Reuters: Regulatory News: UPDATE 2-Cetip sees need for foreign money in Brazil roads, rails plan

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UPDATE 2-Cetip sees need for foreign money in Brazil roads, rails plan Aug 16th 2012, 17:28 Thu Aug 16, 2012 1:28pm EDT * Cetip CEO Fleury sees need for foreign funding * Projects in Brazil too dependent on bank debt * Gov't launched $65 bln investment plan Wednesday * Record low rates to help finance infrastructure By Guillermo Parra-Bernal SAO PAULO, Aug 16 (Reuters) - Brazil's $66 billion plan to boost spending on transportation infrastructure will likely require foreign investment as local savings are insufficient, Luiz Fernando Vendramini Fleury, chief executive of clearinghouse Cetip, said on Thursday. President Dilma Rousseff on Wednesday unveiled the biggest round of public service concession sales ever launched in the country. Under the plan, the government will offer private sector companies the right to build and operate about 7,500 kilometers (4,660 miles) of highways and 10,000 kilometers of railways. The government is also expected to offer a similar package of concession rights for air and maritime ports. By opening up to the private sector, the plan offers Brazil a chance to increase the role of local and international capital markets in infrastructure finance, despite a growing offer of subsidized loans from state development bank BNDES, Fleury said. "I wouldn't expect this massive plan to be funded with local savings only - we just don't have enough resources to execute that plan," Fleury told reporters. His remarks signal the challenges that Brazil faces as it moves to expand its limited road and rail systems and repair crumbling bridges, outdated ports, potholed highways and abandoned railway lines. The government expects massive investments in the segment to be a game-changer for Latin America's largest economy, which is showing signs of stagnation after years of rapid growth. Brazil, the world's sixth-largest economy, has struggled to balance the needs of an economy with a large industrial base and dependence on commodities exports. Companies in Latin America's largest economy have reeled from what is known here as the "Brazil cost," a mix of high taxes, stifling bureaucracy, unskilled labor and insufficient investment in infrastructure. As miners and factories, as well as the government, have scaled back capital spending over the past year, the progress that Brazil made in the past decade in terms of increasing investment as a percentage of GDP is at risk. Investment accounts for 18.7 percent of GDP, down from 19.5 percent in March 2011 and well below the level of many other emerging-market nations. "We, as providers of infrastructure, have to be ahead of our clients' needs," Fleury said. "Brazil urgently needs to invest more in fixed capital formation, for that ensures more growth in the future." RECORD-LOW RATES Government officials at the Cetip event, in which Latin America's largest securities clearinghouse and depositary launched a new bond trading platform, were optimistic that the plan would take off. Otavio Yazbek, acting president of securities regulator CVM, said the plan could lure more buyers of so-called infrastructure notes, or local debt sold to fund port, road and logistics projects. The notes were created this year but have so far yielded one issuance. "The government is recognizing the importance of developing a local debt market to help fund infrastructure investments," Yazbek said on the sidelines of the event. Recent regulatory steps aimed at increasing transparency in the local bond market will gradually lure investment into new debt issuance, Yazbek said. Speaking at the event, João Henrique Simão, head of open market operations at the central bank, highlighted that trading of fixed-income instruments in secondary markets will gain muscle thanks to recent declines in interest rates and efforts to enhance asset price transparency. Rousseff and top government officials have repeatedly said that Brazilian benchmark interest rates, currently at an all-time low of 8 percent, should entice more investors into notes, bonds and asset-backed securities helping fund heavy investments. Link this Share this Digg this Email Reprints

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