The Magdalena River waterway PPP, considered one of the most crucial infrastructure projects launched under President Juan Manuel Santos’ administration, has gained a new lease of life.

Almost six months after the Navelena consortium had its initial financing proposal for the $1.2 billion project rejected by regional state-owned agency Cormagdalena, US investment bank Goldman Sachs has potentially rescued the project from cancellation.

Cormagdalena, awarded a 13.5 year concession to restore the navigability of Colombia’s main river to the Navelena consortium, comprising Brazilian construction firm Odebrecht (87%) and local firm Valorcon (13%), in August 2014. The project aims to transform the area into a transportation and logistics hub and dramatically reduce the cost of cargo shipping from Bogotá to the Caribbean Sea.  

Reputation crisis

The Magdalena River PPP has become one of the latest projects in Latin America to feel the rippling effects of the "lava jato" (carwash) investigation launched by the Brazilian Federal Police following the outbreak of a huge corruption scandal in Brazil which has hit state-owned oil and gas company Petrobras and major construction companies. 

Brazilian sponsors have suffered reputation crises after becoming further entangled in the scandal, which has impacted their access to financing. In March 2016, Marcelo Odebrecht, ex-CEO of Odebrecht, received a prison sentence of more than 19 years as a result of the investigation. In August the Brazilian government seized over R2 billion ($620 million) in assets from Odebrecht and fellow construction firm OAS.

Odebrecht's crisis has hit the development and financing of the $7 billion Gasoducto Sur Peruano natural gas pipeline in Peru also. As reported by IJGlobal, Odebrecht was required to dispose of both its stakes in the GSP project company and EPC contract in order for the deal to achieve financial close after its CEO's sentencing. After a competitive process Odebrecht is expected to offload its stake to a consortium comprising Sempra and Techint.

Rescue plan

Following Cormagdalena’ s rejection of Navelena’ s March 2016 proposal, the consortium was due to reach financial close on the project in June. But it breached these terms and was subsequently granted another extension. If the consortium did not find an acceptable resolution by this time, Cormagdalena said it would begin a process to terminate the contract.

The asset is considered highly attractive, and a significant number of other firms have expressed an interest in developing the project. The concession revenues are based almost entirely on government payments (96%), and rely marginally on traffic revenues.

Navelena presented a new proposal to Cormagdalena at a hearing held on 30 August which set out a detailed plan and timeline to reach financial close by a proposed date of 23 November.

Among the documents submitted to Cormagdalena was a letter of intent from Goldman Sachs in which the bank commits to arranging a debt financing of up to around $300 million, in which it could also participate as a lender, as well as a draft term sheet of the proposed funding conditions and a detailed outline of weekly and daily activities to be carried out in order to achieve this.

Sources who have seen the documents told IJGlobal that Colombian development finance institution FDN and state lender Banco Agrario have been approached for the deal. Other commercial banks could also feature in the package.

The proposal also includes a plan for Odebrecht to significantly reduce its majority ownership in the project company to between 11%-27%, with the entrance of two new players.

IJGlobal has exclusively learned that Jan de Nul is said to be interested in taking a 25% stake and Colpatria could take a 35% share. “This would leave an open window for a third player to take a share of between 0-16%" they said. Valorcon will continue to hold the remaining 13%.

Goldman Sachs is now expected to carry out a preliminary funding round to the banks to see if the current terms are deemed acceptable. If feedback is received that Odebrecht’s stake needs to reduce further, a third new sponsor will likely come on board.

The new sponsors have not yet formally entered the deal, and if they do, the equity buyout is expected to occur at the same time as financial close.

Vote of confidence

The Magdalena river PPP marks the fourth major project financing undertaken by Goldman Sachs for a Colombian infrastructure project, demonstrating the investment bank's growing confidence in and appetite for the market.

Goldman Sachs arranged several multi-tranche, dual-currency, hybrid financings backing three of Colombia’s 4G toll road concessions. Two of the deals – the Costera Cartagena Barranquilla and Pacífico Tres projects – involved the placement of local and international bonds, as well as local bank loans and institutional debt, creating a new paradigm for infrastructure finance in underdeveloped Latin American markets.

The 908km Magdalena river project is expected to take an estimated five years to build. Upon completion the project will be delivered with barges each with capacity to transport 7,200m tonnes.

Works include canalisation of 256km of river between Puerto Salgar and Barrancabermeja and maintenance of the whole 1,700km of river until the mouth at Bocas de Ceniza. The river depth will be kept at a minimum of seven feet (2.13 meters), allowing lighters with cargo up to navigate.

Upon completion, the waterway could offer the fastest route for the transportation of oil to the Caribbean coast.

Advisers

Clifford Chance and local firm Brigard & Urrutia are advising the Navelena consortium. Structure is financial adviser to Navelena. Milbank, Tweed, Hadley & McCloy and local firm Philippi Prietocarrizosa Ferrero DU & Uria are advising Goldman Sachs. Bonus is adviser to Cormagdalena.