Brazil needs to hike returns to fix infrastructure: Macquarie

NEW YORK Fri May 24, 2013 3:20pm EDT

NEW YORK (Reuters) - Brazil should further hike the rate of return on its infrastructure projects if it wants to tap into a limited pool of global capital coveted by regional peers, Mark Ramsey, head of Latin America for Macquarie Capital, said on Friday.

The Australian bank, one of the world's biggest managers of infrastructure investments, is interested in electricity generation, road, port, airport, railway and real state projects in Latin America's biggest country.

For those projects to take off, President Dilma Rousseff needs to offer investors sweeter deals, said Ramsey. Brazil's recent move to up the real rate of return on toll road projects to 7.2 percent from 5.5 percent is "positive, but not enough."

"Brazil like all the other countries that are aspiring to develop their infrastructure at the moment are competing for a fairly limited pool of capital across the world, and that capital is even more limited when it comes to taking construction risks," Ramsey told the Reuters Latin America Investment Summit.

Ramsey's remarks reveal the challenges that Rousseff faces to remove the infrastructure bottlenecks that have dragged down an economy that only a few years ago was the darling of Wall Street.

Looking ahead to the 2014 World Cup and 2016 Olympics, Brazil announced it will auction dozens of infrastructure projects, which are usually seen as riskier than other investments and taking longer to yield returns.

In a bid to lure private capital into nearly $250 billion worth of logistics and energy projects, Brazil also plans to hike the rate of return on railway projects, bolster the offerings of cheap loans and ease financing requirements.

That money is crucial for Brazil to rebound from two years of sub par economic growth, which prompted some investors to leave Brazil for Mexico, Latin America's number two economy. After expanding only 0.9 percent in 2012, the Brazilian economy is expected to grow about 3 percent this year - far from the 4 percent average of the last decade.

Still, Ramsey said he remains optimistic about Brazil's future.

"The sense that I have is that the wave of sentiment in the market away from Brazil is overdone," Ramsey said. "My sense is that Brazil will come back in one way or another in the next year or two more strongly than ever."

He said Brazil's efforts to bolster the financing structure of projects via new infrastructure bonds will help the country compete for capital. The infrastructure bonds, which offer tax incentives for foreign investors, are a domestic debt that aims to fund logistic projects.

Ramsey added he expected more real estate investment trusts to come to the Mexican market in the future despite potentially diminishing returns. Investors have piled into Mexican REITs as they outpace the wider Mexican stock market.

Macquarie Capital advises corporate clients and also invests in projects on its own behalf.

(Reporting by Krista Hughes, Reese Ewing, and Alonso Soto; Writing by Alonso Soto; Editing by Chris Reese)

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