Capital markets gain ground in infrastructure financing | Markets

A study by Vinci Partners highlights that between 2019 and 2023, the BNDES outpaced capital markets in infrastructure financing only in 2020 and 2022. However, in years when capital market funding via debentures surpassed BNDES disbursements, the maximum gap was just 77%. “This year, Brazil gained the equivalent of three BNDES,” said Aymar Almeida, a partner and infrastructure fund manager at Kinea Investimentos.

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Luciana Aparecida da Costa, BNDES director of infrastructure, energy transition, and climate change, noted that the bank participated in offerings totaling R$15 billion from January to October, underwriting R$11 billion. “There were cases where we provided a firm guarantee but ended up stepping back due to overwhelming market demand, which isn’t a bad outcome because it allows BNDES to allocate resources to transactions that might not otherwise attract private market interest,” she explained.

Despite recent growth, there is still significant room for expansion. Data from the Brazilian Association of Infrastructure and Basic Industries (ABDIB) shows that the sector requires annual investments of R$462 billion, but only R$213 billion were invested in 2023. “Brazil needs to double its infrastructure investment, and all available liquidity tools must be utilized,” Ms. Costa added.

In the past, the BNDES dominated infrastructure financing with longer terms and lower rates for borrowers. However, the bank has reduced its share over time, recognizing that sharing guarantees with private institutions broadens the pool of available funding. “There’s room for everyone—no single entity can dominate because the need for resources is immense,” said Mr. Almeida of Kinea, an asset manager under Itaú Unibanco.

Over the past eight years, the BNDES has effectively balanced transactions at market rates with subsidized lines of credit, according to Mr. Almeida. “The BNDES should continue supporting sectors deemed strategic for the country, and if private markets show interest, it can follow suit,” he said.

Mr. Almeida noted that partnerships with the state-owned bank are highly efficient for both parties. “We conduct numerous transactions with the BNDES, and it’s very beneficial for us because their technical expertise makes project evaluations more secure. Similarly, for the BNDES, partnering with private banks and asset managers helps in better pricing the transactions,” he explained.

Marcello Almeida, partner and head of corporate debt at Vinci, highlighted that both the BNDES and Banco do Nordeste (BNB)—a significant development bank with a smaller budget—have recognized the importance of acting as catalysts for new capital market products through public tenders to attract private capital. Currently, he noted, funds raised through debentures account for 30% to 50% of the capital structure of projects, drawing on capital markets and specialized investors, such as Vinci itself. Vinci manages a total of R$6.2 billion in credit funds, of which R$2.2 billion is dedicated to infrastructure.

Data from the Center for the Study of Brazilian Corporate Financing at FIPE (CEFEB-FIPE) shows that BNDES accounted for 17.5% of the total financial liabilities of Brazilian companies in 2016, a share that dropped to 6.6% this year. “In the past, BNDES was a competitor to capital markets. Today, it is seen as a seal of quality—a positive change that is here to stay,” said Carlos Antonio Rocca, coordinator of the institution.

Mr. Rocca pointed out that Brazil is moving toward a more efficient financial system composition, with short-term financing handled by traditional banking, medium- and long-term financing through capital markets, and development banks focusing on medium- and long-term credit for small and medium-sized enterprises, projects with limited private profitability, and innovation.

BNDES’s push for private capital raising has coincided with a challenging environment for equity offerings, with over three years passing without any initial public offerings on the B3 stock exchange. Gustavo Cortes, partner and portfolio manager at Vinci, highlighted the significant inflows into fixed-income funds and direct investments in infrastructure bonds during this period.

“These factors are enabling companies to tap into the credit market to finance investments and refinance debt obligations, explaining the record volumes recently achieved by the sector,” Mr. Cortes said.

A report from Banco ABC Brasil’s research department revealed that as of November, infrastructure funds—primarily concentrated in incentivized debentures—posted net inflows of R$100.1 billion. Corporate debt funds saw even greater success, with net inflows of R$315 billion during the same period.

Unlike other countries with significant participation from large pension funds and insurers, Brazil’s resources predominantly come from retail investors. This is largely driven by the tax exemption on incentivized debentures. The shift was further fueled by the underperformance of multimarket and equity funds and the recent taxation of exclusive and restricted closed-end funds.

“The strength of retail investors is a positive aspect, and the secondary market provides liquidity for them, even though selling a bond before maturity incurs costs,” said Mr. Almeida of Kinea.

He emphasized the need to attract insurers and pension funds, which provide long-term and professional capital for the sector. Meanwhile, Marcello Almeida of Vinci pointed out that corporate debt offers an excellent risk-return profile for well-structured, low-risk assets with strong guarantees. In the case of infrastructure, he explained, the stability of cash flows ensures greater predictability in capital repayment, even during volatile periods.