The challenge

Line 6 of the São Paulo subway is a concession awarded by the state of São Paulo. It includes the construction and operation of a new subway line connecting the districts of Brasilandia and Freguesia de Ó to the city centre. The project will have 15 subway stations, will connect four subways lines in Sao Paolo and transport about 630,000 passengers each day. This is being funded through a public/private partnership.

The concession holder, Concessionária Linha Universidade, is owned by Acciona (47%), Société Générale (39.7%), Stoa (12.3%) and Transdev (1%). Acciona is carrying out all the civil works and the rolling stock is supplied by Alstom.

The total cost of the project is approximately R$18bn (€3.35bn), making it the largest public/private infrastructure project under development in Latin America. Acciona needed a broad group of banks to support a financing solution as well as a ‘one-stop shop’ bank able to provide a wide variety of supporting solutions.

“We wanted a partner with a deep project finance expertise and capabilities needed to execute this complex, game-changing project financing in Brazil,” says Juan A. Santos de Paz, Diretor Financeiro e de Sustentabilidade.

The client had already experienced delays and was under significant time pressure. It had taken over the concession from a previous company and was using expensive bridge loans to finance the development of the project. Being able to work with banks with high levels of trustworthiness and time sensitivity were essential.

The solution

The National Bank for Economic and Social Development (BNDES) is a development bank structured as a federal public company associated with the Ministry of the Economy of Brazil. BNDES provided a BRL6.9bn (US$1.4bn), 20-year facility with J.P. Morgan guaranteeing BRL283m (US$54m) through a syndicated letter of credit.

The facility is linked to a Sustainability Impact Linked Framework, which offers financial cost reductions based on the achievement of social targets.

Just under half (48%) of the BNDES loan is being backed during the five-year construction period by 11 banks. The J.P. Morgan Development Finance Institution (JPM DFI) supported Acciona by providing a Development Impact Assessment and assessed the transaction to have an anticipated development intensity of ‘high’ with contributions to seven United Nations Sustainable Development Goals. J.P. Morgan Brazil was also able to assist Acciona with various banking needs, including a complex waterfall structure to approve and release high volume payments held in an escrow as well as other banking services. These included: FX trades, cash management, including a centralised tax payment solution, and a supply chain finance programme.

Best practice and innovation

This is the first time BNDES has ever accepted construction risk. During the construction period, the other financing banks are covering 48% of this risk and BNDES is taking the majority (52%).

A diverse mix of international banks, local banks, development banks and Spanish banks were encouraged to join the project. The 11-bank club includes J.P. Morgan, SMBC Brazil, SMBC New York, Santander, ICO, Credit Agricole, BNP Paribas, Intesa, CAF, ABC Brazil and Bradesco.

It is the first transaction of this type with no limited recourse. It was also the largest loan provided by BNDES in 2022.

A standout feature of the financing is the different banking products that were put in place to make such a large project financing possible in terms of risk, controls, supporting the credit requests and in controlling the funding, which was given by BNDES so that it is disbursed to the construction company based on the completion of project milestones.

The scale and complexity did not mean UN-backed ESG goals were side-lined; they were a core feature of the project.

Key benefits

• Headcount savings.

• Process efficiencies.

• Risk mitigated.

• Errors reduced.

• Increased system connectivity.

• Quality accreditation achieved.

• Improved key performance indicator (KPI) metrics.

Eleven banks are providing cover on the construction risk – a complex and challenging feat in itself – which in turn made BNDES comfortable to also assume construction risk and to disperse funds.