Infrastructure, green bonds on the rise in Brazil’s energy sector

Infrastructure or incentivized bonds – known locally as debentures – and green bonds are becoming increasingly common options for financing energy projects in Brazil. 

The former involve benefits such as income tax exemptions for investments in large infrastructure and energy projects, while green bonds attract investors seeking to meet ESG targets, among others. 

In addition to development bank BNDES, which has historically been the main financier in the Brazilian energy sector, commercial banks such as BTG Pactual are actively participating in operations to structure debenture issues.

Rogério Stallone, the partner responsible for corporate credit at BTG Pactual, says the good legal framework, clear rules and history of compliance with contracts in the Brazilian energy sector contribute to attracting debenture holders. 

"Anyone who buys a debenture in the areas of generation or transmission is buying credit looking at a return in 10, 15 or 20 years. So they need guarantees. If there’s noise, the investor and the entrepreneur disappear," Stallone told BNamericas in an interview that will be published in full on Friday.

BTG currently has more than 50bn reais (US$10bn) in financing for energy and infrastructure in general, split between more than 50 projects.

Green bonds are fixed-income securities issued by companies, governments and multilateral organizations aimed at making economic sustainability initiatives viable.

At the end of August, BNDES and the environment ministry (MMA) relaunched the national climate change fund (Fundo Clima), raising 10bn reais and with a focus on six new areas, including sustainable urban mobility and the energy transition. 

A month earlier, the bank's president, Aloísio Mercadante, said the climate change fund has huge potential to make it possible to issue green bonds abroad.

Mitsubishi UFJ Financial Group (MUFG) recently signed a financing agreement for 150mn reais for improvements to the distribution network in the concession area of Neoenergia Brasília, which serves around 1.1mn customers in the federal district.

"We’re closing MUFG's first green bilateral loan with Neoenergia, deepening our relationship with a relevant client and broadening our portfolio of sustainable businesses," said Juliane Yung, MUFG's head of corporate & investment banking for Latin America, in a statement.

Neoenergia Brasília, the Brazil subsidiary of Spain's Iberdrola, said that in addition to being aligned with ESG goals, the costs and competitive terms of the operation will allow the company to diversify its sources of financing. 

Marina Aidar, a partner at law firm Demarest Advogados, said the growing participation of the capital market in the energy industry reflects the maturity of the sector. 

"We have an active regulatory agency, with experience in stress situations, and the energy sector is well consolidated," she told BNamericas.

Aidar said the Brazilian energy market is especially favorable for issuing green bonds due to the renewable nature of many of the projects. 

Among the other public sector banks that stand out in the country's energy sector are Banco do Brasil (BB) and Banco do Nordeste do Brasil (BNB), while Santander, Itaú and Bradesco  are among the private sector ones. 

BNB's press office told BNamericas that it allocated 2.07bn reais, through 24,773 operations to finance PV solar mini and micro-generation systems between 2019 and June 2023, using resources from the constitutional financing fund for the northeast (FNE).

Also using FNE resources, BNB invested 32.2bn reais between 2018 and June 2023 in financing companies developing renewable energy infrastructure projects.

BRAZIL-GERMANY

BNDES and the German project finance and export bank of the KfW group, KfW IPEX-Bank, signed an MOU on Monday to co-finance projects in Brazil of up to 1bn euros over the next five years.

The agreement focuses on financing with a positive environmental impact, as well as the energy transition, climate and environmental protection projects.

The emphasis is on sustainable sectors such as renewable energies, carbon capture and electrified and zero-emission bus fleets, logistics, digitization, semiconductors and sanitation.

OIL AND GAS 

Incentivized debentures are also used by local oil and gas companies to finance their projects. 

A recent example is that of 3R Petroleum, which plans to issue bonds to finance the development of its Macau, Salinas Cristal and Água Grande fields.