BTG will give guarantees to infrastructure financing

BTG Pactual will give financial guarantees for the financing of infrastructure concessions through its insurance arm. The guarantees will be offered to public and private banks and to the capital market, according to André Gregori, partner and head of the bank’s insurance arm.

According to him, the insurance company will provide coverage for traditional loans, guaranteeing payment of a credit given by a bank, as well as financial guarantees for project finance, debentures and other structures via the capital market. Today these more complex structures do not find support in the insurance market, said Gregori.

According to a Valor Econômico newspaper report published on August 30, the aspect of guarantees to the financing of projects is one of the crucial points for the banks to support the infrastructure concessions. Financial institutions are lining up the matter with the government and these insurance instruments would be an alternative.

What many insurers offer today in Brazil is the traditional surety, which covers the delivery of works and services under the contract, but not project funding. There is also the traditional credit insurance, which covers the merchant credit default, between two non-financial entities, which is the case of producing companies and their suppliers. We will provide assurance for the pure financial credit, Gregori said.

There are also some initiatives from European governments’ credit bureaus to give financial guarantees to business done in Brazil, but they usually come in projects involving companies from their homeland, which is the case of the Italy’s government bureau, Sace, which has given financial guarantees to loans of Vale and Petrobras in order to encourage the purchase of equipment and services from Italian companies.

To support the business, BTG Pactual invested last month $109.64 million in its newly created reinsurance company, which, added to the current capital and the insurance company’s capital, totalize $175.43 million of capital from the insurance arm of the group. The higher the capital, the greater the capacity of the company to accept risks.

Gregori did not disclose the maximum value of assurance that the insurance arm of BTG can give, but said it is able to give billionaire guarantees, being capable of address large infrastructure projects.

This does not mean that all risk will be within the insurance companies of the group. One of the pillars of the insurance market is risk dilution. In this case, the reinsurance company of BTG shares part of its risk with other reinsurance companies, a mechanism known as retrocession.