Brazil allows infrastructure companies to refinance bonds at lower interest rates

Brazil’s transport ministry authorized infrastructure firms in certain segments to refinance operations through the issuance of local bonds known as debentures.

The measure adopted comes amid growing concerns among stakeholders about high interest rates.

Under the new framework, concessionaires will be allowed to replace bonds issued at high interest rates with new ones at more favorable rates.

“It is very concerning for the financial health of companies to have such high financing costs for such a long period, remembering that many debenture issuances have terms of more than five years. With a policy rate today of 13.25% per year, we must also remember that the debentures issued typically have an interest rate slightly higher than the base rate, so any measure to try to avoid companies from incurring such a high capital cost for such a long period is welcome,” Marco Aurelio de Barcelos Silva, CEO of highway concessionaires’ association ABCR, told BNamericas.

There are two types of debentures commonly used for infrastructure projects: incentivized debentures, which offer a tax break to investors and have been authorized since 2011, and infrastructure debentures, which provide a tax exemption for the issuing company and have been authorized since last year.

As these kinds of debentures come with tax exemptions, all measures related to them must be authorized by the relevant ministry. In the case of the transport ministry’s latest decision, the measure only applies to highways and railways.

Although the decision is considered positive, it will not necessarily have an immediate impact on companies’ capital costs, as Brazil is still in a monetary tightening cycle and it is unlikely that investors would have an appetite for debenture issuances with lower interest rates.

Debenture issues with tax exemptions reached a record 135bn reais (US$23.5bn) last year, more than double the previous record of 67.8bn reais in 2023, according to financial and capital markets association Anbima.

Companies in the transportation sector issued 25.6% of the debentures last year, totaling 34.5bn reais.