Future World Cup hosts, Brazil, Russia and Qatar are working hard to score pre-tournament funding and ensure a post-tournament windfall. Laura Benitez reports.


Hosting a World Cup tournament can give countries the chance to turn their economies around, address their infrastructure needs and attract investment opportunities from around the world, and while Brazil is well on its way to doing this, Russia and Qatar are just kicking off their efforts.

Brazil 2014

First in line to welcome the World Cup is Brazil, and with its slowing economy the nation is hoping the event will provide a well-needed boost to its finances.

Brazil’s economy peaked in 2010, growing by 7.5% and making it the world’s second biggest emerging market economy. However, as growth fell to 2.7% in 2011, and is expected to drop again in 2012 to 2%, the World Cup investment flows cannot come fast enough.

According to one of the sponsors for the Brazilian World Cup, Ernst & Young, the tournament will produce a “surprising cascading effect” on investments made in the country. Brazil is set to reap five times the total amount invested in the event; the tournament will raise R$112.79bn and a further R$142.39bn is expected to flow into the country from 2010 to 2014.

At the initial planning stages of the World Cup a high volume of public-private partnerships (PPPs) was anticipated, especially for stadium construction and infrastructure projects. However, Ernst & Young claims that this is unlikely to be the predominant model of financing. Brazil’s growing infrastructure needs should be drawing the attention of foreign investors around the globe, but as the event draws nearer it’s looking like Brazil’s development bank BNDES will be providing the
lion’s share of the financing.

As an incentive to drive investor appetite and to curb the dependence on BNDES – which is currently accounting for over two thirds of the World Cup-related financing − the government announced in October that it was introducing income tax breaks for project finance bonds aimed at foreign investors and those in the private sector.

Foreign investors have been blocked, or deterred from investing in Brazil’s infrastructure projects over the years because of the country’s bureaucracy and corruption. Environmental licences have been notoriously hard to obtain,
and once approved, it’s not unheard of for projects to be delayed by up to five years. In addition, stadium projects are seen as particularly risky investments as many are expected to not be used again, and will therefore not produce long-term cashflows.

These challenges have impacted the country’s foreign direct investment (FDI) appeal, according to Ernst & Young’s first annual Brazilian attractiveness survey, published in August 2012. The survey shows that the FDI numbers for the first quarter of 2012 were down significantly with only US$5bn invested in Q1 2012, compared to US$23bn in Q1 2011. Similarly, project numbers were down by 19% from Q1 2011.

“The decline in FDI value in the first half of this year may well be a temporary blip but Brazil must listen to the concerns of global investors and entrepreneurs who feel the authorities could do more to encourage innovation by addressing concerns around the high tax burden and the challenges of starting a new business,” the survey states.

The survey also shows that 24% of respondents believe that incentives to lower corruption would help increase FDI in Brazil, while 17% say a more transparent tax system would invite investors. 34% believe Brazil’s high corporate tax rate was off-putting to investors, especially when compared to rates in other Latin American countries, such as Chile and Mexico.

BNDES takes the lead

BNDES has so far allocated R$6bn in funding for the 2014 World Cup, and to date has disbursed around R$1.8bn, Rodolfo Torres dos Santos, head of mobility and urban development of social area at BNDES tells GTR.

BNDES is offering two credit lines for World Cup projects. The first facility, under its ProCopa arenas programme, totals R$4.8bn. Financing for each project, which can fall into the public direct investment, PPP or private investment categories, has a limit of R$400mn, or 75% of the project cost – whichever is the lowest. All BNDES loans under this programme will be priced at 709 basis points (bps) over Libor and will have a grace period of three years and a tenor of 12 years.

Torres dos Santos explains that BNDES has so far committed to financing 10 projects under its ProCopa arenas programme, which finances the construction or renovation of stadiums participating in the event. R$36mn in financing has already been approved for the arenas in Curitiba, Belo Horizonte, Cuiabá, Fortaleza, Manaus, Natal, Salvador, São Paulo, Recife and
Rio de Janeiro.

BNDES’s second credit line of R$1bn is under its ProCopa Tourism programme, which will fund the construction, reform and modernisation of hotels. Under the programme, BNDES will finance up to 80% of the project cost, and up to 100% for SMEs.
For SMEs, direct loans under the ProCopa Tourism programme will have a margin of 965bps and a tenor of between eight and 15 years. Medium to large companies will be offered a margin of 1,155bps a year and a tenor of eight to 10 years. However, for energy-efficient projects, margins are lowered to 1,055bps, and for sustainable energy projects they will be even lower at 965bps with tenors of between 12 to 18 years, and 10 to 15 years respectively.

Additionally, BNDES will start buying local infrastructure bonds from companies next year with the aim of developing the country’s transport system in time for the World Cup. Brazilian companies are expected to sell up to R$50bn in bonds (US$24.7bn) in 2013, according to BNDES president Luciano Coutinho.

Russia 2018

With only five years to go it until it plays host to the World Cup, it seems Russia is taking its time to get the ball rolling. Costs for infrastructure preparations are expected to total R$600bn (US$19bn), and the government is believed to be financing 50%, with the rest coming from private investors.

So far, Russia’s biggest banks have been tight-lipped about their financial involvement in the associated projects, and Russia’s export credit agency Exiar has confirmed to GTR that it is so far not involved in any projects. According to Fifa officials this is because, until recently, details of the host cities and stadiums were kept under wraps. It was only on September 29 that Russian minister of sport Vitaly Mutko and Fifa president Joseph Blatter announced the 11 cities and 12 stadiums that will host Russia’s 64 World Cup matches.

Mutko says that announcing these plans will now allow stakeholders to start seeking funding options and make a start on preparing construction plans. Five of the stadiums for the tournament are already underway, including Spartak, Moscow’s arena, and the stadiums in Sochi, Kazan, Saransk and St Petersburg.

Meanwhile, in July this year, VTB Bank received €500mn in export financing to develop an infrastructure complex for the tournament. The facility will be used to construct the VTB Arena Park − a complex of hotels, apartments and offices around Dynamo Moscow’s stadium − which will be built by Italian construction firm De Eccher.

The package is comprised of three financing agreements, with Intesa Sanpaolo acting as the sole agent. Italian bank Cassa Depositi e Prestiti (CDP) is providing €276mn, backed by a 100% guarantee by Italy’s export credit agency, Sace. €208mn will be disbursed by Intesa SanPaolo, Société Générale and KfW Ipex-Bank, all acting as mandated lead arrangers, with Sace insurance on 95% of the loan. The remaining €22mn will be provided by Intesa SanPaolo and Société Générale, which will also act as mandated lead arrangers on the tranche.

Qatar 2022

Qatar’s 2022 World Cup may be the furthest away but some of the budgeting plans are already underway.

Apostolos Bantis, emerging markets credit analyst at Commerzbank confirms that the Qatari government has already budgeted US$65bn for projects related to the World Cup, although various industry forecasts expect that the final bill will reach US$100bn.

“From what I understand none of the major projects have been tendered yet. The first priority is to start with the general development projects, part of the National Development Strategy, while the World Cup contracts will start later in 2015,” Bantis adds.

Keen to cash in on what could be very lucrative investments, Qatari banks are preparing to provide a big slice of the county’s infrastructure financing. And although international funding will be essential for such large-scale projects, Qatari banks are making no secret of the fact that they want to claim the main stake of the country’s infrastructure deals.

“I believe that Qatari local banks will take most of the World Cup projects; this will be a good marketing tool for them and the estimated budget of the games is manageable for the local banking system,” Bantis explains.

Abdel Rahman Tayeb Taha, CEO of ICIEC, says that because the World Cup-related infrastructure will be rolled out mainly through Qatari Banks, international banks will be encouraged to work through their Qatari partners if they want to be involved.

As testament to this, Louis Robinson, managing director, Emea trade and network origination head, global transaction services at RBS explains that the bank recently set up an office in Qatar in order to better establish relationships with local banks, due to the “fierce competition for both companies and banks looking to support infrastructure projects”.

He confirms that RBS is currently in the process of supporting an Asian construction company, which is bidding on a contract to build one of the football stadiums. Robinson notes that other international banks are following suit, and that some big names have recently moved out to Qatar, including two well-known Chinese banks, and that others have plans to follow.

“Getting out there was a really important move; we had to make sure there was a connection to Qatar. It not only allows us to assist local companies to do business, but it also allows us to help our clients overseas do business in Qatar. If we didn’t have an office in Qatar we wouldn’t be able to do the deals that we’re doing mainly because the local companies and government want local Qatari banks to manage all of the projects. Trying to do all of this offshore would be very difficult.”
Robinson says that RBS is currently in the process of hiring a trade finance professional to be based in Qatar, and is hoping that the hire will be finalised by the end of 2012.

According to Bantis at Commerzbank, Qatar’s local banks will not be in a position to finance all of the country’s planned infrastructure and construction.

“Given the large size of the total projects, which is more than US$200bn including both the World Cup and the National Development Strategy, the local banks cannot afford to take all of that amount on their books, therefore international banks are expected to play a major role as well and there is a clear trend that the Qatari sovereign and local banks are starting to tap the international bond markets in order to fund their longer-term lending activities. This trend will continue over the medium term,” Bantis adds.

When international financing is called on, ICIEC’s Taha believes that European and US banks will be keen to step up, despite banks curtailing their lending activity.

“Because of the financial woes in the eurozone and the lack of US dollar availability, the European and international banks are witnessing a remarkable decrease in their risk appetite, but they will most likely overcome this when it comes to dealing with the lucrative Qatari market.”

Additionally, Robinson at RBS explains that the Qatar World Cup projects are also generating interest from many Middle East banks, which in turn will generate a lot of syndications due to the huge scope of some of the projects.

He adds that ECAs will play a vital role in financing the Qatar World Cup, especially as a lot of the projects are anticipated to have complex structures and high values. So far, he confirms that UK Export Finance, Sweden’s EKN, and US Exim “are all working on big deals”.