Why Brazilian asset manager Pátria is eyeing the sanitation sector

Brazil’s Pátria Investimentos is eyeing the sanitation sector as a new area for its investments. 

The asset management firm, which attracts global investors to its funds, will focus on investments in the areas of energy, logistics infrastructure, data infrastructure, and sanitation in the coming years. According to market sources consulted by BNamericas, Pátria is currently concluding the process of raising around 13bn reais (US$2.65bn) for a new investment fund.

In this interview, Marcelo Sousa, partner and head of energy infrastructure strategy at Pátria, speaks with BNamericas about the plans for the sanitation sector and other areas.

BNamericas: How much does Pátria currently have under management and how much of that is directed towards infrastructure?

Souza: We currently have around US$28bn under management and of this amount around US$5bn is in infrastructure. We provide the amount in US dollars because a significant part of the funds come from international investors.

These investments in infrastructure are allocated in Brazil and some countries in Latin America. We are currently raising cash for a new fund. The assets we look at are in the areas of energy, logistics infrastructure, data infrastructure and sanitation. We are also working to develop a fund that will specifically be for solutions related to non-recourse project finance operations.

BNamericas: In relation to countries, where is your focus?

Souza: Most of our infrastructure capital is invested in Brazil. I would say that it represents a little more than half of the amount I mentioned. 

The remainder is divided between Chile, Peru, Colombia, and Mexico. In these countries, our vertical is the same as in Brazil, that is, we are talking about projects in energy, logistics and transport, data infrastructure, water and sewage. We continue to see good opportunities in all these segments.

In the energy area, we are evaluating opportunities in renewables and investments associated with the energy transition throughout Latin America.

In transportation, we are active in highway concessions in Brazil and some countries in the region as well.

In data infrastructure, the entire topic of telecommunication towers is certainly an area that still has room to grow, largely due to 5G.

The sanitation sector in Brazil, with the current regulations, provides a new environment that gives us the option of making good investments in this sector.

BNamericas: Despite mentioning sanitation as an area of interest, Pátria has no investments in that sector. What is the strategy here?

Souza: It is true, we have not made investments in the sector yet because we did not have the regulatory framework that we have now.

With the new regulation, we are actively looking at opportunities and following all the concessions and PPPs that are being structured by [Brazilian development bank] BNDES and the IFC because with the participation of these institutions we know that they are good projects. 

So we are evaluating concessions, PPPs, everything they are structuring.

Editor’s note: Since the approval of the new sanitation regulation in 2020, BNDES and multilaterals like IFC, have supported state governments in structuring concessions and PPPs to increase private sector participation. 

BNamericas: How did you bring the non-recourse project finance model into infrastructure?

Souza: Historically, Brazil has never had a source of financing with a structure that was fully backed by the project as a guarantee.

Existing sources of financing, such as debentures [local bonds], are always backed in some way by the company, where the creditor does not run the project creation risk. BNDES has been looking for alternatives to try to promote structures that are in line with non-recourse project finance.

We are going to launch the first fund in Brazil that will be able to use the non-recourse project finance model in a pure way. We will use our expertise for this since we are developers of infrastructure assets and already manage risks for our own assets. We know how to estimate the capex need, handle environmental licensing, and we have seasoned credit analysis. In practice, we will manage risks for third-party projects.

We are finalizing funding with the IFC, with BNDES participating, and it will be a fund capable of operating in the areas we are interested in.

BNamericas: How are ESG practices influencing Pátria's investment decisions?

Souza: The ESG topic has always been very important for us, it is not something new. We already have adequate structures that comply with international regulations.

By using ESG criteria, there are areas that we do not even look at, like coal, for example.

BNamericas: There is a lot of expectation regarding projects in the areas of offshore wind energy and green hydrogen. What is Pátria’s vision for these areas?

Souza: Regarding offshore wind, these are projects that we will look at, but I recognize that we are not yet so optimistic, especially in Brazil.

In Brazil, there is still a lot of land available to be explored for onshore wind power. I know that there are many players looking at offshore around the world, but here in Brazil I still see a lot of space, a lot of opportunity onshore.

Regarding green hydrogen, we are no longer talking about if, but rather when the projects will take place.

This will become a reality, but we are still in the phase of finding out about the viability of the projects, and it is still difficult to predict a deadline.

BNamericas: Pátria is behind a large desalination project in Chile. What are the plans in this segment?

Souza: We see that this sector is gradually expanding in Latin America and the explanation for this is simple, we need to have water available for human consumption and for industry.

We decided to start our investments in desalination in Chile because it has a severe water shortage and our solution there produces 1,000 liters of water per second, in addition to reducing the need that existed before for transporting water by tanker trucks to serving the industry.

I see strong demand for desalination projects in Chile and it is one of the countries that have the most investments in this sector.

In Brazil there is not as much water scarcity as in Chile, but we will look at the potential despite there being a lot of fresh water available.