Auctions Demonstrate That Investors Prefer Low Risk Projects

09/28/2017 - 12h50

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FLAVIA LIMA

DANIELLE BRANT

NATÁLIA PORTINARI

FROM SÃO PAULO

The first major round of bidding in the Michel Temer government demonstrates a strong foreign appetite for projects considered to be profitable, although investors are shying away from those that appear to have higher risk.

In an environment with rules more favorable to the market, four hydro-electric installations that belong to CEMIG were auctioned for R$ 12.1 billion (US$ 3.8 billion), or 9.7% above the expected amount.

The government also raised R$ 3.8 billion (US$ 1.2 billion) from 37 of 287 petroleum exploration blocks put up for auction, an amount much higher than what was initially expected, about R$ 1 billion (US$ 315 million).

Of the total, only six blocks, which were bid on together by a partnership between Petrobras and Exxon, raised R$ 3.6 billion (US$ 1.13 billion). The blocks are considered to be "prime rib" because they are located in an area with potential pre-salt reserves.

"The money is coming in, but for projects where the business risk is low", said Leonardo Siqueira, from GO Associates. "There is still caution".

According to Siqueira, even in a scenario in which the market evaluates the risk of rule changes to be low, the projects that are getting the most attention are more mature and with a greater certainty of return.

"Companies are eager to invest in Brazil and are looking for higher quality assets", said Cláudio Frischtak, a partner at Inter B Consulting.

Frischtak's evaluation is that the ANP (National Petroleum Agency) put different kinds of assets up for bid and that some blocks were associated with high environmental risks, which ultimately drove away investors.

Translated by LLOYD HARDER

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