February 8, 2017 / 2:55 PM / 6 months ago

UPDATE 1-Brazil eyes currency hedge for infrastructure projects, paper says

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SAO PAULO, Feb 8 (Reuters) - The Brazilian government is considering cutting annual licensing fees to companies building and operating future infrastructure projects to offset the impact of sudden currency fluctuations that may hamper their long-term financial planning, newspaper Valor Econômico said on Wednesday.

According to Valor, the government would put the mechanism in practice at the upcoming March 16 auction of licenses to operate four airports. The tool would aim at helping winners obtain financing denominated in foreign currencies, Valor said.

Under the plan, the government would cut an annual levy that licensees pay to a civil aviation fund should the Brazilian real decline sharply. In November, Finance Minister Henrique Meirelles opposed the implementation of government-backed tools to help hedge infrastructure investments from currency volatility.

Investors eyeing long-term infrastructure assets in Brazil have long demanded the government offer some protection from moves in the real. A dearth of foreign financing has hampered the execution of massive infrastructure plans in Brazil over the past couple of decades.

The real weakened 0.2 percent to 3.1264 reais to the dollar, the lowest in almost a week. The currency is up 4.4 percent this year.

Valor said the mechanism under analysis would allow operators to deduct the impact of real's decline on their foreign debt, net of an index tracking inflation, country risk and other measures. Current law requires airport operators to transfer 5 percent of gross revenue to the fund.

Under the proposal, however, that payment could increase to as much as 10 percent of gross revenue if oscillations in the index offset the effect of foreign exchange moves, Cabinet Minister Wellington Moreira Franco told Valor.

Media representatives for the government were not immediately available to comment on the report. (Writing by Bruno Federowski; Editing by Guillermo parra-Bernal and Andrea Ricci)

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