Brazil's Anbima says hedging crucial to lure foreign capital

SAO PAULO (Reuters) - The issue of designing effective instruments that protect long-term foreign investors from bouts of currency volatility in Brazil is crucial to helping lure capital for infrastructure in the years ahead, a financial industry group said on Wednesday.

Financial institutions are currently discussing how to create so-called hedging instruments so that foreign funds and the infrastructure industry invest in Brazil for the long term, said José Eduardo Laloni, a director at São Paulo-based Anbima, a group representing Brazilian investment banks and investment funds.

His remarks come weeks after the government refused to provide guarantees or create such instruments to protect foreign investors from volatile swings in the Brazilian currency, the real, citing the precarious state of public finances.

Foreign funds have said the lack of effective hedging tools could pose an impediment to taking part in a broad government-backed infrastructure plan, Laloni said.

“There are ongoing consultations between financial institutions and representatives of those investors to figure out an instrument that can help resolve the situation,” Laloni said at an event.

The creation of such market mechanisms could provide a boost to President Michel Temer’s ambitious infrastructure plan. Temer signed on Nov. 24 a temporary decree outlining the rules for the sale of infrastructure building and operating rights.

The real has swung dramatically over the past 12 months in the face of escalating political and economic turmoil, heightening risk perception among foreign investors. The currency’s volatility as measured by three-month options has remained near a five-year high over the past 18 months.

The granting of new rights and the renewal of existing licenses for roads, railways, ports and airports are seen as a way to lure new investment and help pull Latin America’s largest economy out of its worst recession in over eight decades.

The real is up 16 percent this year despite giving up a third of those gains in the wake of Donald Trump’s U.S. presidential election victory on Nov. 8.

Reporting by Guillermo Parra-Bernal, editing by G Crosse