Why banks and builders don’t see eye to eye in Brazil’s infrastructure boom

In recent years, Brazil has witnessed the growing involvement of major banks and investment funds in infrastructure assets and projects, a trend that has facilitated extensive growth in concessions and public-private partnerships (PPPs) in the sector. 

However, this shift is beginning to reveal some side effects.

“A bank or an investment fund has much greater financial rigidity than other types of companies, such as traditional infrastructure operators. This rigidity results in more modest bids in auctions. Additionally, as these financial players are part of the consortiums holding the contracts, they exert significant price pressure on the engineering and construction companies involved in the projects,” João Cortez, a partner at infrastructure consultancy Vallya, told BNamericas.

“We’re not yet at the stage of open conflict, but there are already quite tense relationships between engineering firms hired by investment funds and banks to execute certain ongoing projects,” added Cortez, declining to provide specific examples.

Financial institutions as sector players

The increasing participation of financial institutions in Brazil's infrastructure sector has evolved beyond their traditional role as project financiers. In some cases, these entities aim to become integrated platforms within the sector, even acquiring stakes in traditional companies.

This trend gained momentum as some of the companies implicated in the Lava Jato corruption scandal faced severe financial difficulties, leading to heavy debt and weakened positions with the banks, which were their creditors.

As part of this strategy, Banco Bradesco, one of Brazil's largest banks, recently announced plans through its investment banking arm, Bradesco BBI, to acquire a 15% stake in CCR, one of the country’s most important infrastructure firms.

This move involves litigation, as Bradesco seeks to claim a 15% stake in CCR currently held by the Mover conglomerate (formerly known as Camargo Corrêa), a company entangled in Lava Jato.

As a creditor of Mover, Bradesco argues that shares in CCR were used as collateral for an unpaid loan and that the bank has the right to enforce these guarantees. If successful, Bradesco would join Itaúsa (the holding company that controls Banco Itaú Unibanco), Votorantim and the Soares Penido group as controlling shareholders of CCR.

Mover filed for bankruptcy protection in December, along with its cement subsidiary, Intercement. Bradesco, as one of Mover's main creditors, claims that it can claim the CCR shares given as collateral because Mover is in default.

BTG Pactual’s expanding role

BTG Pactual, Brazil’s biggest investment bank, is another major player expanding its footprint in the infrastructure sector.

Last year, a São Paulo state court approved the bankruptcy protection request of OEC (formerly Odebrecht Engenharia e Construção), part of the Novonor conglomerate. During its recovery process, OEC secured 650mn reais (US$107mn) in short-term financing from BTG Pactual, according to a source familiar with the operation consulted by BNamericas.

BTG has also participated as a bidder in recent highway auctions, including the 13bn-real concession for the Rota dos Cristais highway connecting Minas Gerais and Goiás and the 10.9bn-real concession for the Rota Verde highway in Goiás state.

In the first auction, BTG lost out to French infrastructure group Vinci, while in the second, it was outbid by the Rota Verde consortium, which includes investment fund Aviva and Goiás-based construction firm Tecpav.

Investment in sanitation

Sanitation has also attracted significant interest from investment firms, driven by a robust concession agenda in recent years. Pátria Investimentos, for instance, has established a dedicated team to evaluate opportunities in this sector.

In 2022, Pátria hired João Lúcio Souza Lima Filho, a seasoned executive in the sanitation field, formerly of Sam Ambiental.

Currently, Aegea, the largest private operator in Brazil’s sanitation sector, is owned by the Equipav group (53%), Singapore’s sovereign wealth fund GIC (34%), and Itaúsa (13%).

“In my view, the involvement of investment funds has brought greater professionalism and sophistication to the sanitation sector. These companies are transforming from simple operators into integrated investment platforms,” Percy Soares Neto, founder of water and waste consultancy Ikigai, told BNamericas.

Despite occasional tensions between engineering firms and financial players, the participation of banks and investment funds has been crucial for advancing federal and state concession agendas. 

These contributions have enabled multiple tenders, fostering competition among participants, even under the challenging conditions of inflationary pressures and rising interest rates.