Ministry of Finance publishes ordinance that regulates the first “Eco Invest Brasil” auction

On July 11, 2024, the Department of the Brazilian Treasury (“STN”) and the Ministry of Finance (“MF”) issued STN/MF Ordinance No. 1.135, which regulates the Eco Invest Brasil Auction No. 1/2024. This will be the first auction for access to the blended finance subline of Eco Invest Brasil’s Foreign Private Capital Mobilization and Currency Hedging Program Line – “Linha Eco Invest Brasil”. The Eco Invest Brasil program, established by Provisional Measure No. 1.213, dated April 22, 2024 and regulated by MF Ordinance No. 964, dated June 11, 2024, is a pioneering initiative of the Brazilian National Treasury that seeks to create structural conditions to attract private foreign investments and allocate resources for long-term and sustainable projects in Brazil. 

The Eco Invest Brasil line will enable financial institutions to claim and transfer credit to investors of a project as a complement to international fundraising operations. The subline will be accessed through bidding rounds held according to criteria and conditions provided in STN/ MF Ordinance No. 1,135. Access to the funds will be awarded to investment projects that require the lowest proportion of public catalytic capital, as a complement to foreign debt funding operations with currency hedging.

Interested parties must submit a proposal to the STN within 60 days after the issuance of Ordinance No. 1.135.

Find out more about Eco Invest Brasil Auction No. 1/2024:

Participants and proposal’s features

Financial institutions must meet the following criteria to engage in Eco Invest Brasil Auction No. 1/2024 (participation in consortium with up to two members is allowed):

• Be authorized by the Central Bank of Brazil to operate in the country in segments S1, S2 or S3 (if they are members of international conglomerates);
• Have experience and conditions to conduct international fundraising operations for sustainable financing;
• Have conditions to comply with the socio-environmental safeguards required by the Eco Invest program[1]; and
• Bear the risks of financial and credit operations.

The proposals must encompass:

• Raising or attracting of external funds through contractual credit operations or raising capital in the capital markets to finance projects eligible for the Eco Invest program, under the terms of article 3 of MF Ordinance No. 964, listed below;
• Minimum financial leverage ratio of six, calculated on the ratio between the nominal amount of external capital and the nominal amount requested from the blended finance subline; and
• Implementation of currency hedging transactions to minimize the exchange rate risk of at least 60% of the funding in foreign currency of the financed project, or to confirm that this is not needed due to natural hedge.

Interested financial institutions must submit a declaration of compliance with the criteria set out in STN/MF Ordinance No. 1.135 and the Pre-Allocation Report for the funds.

The Pre-Allocation Report must contain at least:

• the amount requested from the blended finance subline;
• the amount to be provided through external fundraising and its financial leverage ratio;
• the indicative allocation of minimum and maximum limits in each activity eligible for the use of funds, with a maximum range of 40 percentage points;
• information on the expected use of the resources and prioritization criteria, and how the project contributes to Brazil’s ecological transformation; and
• the estimated timetable for financial transactions and the disbursement of funds.

Eligible projects and activities 

Economic activities that contribute to ecological transformation, to decarbonization and to increase climate change resilience are eligible for the use of blended finance funds, mainly in the following areas:

• Energy transition through the transformation of infrastructure, and the production and use of clean and renewable energy towards low-carbon solutions;
• Circular economy through the circular flow of funds, based on the principles of waste reduction, product circulation and ecosystem regeneration;
• Infrastructure, mitigation and adaptation to climate change and its effects, expanding and improving the supply of equipment needed to help reduce carbon emissions or increase the resistance of the economy and communities to climate change;
• Bioeconomy and agrifood systems to foster products and services based on the sustainable use of biological resources;
• Technological development of the productive sector in eligible sectors; and
• Other economic activities listed in the Annual Fund Application Plan (“PAAR”) of the National Fund for Climate Change (“FNMC”) or the National Climate Change Plan (“Plano Clima”).

The following activities will not be eligible: activities in the areas of solar energy, wind energy and transmission (except integration with isolated systems) or industries listed as exceptions by MF Ordinance No. 964/2024, such as alcoholic beverages, arms, tobacco, gambling, energy from mineral coal, oil, natural gas and derivatives, as provided for in Article 4. Activities which, during their implementation, are in any way involved in significant environmental and social damage, human rights violations, work analogous to slavery, violation of the rights of indigenous peoples or traditional peoples and communities, illegal suppression of native vegetation or failure to carry out due compensation, as provided for in article 5, will also not be eligible.

Auction conditions and criteria for allocation and transfer of funds

Eco Invest Brasil Auction No. 1/2024 will require a minimum bid of BRL 500 million per bidder, by leverage ratio, and the maximum amount for each institution will be up to 25% of the total amount allocated at the end of the auction (which can be adjusted proportionally to the number of participants, if there are fewer than 4 participants).

Selection will proceed as follows:

• For each financial leverage index, proposals will be ranked based on the highest impact indexes, defined as the quantitative ratio between the external capital mobilized and the current amount of the implicit subsidy of the public catalytic capital line allocated to eligible activities, under the terms of the operational manual to be released by the National Treasury.
• The available global amounts of catalytic capital from the blended finance subline will be distributed on the index with the highest financial leverage, in descending order of the proposals with the highest impact index.
• If the global amounts are sufficient to cover all the proposals with the highest financial leverage index, the remaining funds may be distributed to the next highest index, in descending order of financial leverage, considering the ranking of proposals by impact index in each leverage index.
• Prioritization criteria will be used to break ties between proposals with the same impact index in each leverage index.
• The impact index for each proposal will be calculated by the STN.

Demarest’s Infrastructure and Project Finance team is monitoring the topic and remains available to provide any clarifications that deem necessary.

[1] Significant environmental and social damage, human rights violations, forced labor, violation of the rights of indigenous peoples or traditional peoples and communities, illegal suppression of native vegetation or failure to make proper compensation, according to Article 5 of MF Ordinance No. 964, dated June 11, 2024.