Selling off big assets like international airports is attractive, short-term -- especially when the suitor is the handsome Changi. But doing so is an abdication of responsibility, a trusting of your nation's front door to a third party.
Brazil sold the country’s second-busiest airport for almost four times the minimum bid as part of President Dilma Rousseff’s program to modernize infrastructure and shore up investor confidence.
The Aeroportos do Futuro group led by Odebrecht SA, and including Singapore airport operator Changi Airport Group, offered 19 billion reais ($8.3 billion) and won the right to run Galeao airport in Rio de Janeiro, which will host tourists for the soccer World Cup next year and the 2016 Olympic Games, for 25 years. The offer compares with the minimum required bid of 4.83 billion reais.
The real surged as the auction showed Rousseff can attract investors to her 212 billion-reais plan for improving roads, railways, ports and other infrastructure even as growth in Latin America’s largest economy slows. The government is under pressure to complete the projects as the country prepares to welcome a projected 600,000 international visitors for the World Cup in June.
“Those pessimistic about Brazil will have a bitter day today,” Dilma Rousseff said in a speech in the northeastern city of Fortaleza. The airport auction “didn’t go wrong.”
The real rose as the premium on Galeao airport boosted speculation more dollars will flow into Brazil, according to Pablo Spyer, a director at Mirae Asset Management in Sao Paulo. The currency, which appreciated as much as 1.14 percent, rose 0.9 percent to 2.2851 per U.S. dollar at 4:23 p.m. in Sao Paulo.
Singapore’s air transport system is ranked first for quality in the World Economic Forum’s latest Global Competitiveness Report, based on a survey of more than 13,000 business leaders. Brazil’s system, by contrast, ranks 123rd on the list of 148 countries. Changi airport in Singapore was the 13th-busiest in the first eight months of 2013, according to the Airports Council International in Montreal.
Last year, Brazil sold licenses for three airports, including Brasilia and Sao Paulo’s Guarulhos, for a total of 24.5 billion reais. Afterward, the government was criticized for setting terms that failed to draw the world’s biggest airport operators, so the terms were redrawn for today’s auction.
“I don’t think Odebrecht tore up money with their bid, that’s not for us to say, considering what we bid on Guarulhos last year,” said Antonio Carlos Mata Pires, vice president of OAS Investimentos SA, in an interview at the auction. OAS is an investor in Invepar, which led the group that won Guarulhos last year with a 16.2 billion-real bid, almost five times the minimum.
Today’s auction “is a success of Brazilian-style capitalism, a partnership of government and the private sector,” Adriano Pires, head of the Brazilian Center for Infrastructure in Rio de Janeiro, said by phone.
Rousseff’s infrastructure drive has suffered a series of delays and revisions. The government has not yet auctioned any railway or port concessions, which it originally pledged to do this year. It has pushed back its high-speed rail project to connect Rio and Sao Paulo until after presidential elections next October.
Earlier this year, the government had to boost the rate of return for road projects after an initial offer did not generate interest. Still, one of two roads auctioned in September drew no bids.
The government in October awarded Libra, the country’s largest oil discovery and first pre-salt field auctioned, to a group including state-run Petroleo Brasileiro SA, Royal Dutch Shell Plc, and Total SA. The bid involved a 15 billion-reais signing fee, and Libra requires spending of about 400 billion reais over 35 years, according to regulator ANP.
The Aerobrasil group led by CCR SA, including the operators of Munich’s and Zurich’s airports, today won the right to operate the Confins airport in Belo Horizonte for 30 years. The group offered 1.82 billion reais versus a minimum bid of 1.1 billion reais. CCR, which jumped as much as 1.81 percent in the local stock exchange, rose 0.33 percent as of 4:08 p.m. local time.
The government will auction three highways before year-end, Finance Minister Guido Mantega told reporters today in Brasilia. One of those road projects is “risky” in terms of attracting bidders, according to Jefferson Finch, an analyst from political risk consultancy Eurasia Group.
“If they can follow this up with three successful highway auctions, it could really be very helpful in turning the boat of sentiment away from negative to more positive,” Finch said by telephone about today’s airport auction. “It’s going to be an incremental process, but this is going in the right direction for Brazil.”
Brazil’s currency has climbed 1.3 percent over the past five days, its first weekly rally since Oct. 18 and more than all major currencies tracked by Bloomberg. That follows a 10.2 percent weakening this year amid speculation the country may be downgraded by Standard & Poor’s.
S&P in June placed Brazil’s rating on negative outlook, citing weak growth. Rousseff will end her first term next year with the slowest four-year expansion of gross domestic product since 1990, according to the latest central bank survey of economists.
Brazil’s economy grew 2.7 percent in 2011 and 0.9 percent in 2012. Analysts surveyed by the central bank forecast 2.5 percent expansion this year and 2.1 percent next year.
Brazil’s state-run management company Infraero will retain a 49 percent stake in the airports, and the winning bidders will contribute 5 percent of annual revenue to support the country’s other airports.
Five groups submitted bidding documents on Nov. 18. Brazil required bidders for Galeao to have experience managing airports that handle 22 million passengers a year, and for Confins 12 million passengers.
Galeao handled more than 17 million passengers in 2012, according to the civil aviation agency, known as Anac. Confins is the fifth-busiest Brazilian airport, handling more than 10 million last year.
“We plan to bring Swiss-German qualities to Confins: punctuality and reliability,” Daniel Schmucki, CFO of Flughafen Zurich, which holds 24 percent of the winning group for Confins, said by telephone. “We aim for best practice international standards.”
Investment in Galeao is expected to reach 5.7 billion reais, including cargo storage installations in time for the 2016 Olympics, according to Anac. Investment for Confins includes construction of a new terminal and runway, and will reach about 3.5 billion reais.
“This not only shows the companies’ interest, because the winners were large airport companies,” Rousseff said today, according to the presidential palace blog. “It shows the immense interest of international investors in Brazil.”
With assistance from Anna Edgerton in Brasilia, Katerina Petroff and Gabrielle Coppola in Sao Paulo and Richard Weiss in Frankfurt. Editors: Andre Soliani, Harry Maurer. To contact the reporters on this story: David Biller in Rio de Janeiro at [email protected]; Christiana Sciaudone in Sao Paulo at [email protected]; Taís Fuoco in Sao Paulo at [email protected] To contact the editor responsible for this story: Andre Soliani at [email protected]
Photo credit: The operator of the world's best airport Singapore Changi, pictured, just purchased Rio de Janeiro 's airport. Changi Airport