BRAZIL Law and Practice Contributed by: Roberto Panucci, Tiago Severo, Diogo Nebias and Guilherme Teles, Panucci, Severo e Nebias Advogados
term inflows are subject to IOF-Câmbio (see 4.2 Other Taxes, Duties, Charges or Tax Considerations ). The bankability of projects depends on several regu- latory milestones, including the granting of the con- cession, the three-stage environmental licensing pro- cess, and sector-specific approvals for creating liens or transferring control of the SPE. The typical security package includes a lien of the SPE’s shares, fiduciary transfer of receivables and bank accounts, liens over key project contracts and tangible assets, and a waterfall account structure to prioritise payments. Dispute resolution often relies on arbitration, with lenders negotiating step-in rights, which allow them to operate the project in case of default. Brazil is not a member of the International Centre for Settlement of Investment Disputes (ICSID) and has only a limited network of ratified bilateral investment treaties. As a result, foreign investors cannot rely on treaty-based investor–state arbitration. 8.6 Common Financing Sources and Typical Structures Funding structures in Brazil are adapted to each sec- tor and project stage. The BNDES provides long-term financing, usually combined with shorter construction or mini-perm loans from commercial banks, which are refinanced once the project becomes operational/ complete. Export credit agencies (ECAs) and multi- lateral institutions such as the International Finance Corporation (IFC), IDB Invest, and CAF – Development Bank of Latin America and the Caribbean (formerly Corporación Andina de Fomento , or CAF) play an important role in projects involving imported equip- ment or policy priorities, offering long maturities and applying ESG standards. Private banks in Brazil usually provide a bank guar- antee to the BNDES until the project is operational. The capital markets are increasingly relevant by means of infrastructure debentures, which benefit from tax incentives when applied to qualifying projects.
approvals, leasing or other structures, whereas urban property presents fewer limits. • Subsurface resources remain state-owned, but can be exploited by foreign and Brazilian compa- nies. Mining and oil rights are granted to Brazilian- incorporated entities, which may be wholly foreign- owned. • Water use for energy (hydroelectric) or irrigation requires grants from agencies – foreign companies can participate but foreign ownership of certain strategic water bodies might be restricted for national security purposes. 8.5 Structuring Deals Projects in Brazil are typically housed in a special pur- pose entity (SPE), which is a company created solely to implement and operate the project. This ring-fenced structure isolates project assets and cash flows from those of the sponsors, ensuring segregation and facili- tating lender oversight. In concessions and PPPs, the law or bidding terms usually require that the SPE be incorporated as a corporation ( sociedade anônima , or SA), which provides greater governance transparency and is allowed to publicly offer securities. The capital structure usually combines equity with subordinated shareholder loans. Lenders, especially the BNDES and commercial banks, often impose min- imum equity contribution levels and specific debt-to- equity ratios to maintain financial discipline. Foreign equity contributions must be registered with the Cen- tral Bank’s RDE-IED ( Registro Declaratório Eletrônico – Investimento Estrangeiro Direto ), whereas cross- border loans must be registered with the RDE-ROF ( Registro Declaratório Eletrônico – Registro de Oper- ações Financeiras ). These registrations are essential to enable repayment of dividends and debt service abroad and, in some cases, they allow access to tax incentives (eg, reduced withholding tax on qualifying infrastructure debentures). Brazil’s foreign exchange rules permit borrowing in hard currency such as euros or US dollars – although when revenues are denominated in Brazilian reais, lenders generally expect the borrower to hedge the currency risk. Hedging is often costly and may hinder the funding of projects with foreign currency. Short-
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