Financing Logistics Infrastructure in Brazil

Edson Dalto

Manager @ Dept. of Transport and Logistics

Agenda

BNDES and infrastructure outlook

Logistics sectoral analysis

BNDES’s support instruments

1

2

3

BNDES and infrastructure outlook1

50% 53%41% 43% 47% 47%

32% 31% 30% 27%

34% 31%

40% 39% 36% 31%

40%34% 33% 36%

9% 7%8% 6% 5%

6%7%

7% 10% 9%

8% 10% 12% 12% 13% 16% 21%28% 27% 28%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Industry Infrastructure Agriculture and Livestock Trade and Services

Brazilian Development Bank Disbursements by business sector

47,0 51,3 64,9

90,9

136,4

168,4

138,9

156,0

190,4 176,9

12,4 13,5 17,123,9

35,944,3

36,6 41,150,1 46,6

R$ bi

US$ bi

Currency3,80

4

Infrastructure Division Understanding BNDES’ structure

• BNDES’ Infrastructure Division comprises only part of the segments usually categorized as “Infrastructure”

InfrastructureDivision

Electric Power Industry

Transportation and Logistics

Renewable Energy

IndustrialDivision

Telecommunication

Oil and Gas

Social InfrastructureDivision

Urban mobility

Sanitation

5

Infrastructure Division Annual Disbursement

HydropowerThermalNuclearRenewable EnergyDistributorsTransmissionRailwaysHighwaysPortsNavigationAirportsOther

R$ million// 6

3.747

2003 2004

2.710

2006

4.875

2007 2008

8.638

16.017 15.280

3.366

7.116

2005 2009 2010 2011 2012

18.743

28.391 29.897

20142013

24.538

2015

33.000

6

13.445Performed

1st Semester

Disbursements in logistics

* Until 1 °/15

// 7

7

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

0,40,6

0,9 0,9

1,9

1,0

3,63,9

5,1

7,5

9,4

11,4

5,3

Warehouse

Airport & Air Transport

Pipeline

Navigation

Port

Road

Rail

R$ Billions

CAGR: 34,5%CAGR: 34,5%

Infrastructure Division Portfolio of projects (2003 to 2015.1) R$ Thousand

8

Sector Capacity# of

ProjectsFinancing

BNDES (R$ Mil)Investment

(R$ Mil)

Toll Roads 8.674 Km 50 18.946.730 37.021.349

Railways2.338 Km, 16.747 Wagons

and 485 Locomotives35 18.332.146 52.734.463

Ports 122.280.000 ton/year 42 12.012.575 21.257.678

Airports and Air Transport

54.800.000 Pax/year 13 8.969.918 15.253.752

Navigation 219 Vessels* 32 2.812.272 4.163.550

Pipeline 1.331 Km 1 1.902.700 8.690.000

Terminals and Warehouses

14.055.786 ton/year 22 962.374 1.319.447

Other - 1 6.481 7.277

TOTAL 196 63.945.195 140.447.516

Obs: (*) 90 barges 93 tugboats 16 push crafts 12costal vessels e 8 others

Logistics sectoral analysis2

Source: Instituto Ilos

Transport MatrixRoad cargo concentration

67,6% 64,8% 64,9% 65,6% 67,4%

18,4% 20,3% 19,9% 19,5% 18,2%

10,5% 11,1% 11,6% 11,4% 11,4%

3,5% 3,8% 3,5% 3,4% 3,0%

2004 2006 2008 2010 2012

Transport Matrix (% of TKU)

Roads Rail Water Pipeline Air

// 10

10

Broad process of concession

Roads, railways and ports (90’s); Roads (2007, 2012-13) and airports (2012-13)

Sectoral regulatory agencies

Land Transport and Ports (2001) and Civil Aviation (2005)

Regulatory framework in evolution

Concession Act (1995), Railroads (2011), Ports (1993, 2008 and 2013)

Sector in evolutionInstitutional and regulatory framework

Complex institutional structure

Several sectoral ministries and institutions involved (difficulty in understanding the organizational structure)

Make clear and efficient the role of government institutions

Policy guidelines, studies and modeling, regulation, planning and supervision

Promote competition in the bidding process

Remove barriers to new entrants (mainly foreigners) and disseminate information about auction (avoid use of RFP)

Evolution Challenges

11

Significant growth in demand over the past decade

Roads (10%), Ports (5%), Containers(8%), Railroads (5%), Airports (11%)

Integrated view of logistics infrastructure

EPL (2011)

Increasing the level of investment (GDP %)

PAC, PAC2, PIL, Private Investments

Prevalence of road transport (cargo and passengers)

Low modal integration

High emission and average age of vehicles

High economic costs in transport

Infrastructure concessions

National consensus, larger scope and PPPs instruments

Evolution Challenges

Sector in evolutionDemand for investment

12

Government sources of funding

BNDES is the main financing provider for long-term investments

Limited resources

Fiscal adjustment

Historical high interest rates

Savings competes with other fixed income products

Effort to attract capital market and co-financing

Infrastructure Debentures (12.431/2011 Act) and conditions for attracting commercial banks

Low participation of foreign capital

Predominantly in ports and railroads

Main investor: the construction industry

Many infrastructure concessionaires and few Economic Groups

Evolution Challenges

Sector in evolutionChallenges to Financing

13

18 Concessions

7.385 Km41 Concessions

12.078 Km

Union FederationsSource: ABCR

Toll roadsExisting road concessions

20 74

230 391

418

502

557

553

603

643

657

706

768 1.04

4

1.36

3

1.52

6

1.63

1

1.67

1 2.10

5

0

5

10

15

20

25

0

500

1.000

1.500

2.000

2.500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Ext

ensi

on (

thou

sand

Km

)

Traf

fic (

mill

lion

of v

ehic

les)

Traffic

Extension

44 3030 5050# Concessionaires

19,463 Km

5959

5,9

2

6,7

6

8,2

3

10

,81

12

,94

14

,33

15

,37

15

,98

1,412,45

3,073,51 3,80

4,64

6,91 6,98

0

2

4

6

8

0

5

10

15

20

2007 2008 2009 2010 2011 2012 2013 2014

Revenue (R$ bilhões) Investments (R$ bilhões)

Re

ve

nu

es

(R$

bil

lio

n)

Inv

est

me

nts

(R

$ b

illi

on

)

14

// 15

Toll roadsRecent road concessions and new projects

R$ 66,1 bi PIL

15

Legend:

Existing concessions

Bid 2015

PMI 2016

PiquetCarneiro

IbotiramaLuís Eduardo

Barreiras

Imbituba

Ilhéus

Limeira

Lucas do Rio Verde

Vilhena

Tubarão

FTCPORTO ALEGRE

GOIÂNIA

AceguáPelotas

CAMPO GRANDE

TERESINA

Juazeiro Porto Realdo Colégio

Balsas

Rio Balsas

JurutiSantarém

Eliseu Martins

Itiquira

DF

Figueirópolis

RECIFE

JOÃO PESSOA

MACEIÓ

FLORIANÓPOLIS

CURITIBA

RIO DE JANEIRO

SÃO PAULO

VITÓRIA

PALMAS

MANAUS

BOA VISTA

NATAL

PORTO VELHO

SALVADOR

MACAPÁ

BELÉM SÃO LUÍS

FORTALEZA

Uruaçu

CUIABÁ

Salgueiro

Brumado da Bahia

Estreito

Açailândia

Araquari

Ribeirão Cascalheira

Carajás

Barcarena

Sobral

Oriximiná

Rio Grande

MacauMarabá

Caetité

Montes Claros

Estrela d’Oeste

Panorama

SorrisoAlto Boa Vista

Altamira

Santana do Livramento

Pres. Epitácio

Miritituba

Sinop

Rio Paranaíba

Eclusa deTucuruí

Gov. Valadares

Rondonópolis

Alto Araguaia

CorumbáEFVM

FCA

ALL Malha Sul

ALL Malha Paulista

ALL Malha Norte

Cianorte

Ferroeste

BELO HORIZONTE

ALL Malha OesteMaracaju

MRS

EFC

TLSA

FNS

(Tramo Norte)FNT

RailwaysCurrent network

183 206 222 238 257 267 245 278 292 302 297

20032004200520062007200820092010201120122013

billion TKU

12 Concessionaires (28,314 km)

Cargo Volumes

76% iron ore76% iron ore

ALL (4 stretches) 12,000 Km

VLI (2 stretches) 7,940 Km

Transnordestina 4,207 Km

Vale (2 stretches) 1,797 Km

MRS 1,674 Km

Other (2 stretches) 0,412 Km

16

RailwaysNew projects

// 17

• New concessions:

R$ 70,4 bi

• Investments in

existing concessions:

R$ 16,1 bi

• 7,535 kilometers of

new concessions

• 8 stretches

• Concession for 35

years

R$ 86,4 bi PIL

17

Legend:

Preview

PMI

Average production over the last 10 years: 3,751 wagons and 52 locomotivesForecast for the next years: 4,000 wagons and 200 locomotives (small and large)Average production over the last 10 years: 3,751 wagons and 52 locomotivesForecast for the next years: 4,000 wagons and 200 locomotives (small and large)

Source: Abifer

Railways – Brazilian industrySignificant production and high potential

Fleet EvolutionFleet Evolution Average age of fleet of wagonsAverage age of fleet of wagons

1990 422010 252020 18

1990 422010 252020 18 Source: ANTF

1.28

3

748 29

4

2.39

9 4.74

0

7.59

7

3.66

8

1.32

7

5.11

8

1.02

2

3.26

1

5.61

6

2.91

8

2.28

0

4.70

3

4.00

0

4.00

0

4.00

0

1 4 5 0 0 6 1430 30 22

68

113

7083 80 90

200 200

0

50

100

150

200

250

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Wagons Locomotives

1997 2014 CAGRLocomotives 1.154 3.118 6,0%Wagons 43.816 102.352 5,1%

18

Airports Conceded airports represents 46% of total pax

Legend :

Existing Concessions

4 Major Airports: R$ 8,4 bi (2016)

Regional Airports: R$ 78 mi

R$ 8,5 bi PIL

19

PortsDemand growth

571621

649693

755 768733

834886 904 929

969

Short Sea

Inland

Navigation0

200

400

600

800

1.000

1.200

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mil

lio

n t

Interocean

TOTALTOTAL

4,2

5,0

5,7 6

,2 6,5 7

,0

6,1

6,8

7,9 8

,2

8,9 9

,3

0

1

2

3

4

5

6

7

8

9

10

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mll

ion

TE

U

SOLID BULK

LIQUID BULK

BREAK BULKCONTAINER

0

200

400

600

800

1.000

1.200

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mil

lio

n t

CAGR (%)

SOLID BULK 5,2

LIQUID BULK 3,3

BREAK BULK 3,7

CONTAINER 8,4

TOTAL 5,0

20

• 50 New concessions:

R$ 11,9 bi

• 63 New Private Terminals:

R$ 14,7 bi

• 24 Renewal of existing

concessions:

R$ 10,8 biLegend:

Block 1

Block 2

PIL R$ 37,4 bi

Ports Investments in new concessions, renewal and private terminals

21

Main export corridorsSoybean, soy meal and corn (2014/15 harvest)

Foz do Iguaçu

CURITIBAPorto de Paranaguá

Porto de São Fco do SulFLORIANÓPOLI

S

Araquari

Porto de Rio Grande

CAMPO GRANDE Porto de Vitória

BELÉMBarcarena

Cruzeirodo Sul

Porto de Santarém

Oriximiná

JurutiSantarém

MacauAçailândia

Porto Realdo Colégio

Juazeiro

PiquetCarneiro

SÃO LUÍS Sobral

TERESINA

BalsasEstreito

Caetité

IbotiramaLuís Eduardo

Barreiras

Lucas do Rio Verde Uruaçu

Rio Grande

AceguáPelotas

Santana do Livramento

PORTO ALEGRE

Montes ClarosGOIÂNIA

Limeira

Itiquira

DF

Figueirópolis

RECIFE

JOÃO PESSOA

MACEIÓ

RIO DE JANEIROSÃO PAULO

VITÓRIA

PALMAS

MANAUS

BOA VISTA

NATAL

PORTO VELHO

RIO BRANCO

SALVADOR

MACAPÁ

FORTALEZA

Porto de Itaqui

Porto de Salvador

Porto de Ilhéus

Porto de Itacoatiara

CUIABÁRondonópoli

s

Brumado da Bahia

Maracaju

Ribeirão Cascalheira

Carajás

Vilhena

Cianorte

Ilhéus

TubarãoImbituba

Estrela d’Oeste

Panorama

Rodrigues Alves

SorrisoAlto Boa Vista

Altamira

Pres. Epitáci

o

Miritituba

Sinop

Corumbá

Marabá

Eclusa deTucuruí

Rio Balsas

Rio Paranaíba

Porto de Porto Velho

Sabará

Gov. Valadares

Alto Araguaia

3,1

2,6

3

2,1

5,6

3,7

6,3

13,7

16,5

24,7

0,2

Porto de Santos

BELO HORIZONTE

Fonte: CONAB / MDIC / ANTAQ

Rurópolis

Porto de P. Alegre

Porto de Barcarena

1,6

0,3Porto de Indaiatuba

Total production:

178million ton

Exportation:

84million ton

Production of soybean + corn = 86%of the national grain production

Ports SE and S:

65,5 mi t78%

Ports NE:

6 mi t7%

Ports N

12,5 mi t15%

Million ton

RoadsRails

Flow routes

Transhipment points

Water

Production 96,2

MT 29%

PR 18%

RS 15%

GO 9%

Export 48

Santos (SP) 22%

Paranaguá (PR) 14%

Rio Grande (RS) 9%

Export 14

Paranaguá (PR) 36%

Santos (SP) 25%

Rio Grande (RS) 14%

Corn

Production 81,8

MT 23%

PR 19%

GO 11%

MS 10%

Export 22

Santos (SP) 37%

Paranaguá (PR) 17%

Tubarão (ES) 10%

Soybeans

Soybean Meal

22

Ports

BNDES’s support instruments3

insurance

Framework conditions for infrastructure financing

ConcessionaireConcessionaireequity debtDevelopersDevelopers

Equity/Mezzanine investors

Equity/Mezzanine investors

BNDESBNDES

Capital Market

BanksBanks

Users

ConstructionConstruction

Grantor

• Economic and legal stability• Detailed engineering information

(reducing construction risk)

• Environmental licensing risk• Unmanageable risks• Agility in rebalancing the contract

Adequate financing structure

(appropriated terms, competitive rates and

collaterals)

Attractive rate of return

Appropriate risk allocation

Strong demandQuality of service and affordable price

24

• Concessionaires

• Economic groups with assets in logistics infrastructure and transport

• Expand and modernize the transport infrastructure network

• Making the most economical and efficient logistics processes

• Promote low tariffs and increased competition among operators

• Integration of transport, in conjunction with the supply chains

Beneficiaries:

Objectives:

(3) Equity(2) Debentures(1) CreditComponents :

BNDES financial support to logistics

• DIRECT (over $ 20 million), INDIRECT (financial agents) or JOINT

• Project finance or financing with corporate collaterals (real and personal)

Ways to

support(credit):

• Corporate Finance

• Project Finance

Financing

structuration:

// 25

25

• Direct operation:

• Indirect operation:

• Term: usually 12 to 15 years

• Loan-bridge:

• Until 30% from long term debt

• Corporative or bank guarantee

• Term: 18 months

Financial costTJLP/Market

Basic spread: 1.5 or 1.2% p.a.*

Credit risk rate*

* up to 2,87% pa in accordance with company's rating

Conditions for financing logistics BNDES Finem

Financial intermed. 0,5% p.a.

Financial agent ´s spread

// 26

Financial costTJLP/Market

Basic spread: 1.5 or 1.2% p.a.*

* 1,2% p.a. for railways, waterways, ducts and 3PL’s and for market conditions

26

Financing conditionsTJLP increase with debentures issuance

27

Finem TJLP Finem Market

AssociateEquity/

Cash Flow

Finem Market Optional(others sources)

Debenture of

Infrastructure

TJLP additional

(Pro-Logistica)

HIGHWAYS

25% 30%

35% 30%35%without

debenture

with

maximum

debenture

issued

up to 70%

10% 35%

PORTS

35% 30%

30%25% 25%up to50% 20%

10% 25%

without

debenture

with

maximum

debenture

issued

27

28

AIRPORTS

35% 30%

30%15% 15%up to 30%

40%

20% 15%

without

debenture

with

maximum

debenture

issued

RAILWAYS and WATERWAYS

70% 30%up to 70%

Finem TJLP Finem Market

AssociateEquity/

Cash Flow

Finem Market Optional(others sources)

Debenture of

Infrastructure

TJLP additional

(Pro-Logistica)

Financing conditionsTJLP increase with debentures issuance

28

Standard project finance timeline

Auction

3 to 6 months

Contracts Signed/

Bridge Loan

Approved

LT Loan

Approved

6 to 12 months

30 months to 60 months

Project Completion

End of Concession

... 20 to 30 years total

Bridge LoanBridge Loan Long Term Loan (35-70%)Long Term Loan (35-70%)

Infrastructure Bonds (10-35%)

Equity and Mezzanine Debt (Strategic &

Financial Investors)

Financial Investors

Timeline

OtherBanks

Non-recourseLimited

recourse

&

Studies, project preparation, public

consultation, approvals…

Equity/Cashflow (20-30%)Equity/Cashflow (20-30%)

12 a 48 months

29

BNDES credit enhancement conditions

• With bond issuance

• Shared guarantees

• Cross-default

• Amortization curve to be based on French Amortization

System (Price Table) instead of Constant Amortization System.

• Increase of TJLP participation

• Support line of liquidity for debentures interest payment

• With partners insurance companies, working on a guarantee on

demand

// 30

30

Infrastructure financing Guarantees structure

Loan Tenure

Pre-Completion

• Debt service account (3 installments)

• Pledge of the SPC’s shares

• Pledge of receivables and rights (including any indemnity payment)

• Step in rights

• Commitment from shareholders (corporate guarantee, support agreement etc.)

• Package of insurance• Bank guarantees (guarantees,

liquidity lines etc.)

Post-Completion

• Operational and Financial Covenants

* Appropriate risk allocation allows a customized and balanced collateral structure

// 31

31

Ways to support:

• Possibility of BNDESPar to subscribe shares and/or other convertible securities;

Conditions for BNDESPar

Participation:

• Minimum investment of R$ 100 million;

• Maximum participation: up to 20% of the holding company´s equity outstanding; or 30% of the SPE’s equity (the lowest value)

• Adoption of best governance practices;

• Liquidity mechanisms: joint sale (tag along), IPO prediction or sale option for the controller (put).

Equity

32

Challenges to financing

Capital market attraction and co-financing

Collaterals on pre-completion phase (capital market in the construction

phase, credit enhancement)

Enhance attractiveness to investment for infrastructure (competition for

savings)

Attract new players (foreign capital and financial investors)

Improve sectoral regulatory framework

Detailing reference projects in order to mitigate risks and assertiveness

to cost and time

Fiscal space for the feasibility of challenging projects (greenfield,

railways)

// 33

BNDES will keep its commitment to support the expansion of infrastructure

33