Costa Rica Airport: no concession
Syndication is under way on the $85 million B loan backing the
upgrade of the Juan Santamaria Airport in Costa Rica. The deal,
which has been closed under the umbrella of the International
Finance Corporation, is part of the explosion in airport upgrade
business, especially in Latin America. The peculiarities of the
Costa Rican legal framework, however, mean that its use as a
template for future deals is slight.
The Costa Rican government has not structured the partnership with the private sector as a concession. The correct name for the agreement is an ?Investment Management Contract?, although most of its features mirror that of an infrastructure concession. The main reason for this difference was that the government was in the process of discussing a new concession law, which came into effect after the signing of the initial agreement in November 1999.
The terms of the deal allow a little more government supervision and control than lenders and sponsors find comfortable. Certain features of the airport ? especially the lucrative real estate aspects ? remain outside of the scope. Duty Free, for instance, is still the preserve of a quasi-governmental organisation. Passport control and customs remain resolutely in public hands.
The contract was awarded to the Gestion Aeroportuaria de Costa Rica S.A. consortium. 82% of the equity in the concessionaire is in the hands of Airport Group International Holdings, now owned by TBI, which has been transformed from a property company into a focused airport operator with interests in several Western European airports and Orlando Airport. Further stakes have been taken by Bechtel Enterprises, domestic construction group Edica, CORMAR, a domestic logistics company; and Agencia Datsun.
The bulk of the work relates to construction and maintenance: the refurbishment of the main runway, construction of a new taxiway and rehabilitation of the passenger terminal. The airport must also continue to live up to its current IATA service rating. The contract stipulates a 64.8%/35.2% split in revenues between operator and government, although these revenues, such as terminal fees and site fees, are not the entirety of the airport's income. Various fees, including air traffic control, approach and 25% of landing fees go into government coffers before the carve-up.
This means that streams that can be used for repayment do have to touch the ground in Costa Rica, despite the fact that the majority of revenues in the airports industry are denominated in dollars. Although devaluation risk therefore is minimal, there does exist the possibility of encountering difficulties in convertibility. This, despite the fact that Costa Rica is regarded as one of the most consistently stable and successful democracies in the region.
The consortium, advised by Deutsche Bank, had initially examined the use of a PRI structure, and had managed to get good pricing on a package. In the end the IFC was asked to participate, even though the World Bank group had no direct role in the government's concession programme. Preferred creditor status removes most of the worries about investment that remain.
The request for proposals made long-term financing attractive, although between ten and fifteen years the debt burden becomes a lot less severe. The 25-year agreement calls for a large capital expenditure in the first three years of its life, and it is this first phase that is supported by he financing package. A long-dated bond was therefore less practicable, and probably would have encountered additional legal issues and expensive structural enhancements.
Total project costs, including development work, have been estimated at $160 million, although the debt total is only $120 million. Although no firm figure on the leverage of the project can be arrived at, a hint of the gearing can be gained from TBI's announcement that it would invest $20 million in the project's first phases. Lenders under the $85 million B loan are Deutsche Bank and Dresdner Kleinwort Wasserstein. Both have the titles of co-arranger and will complete the syndication of the debt shortly.
The lending community's interest in the deal is said to be high ? with reason since airport concessions are one of the more desirable classes of infrastructure assets in the market. Not only do they benefit from a high proportion of dollar-denominated assets and normally come with juicy real estate opportunities, they are also experiencing extremely healthy growth. World demand for air travel is high, if somewhat cyclical, and Juan Santamaria Airport has averaged an eight per cent growth in passenger numbers over the last ten years.
Costa Rica's principal airport handles an average of 2.3 million passengers a year, and is among the largest in the region. Whilst it does not really function as a hub, the country itself is welcoming an influx of tourists whose growth in numbers is over double the growth in airport traffic. Costa Rica has positioned itself as a premier destination for eco-tourism, using easy access to rainforests, rivers and mountains and a magnet for adventurous holidaymakers from Western Europe. Moreover several large-scale businesses, including Intel, have interests in the country.
There has had to be an increase in tariffs to fund the rehabilitation work, the setting of which has the potential to cause political trouble. The level of these is set in advance, and as one deal participant, noted ?all of the regional airports will have to look at taking this route sooner or later, so I don't think any competitive disadvantage will be long-lived?. The wave of airport privatizations, in other words, looks set to continue.
It would be difficult to predict how much the deal can serve as a model for future transactions.
The IFC rightly points out that the successful completion of the financing will provide real stimulus to further foreign investment in the country. Its practical application is more limited because the legal framework in Costa Rica changed during the (sometimes tortuous) year-long negotiations surrounding the agreement. Infrastructure needs in the country, as elsewhere in Latin America, are huge, even though Costa Rica was spared the worst of Hurricane Mitch and more, if not similar, deals are certain.
The Costa Rican government has not structured the partnership with the private sector as a concession. The correct name for the agreement is an ?Investment Management Contract?, although most of its features mirror that of an infrastructure concession. The main reason for this difference was that the government was in the process of discussing a new concession law, which came into effect after the signing of the initial agreement in November 1999.
The terms of the deal allow a little more government supervision and control than lenders and sponsors find comfortable. Certain features of the airport ? especially the lucrative real estate aspects ? remain outside of the scope. Duty Free, for instance, is still the preserve of a quasi-governmental organisation. Passport control and customs remain resolutely in public hands.
The contract was awarded to the Gestion Aeroportuaria de Costa Rica S.A. consortium. 82% of the equity in the concessionaire is in the hands of Airport Group International Holdings, now owned by TBI, which has been transformed from a property company into a focused airport operator with interests in several Western European airports and Orlando Airport. Further stakes have been taken by Bechtel Enterprises, domestic construction group Edica, CORMAR, a domestic logistics company; and Agencia Datsun.
The bulk of the work relates to construction and maintenance: the refurbishment of the main runway, construction of a new taxiway and rehabilitation of the passenger terminal. The airport must also continue to live up to its current IATA service rating. The contract stipulates a 64.8%/35.2% split in revenues between operator and government, although these revenues, such as terminal fees and site fees, are not the entirety of the airport's income. Various fees, including air traffic control, approach and 25% of landing fees go into government coffers before the carve-up.
This means that streams that can be used for repayment do have to touch the ground in Costa Rica, despite the fact that the majority of revenues in the airports industry are denominated in dollars. Although devaluation risk therefore is minimal, there does exist the possibility of encountering difficulties in convertibility. This, despite the fact that Costa Rica is regarded as one of the most consistently stable and successful democracies in the region.
The consortium, advised by Deutsche Bank, had initially examined the use of a PRI structure, and had managed to get good pricing on a package. In the end the IFC was asked to participate, even though the World Bank group had no direct role in the government's concession programme. Preferred creditor status removes most of the worries about investment that remain.
The request for proposals made long-term financing attractive, although between ten and fifteen years the debt burden becomes a lot less severe. The 25-year agreement calls for a large capital expenditure in the first three years of its life, and it is this first phase that is supported by he financing package. A long-dated bond was therefore less practicable, and probably would have encountered additional legal issues and expensive structural enhancements.
Total project costs, including development work, have been estimated at $160 million, although the debt total is only $120 million. Although no firm figure on the leverage of the project can be arrived at, a hint of the gearing can be gained from TBI's announcement that it would invest $20 million in the project's first phases. Lenders under the $85 million B loan are Deutsche Bank and Dresdner Kleinwort Wasserstein. Both have the titles of co-arranger and will complete the syndication of the debt shortly.
The lending community's interest in the deal is said to be high ? with reason since airport concessions are one of the more desirable classes of infrastructure assets in the market. Not only do they benefit from a high proportion of dollar-denominated assets and normally come with juicy real estate opportunities, they are also experiencing extremely healthy growth. World demand for air travel is high, if somewhat cyclical, and Juan Santamaria Airport has averaged an eight per cent growth in passenger numbers over the last ten years.
Costa Rica's principal airport handles an average of 2.3 million passengers a year, and is among the largest in the region. Whilst it does not really function as a hub, the country itself is welcoming an influx of tourists whose growth in numbers is over double the growth in airport traffic. Costa Rica has positioned itself as a premier destination for eco-tourism, using easy access to rainforests, rivers and mountains and a magnet for adventurous holidaymakers from Western Europe. Moreover several large-scale businesses, including Intel, have interests in the country.
There has had to be an increase in tariffs to fund the rehabilitation work, the setting of which has the potential to cause political trouble. The level of these is set in advance, and as one deal participant, noted ?all of the regional airports will have to look at taking this route sooner or later, so I don't think any competitive disadvantage will be long-lived?. The wave of airport privatizations, in other words, looks set to continue.
It would be difficult to predict how much the deal can serve as a model for future transactions.
The IFC rightly points out that the successful completion of the financing will provide real stimulus to further foreign investment in the country. Its practical application is more limited because the legal framework in Costa Rica changed during the (sometimes tortuous) year-long negotiations surrounding the agreement. Infrastructure needs in the country, as elsewhere in Latin America, are huge, even though Costa Rica was spared the worst of Hurricane Mitch and more, if not similar, deals are certain.
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