Brasilia, Brasil, October 9th, 2015 – At the request of the Brazilian Government, the World Bank developed a new “Project Bond” concept to help attract capital market financing to Infrastructure projects such as roads, railways, airports and ports.
The project bond has been developed at a time when Brazil seeks to leverage the twenty years of successful private sector involvement in operating infrastructure assets and concessions to increase the role of the capital market in financing infrastructure. It aims at encouraging greater risk sharing and creating new opportunities for domestic and international investors, operators and builders.
The project bond, presented to Government officials in Brasilia last week, was designed to create a new asset class for infrastructure investments targeting long-term institutional investors such as pension funds and insurance companies. By paying interests during the whole life of the bond, including the construction phase, and providing a high quality guarantee on the principal, either at the end of the construction period or at maturity, the project bond structure will facilitate capital market managing risks and financing of infrastructure investments.
“We expect this new product to help attract private sector financing into our infrastructure sector and leverage the financing provided by other sources, such as our national development bank”, said Brazil’s Minister of Finance, Joaquim Levy. “Developing innovative financial solutions is part of broader set of measures being undertaken by the government to attract private financing – including strengthening legal certainty, improving project design and reducing barriers to the participation of new comers in the bidding processes”, Minister Levy added.
By piloting a new capital market instrument, the Government of Brazil and the World Bank seek to provide diversified pools of capital with a lower risk instrument that can provide a long-term stream of income, backed by real assets and with a premium over standard government bonds. Such a financing would also help Brazil to increase the productivity of its economy and lower the cost of industry and trade.
“The relatively low risk of the instrument, the attractive yields, and the potential liquidity created by the presence of domestic institutional investors will help attract international investors to this market”, said World Bank Vice-President for Latin America and the Caribbean, Jorge Familiar. “This innovative bond design could also serve as a template for financing infrastructure in other countries”, added Mr. Familiar.
The bond is expected to be piloted in the coming months to raise financing for a selected number of concessions under the Government’s logistics investment program (Programa de Investimento em Logística). The World Bank is ready to consider supporting the pilot issue with new financial commitments of up to USD 500m. The pilot will be open to the participation of other IFIs, such as the Interamerican Development Bank (IDB).