* Show headed to New York, London, maybe Tokyo, Singapore
* Brazil wants investors to accept tighter margins
* Failed auction is sign government still feeling its way
By Reese Ewing
SAO PAULO, Feb 5 Brazil will showcase its
biggest investment opportunities on a global road show to try to
drum up investment in direly needed infrastructure projects
while urging the private sector to accept lower returns than it
had in the past.
Finance Minister Guido Mantega and the CEO of investment
bank BTGPactual, Andre Esteves, pitched Brazil's potential to
hundreds of bankers and business leaders at the road show's
launch in Sao Paulo on Tuesday. In just over a year, the country
will host the 2014 World Cup Soccer tournament and in 2016, the
Credit ratings agencies ranked Brazil as investment grade
years ago, the central bank has kept inflation on target since
2005, and the country's debt has shrunk to 35 percent of gross
domestic product, but investors still demand a hefty return for
doing business in Latin America's largest economy.
Such tolls contribute to what is called the "Brazil Cost."
Mantega, Esteves and a team of the government's technocrats
in logistics, generation and transmission, and in oil and gas
are taking the sales pitch to London, New York and potentially
Tokyo and Singapore in the coming weeks in search of $460
billion in infrastructure investments through 2015.
The current government lead by the left-leaning Workers'
Party has never been comfortable with the idea of privatization
but realizes that Brazil has become a big enough economy that
the public sector and state companies can not go it alone.
Brazil will sell 30-year concessions, or leases, to
investors that bid the lowest rates of return on projects, with
a maximum rate of return to assure no potentially lucrative
assets are sold at a steal if there is insufficient competition.
"Returns will be compatible with risks on investments," said
Gleisi Hoffman, President Dilma Rousseff's chief of staff. "With
lower interest rates, the returns must be lower."
In highway concession projects auctioned before Brazil's
economic growth started to take off almost a decade ago, studies
grossly underestimated traffic flow rates and investors made
Brazil has come a long way since then but enticing investors
under new, tougher terms that the government has placed into the
contracts is not a given.
Last week, the transport ministry had to postpone the
auction of two major highway projects after three big
construction companies pulled out, rejecting government
projections for growth in traffic flow over the 30-year life of
the concession as too optimistic.
Mantega sweetened the pot on Tuesday, saying the government
would reduce its projections to 4 percent from 5 percent annual
demand growth and also offering to improve financing terms,
which would likely widen investors' margins.
"The government is going to make sure these investments have
returns," Mantega said, outlining what he called a new
three-part macroeconomic approach that he hoped would create an
amenable environment for investment.
He said the government will contain inflation and keep
interest rates low; maintain competitiveness of local industry
by limiting volatility of the exchange rate; and lighten taxes
and lower the cost of doing business.
The government hopes these efforts will lead to long-term
growth by attracting private investment, which is one of the
weakest pillars of Brazil's economy.
But in the short term, the government's recent actions on
Brazil's energy, currency and fuel markets will likely keep
investors guessing whether it will defend their capital or its
own macroeconomic goals.
Rousseff recently slashed electric energy rates by 20
percent to help the country's struggling heavy industry and
consumers but shattered billions of dollars of value in publicly
traded energy companies that were a favorite of big pension
funds and institutional investors.
For the past seven years the government has held gasoline
and diesel prices at the pump artificially low to contain
inflation and stimulate vehicle sales but has heaped billions of
dollars of losses on the publicly traded state-run oil company
Petrobras by doing so.
Conflicting statements by Mantega and Central Bank Chief
Alexandre Tombini over the dollar-real exchange rate have also
left markets wondering whether the government thinks the
currency is over or under valued.
"The government wants it all right now," said an asset
manager, who declined to be named, at a local fund with 4.5
billion reais under management. "Trust takes time to build."