Infrastructure Financing: New Options And Incentives For Financing In Brazil

• Published date: 23 January 2024
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Securities
• Law Firm: Tauil & Chequer
• Author: Mr Luis Montes, Priscilla Santos, Beatriz Lavigne, Bruno Werneck, Juliana Deguirmendjian, Celso Grisi and Raphael Furtado

New Law No. 14,801/2024 creates infrastructure debentures, changes rules for incentivized debentures and investment funds in the sector, including tax guidelines, and promotes incentives for raising funds through the issuance of debt securities abroad (bonds).

A country's economic development is directly tied to investment in sectors with the greatest impact on productivity, such as infrastructure, innovation, and technology. This advance is also influenced by government incentives, the reduction of interest rates on specific credit lines, and the diversity of financing available to the private sector.

With the goal of establishing an environment conducive to economic growth, Law No. 14,801, of January 9, 2024, as amended ("Law 14,801"), sanctioned on January 10, 2024, brings a series of innovations in fundraising instruments in the infrastructure sector. This rule introduced several important changes, highlighting the creation of "infrastructure debentures" and "incentivized bonds," as well as changes in the legal and tax regime of incentivized debentures and investment funds in the sector. Below, we detail the main changes introduced by Law 14,801:

Financing instruments specific to the infrastructure sector covered by the new Law.

I. Infrastructure debentures - new financing option created by Law 14,801

A. What are infrastructure debentures?

First, it is important to highlight that infrastructure debentures do not replace incentivized debentures, which have existed since the advent of Law No. 12,431, of June 24, 2011, as amended ("Law 12,431"), which we discuss below, with an emphasis on the innovations in the new law. On the contrary, they represent a new type of financing aimed at the infrastructure sector.

As established by Law 14,801, infrastructure debentures are debt securities which may be issued by special purpose companies, concessionaires, permittees, authorizers, or lessees, which take the form of a corporation and which are subject to public distribution. In addition, infrastructure debentures may be issued by direct or indirect parent companies of the entities mentioned above, if they are incorporated as a corporation, and if the funds raised by their issuance are intended for projects considered a priority, observing the limits and conditions established by the relevant federal authority.

The funds raised through the issuance of such debentures must be directed toward the implementation of investment projects in infrastructure, or intensive economic production in research, development, and innovation sectors, considered a priority according to the regulations established by the relevant federal authority.

To be classified as "infrastructure debentures" and to be able to benefit from the tax benefits described below, such securities must:

• Be issued between January 10, 2024 and December 31, 2030;
• Have a pre-fixed interest rate, linked to a price index or to the Reference Rate - TR (Taxa Referencial), provided that the total or partial agreement of a post-fixed interest rate is prohibited;
• Have a weighted average maturity exceeding four years;
• Include a provision prohibiting the issuer or their related parties from repurchasing the bonds within the first two years of issuance, and from early settlement through redemption or prepayment, except as regulated by the Brazilian National Monetary Council;
• Have a periodic income payment schedule, if applicable, with intervals of no less than 180 days;
• Provide evidence that the security is registered in a registration system duly authorized by the Central Bank of Brazil or the Brazilian Securities Commission, within their respective areas of competence; and
• Undergo a simplified procedure demonstrating a commitment to allocate the funds raised towards future payments or reimbursement of expenses, costs, or debts related to the investment projects.

B. Main characteristics of the new infrastructure debentures defined in Law 14,801

• Simplified framing rules: The relevant federal authority must regulate the criteria for classifying projects as priorities, in order to enable their holder or controller to issue infrastructure debentures. Despite this, Law 14,801'along with the discussions leading up to it'has already signaled a general rule: the waiver of the requirement for prior and formal ministerial approval for projects within priority sectors, to be detailed in future regulations. Moreover, a streamlined process may be introduced for securing prior approval for projects involving public services owned by subnational entities (States, Federal Districts, and Municipalities).
  
  The criteria for classifying projects as priorities are (i) sectors with a high demand for investment in infrastructure; or (ii) projects with an inductive effect on local or regional economic development.
  
  This regulation will be subject to biennial publication on the 31st day of the year preceding its intended period of enforcement This periodic update mechanism aims for greater agility in identifying strategic sectors for the country, facilitating the analysis and inclusion of new areas or technological solutions, as well as...