| SAO PAULO
SAO PAULO May 19 The Brazilian government,
concerned over deadlocks hampering investment, may revamp rules
for the use of collateral put forth by construction firms in the
financing of infrastructure, a source with direct knowledge of
the plans said on Monday.
The initiative includes the creation of so-called equity
support agreements in project finance for infrastructure deals,
said the source, who requested anonymity because the plan is in
the works. All changes to the current regime would be included
in an executive decree that would be sent to Congress for
approval, the source added.
Equity support agreements allow lenders to force partners in
an infrastructure plan to inject cash into the venture in the
event of a default. Uncertainties linked to financial guarantees
and collateral have put the brakes on the execution of dozens of
key projects in recent years, such as the construction of the
Corinthians soccer team stadium in São Paulo.
Revamping rules for the use of guarantees could help unlock
the auctioning off of more than 11,000 kilometers (6,875 miles)
of railways across Latin America's biggest country, among a
number of projects badly needed to reignite growth and end
decades of logistics and transport bottlenecks. The ESA, as the
agreements are known, would be a "mid-term solution until
project finance contracts become common ground transactions in
Brazil," the source added.
Insurance companies, auditing firms and even regulatory
agencies are reluctant to a more generalized use of ESAs as a
tool to speed up infrastructure works, citing potential
uncertainties facing lenders in case projects fail to take off.
The limited number of civil construction firms in Brazil - seven
- with the ability to set aside collateral to undertake big
projects has also help build up opposition against the ESAs.
The government would be willing to make use of the ABGF, a
guarantee fund it created for infrastructure projects, to help
mitigate credit risk, the source noted. The fund has 11 billion
reais ($4.9 billion) of funds from the government and several
Government officials plan to soon begin a series of visits,
commonly known as road shows, to foreign investors, in order to
detail the potential changes to guarantee rules, the source
said. Targets for those road shows include foreign companies
with interest in Brazilian infrastructure projects, credit
rating companies, auditing firms, insurers and reinsurers, the
(Writing by Guillermo Parra-Bernal; editing by Andrew Hay)