With a US$10bn portfolio, Brazil’s BTG Pactual eyes new energy projects

After a turbulent start to the year, Brazil’s capital market is back to normal, with an appetite for energy projects. 

That is the assessment of Rogério Stallone, the partner responsible for corporate credit at bank BTG Pactual.

In this interview, Stallone highlights the opportunities for energy financing and talked about the bank's performance in the sector.

BNamericas: Have the conditions for financing electric power projects improved? What are the prospects?

Stallone: The year started off complex. There was the Lojas Americanas issue [a case involving accounting fraud involving some US$5bn]. And banks and bondholders had large exposures, so the capital market, which had been very active, slowed down. And there was also the case of Light [a power distributor that filed for bankruptcy protection]. These two cases were emblematic, bad for the market. It was in June and July that the market became 100% functional again.

The infrastructure and energy sector represents 35% of BTG's portfolio. In general, today the level of entrepreneurs, projects and their structuring in Brazil is very good. It's a very resilient sector. 

We’ve already financed and are analyzing many solar and wind projects. There are also opportunities involving corn ethanol, biodiesel, biomethane and LNG, for example.

BNamericas: Are there also requests for funding for green hydrogen and energy storage projects?

Stallone: Yes, we've been approached and we're looking into it. This is gaining momentum. There are no projects at a mature stage, as there is still a question of cost. But I remember that, 20 years ago, wind and solar also went through this and today they have super competitive prices. Technologies are advancing.

BNamericas: What is the status of BTG's project portfolio?

Stallone: BTG currently has more than 50bn reais [about US$10bn] in financing for energy and infrastructure in general, divided into more than 50 projects.

BNamericas: What conditions and guarantees are required?

Stallone: First we look at who the entrepreneur is. We serve large companies with a market value of billions of reais, as well as small entrepreneurs. 

You need to have good projects. The first ones, in the early 2000s, often had a history of poor wind projections. Today, it's rare for them to fall short of the power generation forecast.  

Another factor is financing. Commercial and investment banks, as well as development banks such as BNDES, BNB, Basa and Finep, have played an excellent role, offering bridges. 

For a long time, BNDES carried the burden of infrastructure. Today it has helped to cover the deficit, and the capital market has played a fundamental role in financing the sector. 

As well as offering bridge loans, which cover the start of a project, for the first 18, 24 and even 36 months, we’ve offered guarantees for infrastructure debentures until the project is ready. 

The banks have taken on the project risk during the construction phase. And then, when the risk decreases, the project is refinanced via the capital markets.

BNamericas: Are you planning any new types of financing? 

Stallone: Issuing the debentures and taking out the bank guarantee during the construction period is already something quite innovative. 

We've done some projects in Latin America where we've gotten funding from multilateral mechanisms and development banks. In Chile, for example, we got support from the local development bank [Corfo].

BNamericas: What are the main risks and challenges ahead?

Stallone: The great quality of the energy sector in Brazil is that it has a strong regulatory framework, with clear rules for concessions, a good legal framework, maintaining the rules of the game and complying with contracts. 

I’d say that it’s essential to maintain this strong framework, these rules. Anyone who buys a debenture in the areas of generation or transmission is buying credit looking at a return of 10, 15, 20 years. These are very long-term projects. So guarantees are necessary. If there’s noise, the investor and the entrepreneur disappear. 

The sanitation sector, for example, is also very important. It had never taken off because it didn't have a strong regulatory framework. It was a gray area on various regulatory points. And in the last five years and the next few years, there will probably be much more investment than in the last 100 years. It will be a revolution.