MEMORANDUM TO CLIENTS
29/07/2010 Regulatory Agencies
Newsletter - Project Finance / Regulatory Agencies
Brazil’s High-Speed Train Project
On July 14, 2010, the Brazilian Agency for Ground Transportation (Agência Nacional de Transportes Terrestres – “ANTT”) released the request for proposal (“RFP”) regarding the high-speed train (“TAV”) that will connect the cities of Rio de Janeiro, São Paulo and Campinas.
In addition to the RFP, a draft of the concession agreement was also released (“Concession Agreement”) with a number of annexes, including a draft of the shareholders’ agreement (“Shareholders’ Agreement”) to be entered into by the shareholders of the Concessionaire, and a schedule of events.
The winner will be the bidder that bids the lowest fare per kilometer between the cities of Rio de Janeiro (Barão de Mauá Station) and São Paulo (Campo de Marte Station), in Economy Class, with a maximum ceiling price of BRL 0.49/km (“Maximum Tariff”). The term of the concession is 40 years, during which the Concessionaire will be entitled to operate the concession and to assign the rights to exploit certain train stations.
The indicative value of the Concession Agreement is BRL 33,054,730,000.00. The final date for beginning commercial operations of the TAV in its entire route, that is, from Rio de Janeiro to Campinas, shall be, at the most, 6 years from the date of issuance of the preliminary environmental license and of the transfer of possession of a specific portion of the land related to the project.
There are no restrictions regarding the participation of foreign companies, pension funds and investment funds. Furthermore, the bidding rules allow companies to form a consortium.
Bidding Documents
On the date provided for in the schedule of events (as described in more detail below), the bidders shall present the following:
(i) Bid Bond – the bid bond shall be of, at least, BRL 340,000,000.00, either in cash, Brazilian government bonds, performance bonds or bank guarantees. The bid bond shall be valid for the periods set forth in the RFP.
(ii) Pre-Qualification Documents – these documents shall attest that the bidder or one of the members of the consortium holds, directly or through its contractors, the state of the art in high-speed train technology, duly homologated and certified in its country of origin, as well as evidence of experience in similar projects.
The bidders shall follow the technical standards of UIC/TSI/EURONORMS and the Brazilian laws in force. However, the RFP allows the use of alternative standards and norms, provided that they are internationally applied to high-speed train systems.
(iii) Bid Proposal – the bidder shall submit an unconditional and irrevocable bid for the Maximum Tariff, up to the third decimal place.
(iv) Qualification Documents – these are the documents commonly requested in biddings, such as corporate documents attesting good standing and tax clearance certificates, as well as documents confirming financial standing.
The RFP also requires bidders to submit a Business Plan (Plano de Negócios) and a Construction Methodology (Metodologia de Construção), indicating in detail the milestones, schedules and procedures for the construction, operation and maintenance of the TAV.
Evaluation of Proposals
The bid committee will first review the bid bonds and the pre-qualification documents for accuracy and completeness. Then, the bid proposals are opened and the winner bidder is declared. Only the Qualification Documents, Business Plan and Construction Methodology of the winner bidder will be analyzed.
In the event that more than one bidder submits the same Maximum Tariff, the winner shall be the bidder that has most experience operating a complete high-speed train system.
Conditions for Executing the Concession Agreement
The RFP establishes that the Concessionaire must be a special purpose vehicle (“SPV”) with no other purpose than the project. The SPV’s shareholders shall be the Federal Public Company (Brazilian Government) and the winner bidder, through another special purpose vehicle (“Private Shareholder”).
Within 90 days as from the bidding’s result, the winner shall submit, among others, the following documents:
(i) a performance bond in the amount of BRL 1,000,000,000.00;
(ii) evidence of an initial equity contribution by the Private Shareholder in the Concessionaire of at least BRL 500,000,000.00;
(iii) approval of a capital increase of up to BRL 3,400,000,000.00, to be subscribed and paid-in by the Federal Public Company;
(iv) insurance policies, in accordance with the terms and conditions of the Concession Agreement;
(v) evidence of payment to the Banco Nacional de Desenvolvimento Econômico e Social – BNDES (Brazilian Development Bank) of BRL 30,000,000.00, for the TAV’s feasibility studies.
The Concessionaire and its Corporate Governance
The Private Shareholder shall contribute equity to the project equal to, at least, 30% of the total amount to be invested by the Concessionaire in the implementation of the TAV.
The Concessionaire shall have a Board of Directors composed of five members, chosen by the Private Shareholder and the Federal Public Company in accordance with the respective proportion of their shareholdings, provided that the Federal Public Company shall have the right to choose, at least, one member, regardless of its stake in the Concessionaire.
The draft of the Shareholders’ Agreement sets forth that certain matters require the express approval of the Federal Public Company, such as: acquisition of shares of capital stock of any company, incurrence of any indebtedness, except in connection with government financing, and the amendment or replacement of any project document. In addition, the Federal Public Company shall have a golden share, with the right to veto the following corporate matters: (i) change in the company’s name, (ii) change in the company’s head offices, (iii) change in the company’s purpose, (iv) liquidation, wind-up, transformation, spin-off, amalgamation or its merger with another company, as well as the request for bankruptcy and judicial or extrajudicial reorganization, (v) amendment of the SPV’s by-laws provision that requires full compliance with the Shareholders’ Agreement, (vi) changes in the minimum set of corporate governance rules defined in the RFP and (vii) any change to the golden share.
As a general rule, the transfer of shares of the Concessionaire shall not be permitted, nor encumbrances upon such shares, except when in favor of the project lenders. The transfer of the Concessionaire’s shares shall only be permitted in the following situations: (i) when related to the public offering of shares, (ii) as a result of the foreclosure of the pledge over the Concessionaire’s shares in favor of public lenders or (iii) after the 5th year of the beginning of TAV’s commercial operation.
Likewise, as a general rule, the admission, withdrawal or substitution of any shareholder of the Private Shareholder shall not be permitted before the 5th year as of the date of the beginning of the commercial operations of the entire TAV system, except in the case of investment funds and pension funds.
The RFP establishes that an initial public offering of shares by the Concessionaire, which shall not result in a change of the control, must be carried out no later than the 8th year of commercial operation.
Another relevant provision of the Concession Agreement is the technology transfer provision, according to which the Private Shareholder shall transfer to the Federal Public Company the technology associated with the TAV. Also, according to the RFP, the Concessionaire’s by-laws shall include certain mandatory provisions, such as: (i) submission of any corporate dispute to the Arbitration Chamber of the Bovespa Stock Exchange; and (ii) tag-along rights to the minority shareholders of the SPV in the event the Private Shareholder sells the Concessionaire’s control.
Financing the Project
The Concessionaire is allowed to request financing from the Brazilian Government up to an amount equivalent to 60.3% of the total investment or BRL 19,977,227,000.00, whichever is lower.
In order to finance the project, the Concessionaire may offer, as a guarantee, the rights resulting from the concession, provided that this does not interfere with the proper rendering of the services. Furthermore, the Concession Agreement provides that the lenders may take control of the Concessionaire, that is, the lender may have step-in rights in an event of default under the loan agreements. To do so, they must attest to the Public Administration that they satisfy the legal and tax requirements set forth in the RFP.
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