By Arnaldo Jardim and Joaquim Augusto Melo de Queiroz

2024 began with auspicious news for the infrastructure sector. On January 9, Law 14,801/2024 was published, establishing a new type of debenture (infrastructure debentures). The new category has been warmly welcomed and had long been awaited by the market.

Debentures are nothing new in Brazil. Their legal basis dates back to the early days of the Republic, with the publication of Decree 177-A in 1893. However, it was after their regulation in the Corporations Law that debentures came to be widely used as an instrument for raising funds to capitalize companies. In short, they are securities issued by companies that give their holders credit rights against the issuer, with previously agreed remuneration terms.

Due to their success, and with the aim of further expanding their use, a new type of debenture (incentivized debentures) was created in 2011. The intention was to grant individual investors an exemption from Income Tax (IR), as well as a reduced rate in certain cases where the purchaser was a legal entity.

Stimulated by these tax benefits, infrastructure project financing expanded significantly. However, although the initiative was praised, its scope was limited to granting the benefit to the purchaser of the security. Until then, there was no legal provision for a tax benefit to the issuer. This gap has now been filled with the creation of infrastructure debentures, and this structure is expected to bring even greater strength to private financing of infrastructure projects.

The great distinguishing feature of the new class of debentures is that it grants tax benefits to the issuing legal entity. Under the new law, the legal entity may, when calculating net income, deduct the amount corresponding to the sum of interest paid or incurred, Income Tax and the Social Contribution on Net Income (CSLL). What is more, to determine taxable income and the CSLL tax base, the issuer may exclude an amount corresponding to 30% of the interest on the debentures.

As a result of this mechanism, the company benefits from lower costs for issuing the securities, gaining greater flexibility to offer aggressive rates and more attractive returns to investors. This creates a virtuous circle of financial dynamism in the debenture market. In addition, infrastructure debentures also attract the interest of other categories of investors, including institutional investors with a greater appetite for risk. There is a wide range of opportunities to attract new investor profiles, such as foreign pension funds, protected by the possibility of stipulating remuneration linked to the exchange rate.

Another commendable aspect of the new law is the implementation of mechanisms to ensure the integrity of issuance transactions. In this regard, the law prohibits the acquisition of the securities by persons related to the issuer, including those resident or domiciled abroad.

For this purpose, the law considers as related persons individuals who are direct or indirect controlling shareholders, shareholders holding more than 10% of the voting shares or managers of the issuer, their spouses or partners and relatives up to the second degree. It also prohibits acquisition by legal entities that are the issuer’s parent companies, subsidiaries or affiliates, and by funds in which any of these individuals or legal entities holds more than 10% of the units.

In short, infrastructure debentures were conceived through legislation built on consensus and parliamentary coordination in tune with the national agenda. The new law thus brings promising prospects for financing new projects aligned with the energy transition and the country’s economic development. It is a time of enthusiasm and expectation — especially in the context of the country possibly regaining investment grade.

Published by JOTA (in Portuguese).