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China to begin financing Brazilian projects with joint fund of $20 billion by March

Petroleumworld.com 01 10 2017

Brazil and China expect a joint fund of $20 billion to begin financing infrastructure projects in the South American country by around March, including bidding for auctions of government-sponsored road, port, airport and logistics operating licenses.

Planning Ministry's foreign affairs secretary, Jorge Arbache, said the countries want the fund, agreed last year, to finance the construction of railroads linking Brazilian soy- and corn-producing belts to ports. China is a large buyer of Brazilian grains.

"Railways will be one of the focuses as both countries are eyeing that sector with much interest," said Arbache, adding that, unlike other Chinese funds, financing decisions will be made depending on both governments' strategic priorities.

The fund could help Brazilian President Michel Temer bolster infrastructure investment to pull Brazil out of its worst recession on record that threatens to stretch into a third year.

In September, Temer launched an investment program to sell the concession of roads, airports, ports and railways, but reduced the participation of the state-run development firm BNDES, which is the main provider of long-term corporate loans.

Facing a massive budget deficit, the joint fund could help the government diversify financing options for companies struggling to find fresh capital amid the crippling recession and ongoing corruption investigation that has targeted Brazil's largest construction companies.

Temer plans to launch a new concession program in March to bid on other roads, infrastructure, and oil and gas fields.

Arbache said he expects the fund to be fully operational by March. Once it begins operations, it will be able to analyze financing requests that could also encompass mining, oil and agricultural projects.

The total amount of the fund could increase in coming years if the business model proves a success. China provides three quarters of fund, or $15 billion, while Brazilian state-run banks BNDES and Caixa Economical Federal the rest.

Authorities in both countries are also considering creating a guarantee fund to help companies interested in biding for projects. Talks remain in the early stages and there were no immediate details available about possible amounts, Arbache said.

Story by Alonso Soto; Editing by Guillermo Parra-Bernal and Bernadette Baum from Reuters.

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