted, Preqin’s Infrastructure Online shows approximately 40% of Brazilian infrastructure deals since 2007 have been for toll roads, with an estimated aggregate deal value of $66bn, or around 35% of the total estimated aggregate deal value for the period. This is a reflection of the highway system in Brazil, where there are very few non-toll roads running an adjacent route in the major intercity corridors for both freight and passenger travel. Furthermore, assets where costs and revenues can be clearly demonstrated continue to be attractive. A further 21% of the deals in this period have been for renewable energy-focused assets, representing $32bn in estimated aggregate deal value, with other energy-related assets accounting for 11% of the deals in the same period.
Around 64% of all investments in the Brazilian infrastructure market during the period have been made in secondary stage assets, with less than 23% of transactions during the period made in greenfield assets. Stimulating investment in some of the new infrastructure projects may remain a challenge, despite the plan’s measures to remove caps on investment profits and mitigate the costs of regulation; the average size of greenfield deals during the period was $1.1bn in comparison to $271mn for secondary stage assets, highlighting the larger capital demands of new infrastructure projects.
In order for Brazil to continue to prosper, some of the factors restricting broader economic growth will need to be removed. However, the government’s desire to spur growth quickly with planned auctions of a large number of diverse assets offers the potential to improve deal flow in the near future, therefore fuelling the continuation and acceleration of growth in the Brazilian infrastructure market.