As Brazil tries to navigate out of recession and political turmoil, it’s also attempting to attract private capital.
Recently, the Japanese financial-services group ORIX Corp acquired a controlling interest in RB Capital, a Brazilian capital-markets and asset-management platform. And Hideto Nishitani, who leads ORIX USA, RB Capital was attractive because of its “very good investor base and deal-making competencies in the real estate asset management business.”
For nationally important assets such as infrastructure, “appropriate long-term financing for [a] private-equity-type structure is going to be a crucial key,” Nishitani said. In Brazil, “RB Capital is the front-runner in the capital markets,” capable of structuring the investments necessary to finance the country’s enormous infrastructure needs.
Marcelo Michalua, managing partner and director of RB Capital, said the firm plays a “disintermediation” role: “We’ve been able to channel resources from institutional investors toward the real economy, real estate and infrastructure. The Brazilian financial market, on the banking side, is not that used to underwriting projects based on loans and financing, which is exactly what we do best.”
Jorge Jaramillo, head of ORIX Latin America, said the region is witnessing “a more concerted effort to have a market-type economy, even in times of volatility.” This trend is promising for long-term investors: “Having intermediaries play a critical role in facilitating projects that would otherwise have been financed 100 percent by equity or governments, that creates an interesting opportunity.”
With respect to Brazil’s unsettled political situation, Michalua praised the economic team of President Michel Temer, saying, “they know what to do in terms of reforms.”
In addition to capping government spending and cutting interest rates, the administration is working to bring capital-markets solutions to longstanding problems, making the regulatory framework more investor-friendly.
Michalua said it would take roughly $90 billion of investment to fund the country’s short-to-mid-term infrastructure needs — ports, airports, railroads and energy. “The local capital obviously won’t be enough to really tap that opportunity,” he says. According to Jaramillo, foreign investors who work with ORIX are “very curious how to safely invest in Brazil with high-quality investors.”
“Obviously these funds and products must be very well underwritten and structured,” fulfilling the needs of Brazilian sponsors and borrowers as well as international institutional investors, Michalua added.
“The other key factor is it’s important for any developing economy in Latin America to support the middle-market businesses,” Nishitani said. “They are going to have to be a driving force for each economy to grow. The role of capital, by way of the private-equity and capital-markets funding, will become a very crucial part of that in world economies going forward.”