Infra investments develops Brazilian capital market

The investments in the Brazilian infrastructure sector might not only put the country’s economy on the growth path again, but also develop its capital market. Looking for ways to boost long-term private funding, the federal government has granted tax benefits to local and international investors for products linked to infrastructure projects. The receivables investment funds (known as FIDCs) are the new bet to increase the private funding in projects related to highways, railways, ports and airports.

To Ricardo Mizukawa, FIDCs committee coordinator at Brazilian Financial and Capital Markets Association (Anbima), the potential is huge due to the infrastructure investments needs in Brazil.

Brazil invested 2.2% of its GDP in infrastructure last year, and the government’s target is to reach 4% in the next three or four years, which means investments need to almost double in that period. 

Several recent changes have made this type of investment more appealing to foreign and local investors, and fund managers as well.

The Brazilian receivable investment funds are similar to other consumer loan securitization funds around the world. It is backed by trade receivables, credit cards, auto loans and other assets. FIDCs have often at least two classes of shares: senior and subordinated. The originator usually remains the subordinated class and it is responsible for taking on possible losses. The senior shares are offered to public investors.

Although FIDCs are not new in the Brazilian market, the legislator granted tax-exempt to receivable funds linked to infrastructure projects only at the end of 2012. According to Anbima, BRL 3.7bn (USD 1.5bn) are invested in infrastructure FIDCs of a total of BRL 213bn (USD 94bn) as a whole.

The assets that compromise the portfolios are generally acquired with a discount, which provides investors higher yields compared to other investments linked to interest rates. Besides that, as the portfolios usually contain receivables from a variety of debtors, the fund can be ranked higher than the company.

To have the tax benefit, the fund must be organized as a closed-end portfolio, and the originator or assignor of the receivables cannot be a financial institution. Before going to the market, the assets need approval from the government, and after the money is raised, it must be channeled into investment projects in infrastructure. The receivable investment funds must also pay fixed interest rates or be linked to a price index or even to a reference rate. Post-fixed interest rates are forbidden.

According to the legislation, if the sources are not allocated into the project, the receivable’s assignor will be fined 20% of the amount raised. The duration must be at least six years and the principal invested cannot be paid within the first two years from the close date of the offering.

A FIDC with multi assignors makes this product very attractive because it brings diversification to the portfolio and improves the portfolio’s rating.


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