The Inter-American Development Bank (IADB) has approved its first private sector financing for a bio-energy project in Brazil for US$120mn to Usina Moema Accar e Alcohol, a major sugar, ethanol and bio-energy producer based in the state of So Paulo, that is operating in one of the fastest growing industries in Brazil and worldwide.
This operation is part of IADB’s initiative to promote the structuring of senior debt financing for five Brazilian ethanol production projects that will have a total cost of US$997mn. These investments will contribute to Brazil’s goal of tripling annual ethanol production by 2020.
The IADB also supports the Brazilian government’s goal of becoming a global centre of excellence for research and development in biofuels. The bank is holding discussions with senior Brazilian officials with a view to facilitating technology transfer and technical assistance, so that other countries in the region can benefit from Brazilian know-how.
“In past years, Moema’s brisk growth was financed primarily by short and medium-term debt,” says IADB team leader Leandro Alves. “Moema is now in the process of refinancing up to US$120mn of such debt through a financing package put together by the IADB.”
The package comprises an IADB loan of up to US$40minfrom the bank’s ordinary capital and US$80mn of co-financing from commercial banks.
“The transaction will help Moema increase the average life of the debt being refinanced from approximately 10 months to 6.6 years,” explains the other IADB team leader, Sylvia Larrea. “It will therefore improve the company’s debt profile towards one more consistent with the long-term nature of its assets, enhancing the sustainability of the company.”
The operation will allow Moema to redirect funds used to service short-term debt to fund its capital investment plan, including projects to boost Moema’s production of sugar, ethanol and energy co-generation from biomass (bagasse).
IADB’s private sector window serves as a catalyst, not only enabling financing in the long tenors required by the company, but also mobilising private funds in the form of co-financings. Required implementation of IADB’s Environmental and Social Management System ensures a good management of potential environmental, social, health, safety, and labour impacts.