IDB Invest talks TCG opportunities

IDB Invest talks TCG opportunities

Capital Markets Corporate & Sovereign Strategy Debenture Economy & Policy Project & Infrastructure Finance Renewable Brazil

IDB Invest debuted its total credit guarantee (TCG) program recently when it reached financial close for Brazil's Santa Vitoria do Palmar wind farm.

After garnering heavy oversubscription on the tax-incentivized debenture sale, market players are confident the instrument can be extended to other project finance opportunities across the region.

“To this day, there is not a single product in the market to mobilize private infrastructure investors,” Gema Sacristan, CIO at IDB Invest said in an interview on Tuesday. “As of now, the program is only eligible for energy projects, but the structure fits very well with most infrastructure projects because we are able to get longer terms of bond offers in the capital markets."

Brazil’s unique abatements on infrastructure bonds, namely tax incentives, and historically low infrastructure investment creates an interesting opportunity for private investors, she added. And by extending the term of the debentures and raising their local rating, private investors are able to participate in infrastructure inexpensively.

“We want to cover risks to increase bond ratings and to attract a new pool of investors that would not normally invest in bonds with these types of terms due to risk,” Sacristan said “This tax incentive in Brazil is unique to the region and if implemented in other regions, could attract non-traditional infrastructure investors to that industry.”

IDB Invest has identified the Pacific Alliance as the next region for private-sector infrastructure investments, but has yet to ink any credit guarantees in the member nations.

Sacristan said the capital markets in Mexico, Colombia, Peru and Chile have all shown positive signs, but lack the appropriate incentives to provide a cheaper investment vehicle for the private sector.

Santa Vitoria do Palmar welcomed 16 bond buyers not traditionally invested in local infrastructure and the total credit guarantee helped mitigate investment risk.

“As a development bank, we are very committed to… diversifying [Brazil’s] energy matrix because it makes it more productive and competitive, and as an IDB Group member we are committed to reducing the use of energies that contribute to climate change.

“We mobilized $800m in private-sector energy investment last year, but we need more ways to lure in sources of capital.”

At Santa Vitoria do Palmar, the multilateral provided a BRL125m ($33m) total credit guarantee for a BRL105m debenture issuance by Atlantic Renovaveis. Orders were 5x oversubscribed on TCG-backed debentures, leading IDB Invest to believe the market is eager for more of the financing vehicle.

“This product is specific to private investors in Brazil, but, we could provide a bond with a credit guarantee to both private and institutional investors in other countries,” Sacristan said. “The oversubscription motivated us to look at other projects, and we are in fact going to close on another TCG-backed project [in Brazil] next month."