NEWS ANALYSIS: Power in Pesos
Power projects are moving. Empresas Públicas de Medellin (EPM) recently closed a $349 million A/B loan from the International Finance Corporation (IFC) for utility infrastructure upgrades and is talking to lenders about a financing for its $3.5 billion 2.4GW Ituango hydro project. In December 2011, Colombias Ministry of Mines and Energy awarded five projects, with a total capacity of 575MW, long-term offtake contracts.
The IFC provided a $25 million A loan and commercial lenders a $324 million B loan for EPMs water, waste and electricity infrastructure upgrades. The B tranche was 3x oversubscribed, with 15 lenders committing $750 million to the initially $250 million loan. Banco de Credito e Inversiones, Bank of America Merrill Lynch, BTMU, BBVA, BNP Paribas, Citi, Goldman Sachs, Israel Discount Bank, JP Morgan, Mizuho, Republic Bank, Banco Santander, Scotia Capital, Societe Generale and SMBC participated. It has 5- and 7-year tranches. The debt closed in January, and was one of the most successful infrastructure-related B loan syndications for several years.
Financing for Ituango will either involve a loan from the projects engineering, procurement and construction (EPC) contractor or take the form of a project finance loan with strong corporate finance characteristics. EPM has requested bidders for the EPC contract to include plans for up to $1.2 billion in debt financing. A corporate guarantee from the sponsor is likely to back the final package. EPM will also contribute at least 40% of project costs as equity. Proposals are due in January but many market observers expect a delay to the process.
Oil and gas deals are also in the market. Ecopetrol closed a $3.5 billion debt package for the $5 billion Refineria de Cartagena (Reficar) expansion project in December and is in the process of structuring debt for the $1.03 billion Oleoducto Bicentenario de Colombia phase one. US Ex-Im provided a $2.65 billion direct loan with an all-in interest rate of 4.37% and guaranteed a $100 million loan from HSBC for Reficar. Bank of Tokyo Mitsubishi-UFJ (BTMU), BBVA, HSBC and Sumitomo Mitsui Banking Corporation (SMBC) are providing an unguaranteed $440 million loan. Sace is guaranteeing an additional $210 million in debt that is split equally between BTMU, BBVA and SMBC, and SEK provided a $100 million loan that is guaranteed by EKN. Tenor is construction plus 14 years for the guaranteed and export credit agency tranches, and construction plus 12 years for the commercial tranche. The sponsor is providing a full completion and performance guarantee to the lenders and contributing $1.5 billion in equity.
Corficolombiana is lead arranger of an about $720 million Colombian peso- denominated loan for Bicentenario. It will be syndicated domestically and is expected to close by the end of the quarter. Ecopectrol (55%), Pacific Rubiales (32.9%), Petrominerales (9.6%), Hocol (1%), Canacol Energy (0.5%), C&C Energia (0.5%) and Vetra E&P (0.5%) are sponsors. The first phase of the 923km pipeline will connect Araguaney to Banadia with later phases reaching Colombias Caribbean coast. MBA Lazard is international financial adviser and Nexus is local financial adviser to the sponsors.
The outlook for infrastructure deals is not as rosy. While Colombia has one of the regions largest pending slates of road and transport concessions, one worth more than $20 billion, according to ANI, the timeline is anyones guess.
Yes there are road projects, yes they are urgent and yes they are delayed, says one Bogota-based lender. [President Juan Manuel] Santos was elected on the promise that he would build infrastructure and nothing has happened yet in his term. Santos was elected in August 2010 and serves a four-year term.
Luis Fernando Andrade, director of Colombias Agencia Nacional de Infraestructura (ANI) and a former director at McKinsey & Company, says that the agency intends to release the first tender documents for these deals in the third quarter, select preferred bidders by the third quarter of 2013 and reach close by the end of that year, in an interview. The IFC will advise it on all of the concessions, as it did on the Ruta del Sol deals. It is an ambitious schedule to say the least.
The 760km Autopista de la Montana package is an example of the delays deals face in Colombia. Costs have increased at least 25%, to more than Ps15 trillion ($8.3 billion) from Ps12 trillion when the preparatory contract was awarded to ISA in 2008. Many developers question whether it can still be done as a real toll concession in the face of the increasing costs. The grantor plans on releasing a tender this year for the project, which may be split up into several smaller concessions, according to Andrade. The package includes three corridors connecting Colombias border with Ecuador and its Caribbean coast, and one corridor from Troncal Occidental to the Ruta del Sol at Troncal del Magdalena.
ANI intends to award another six concession engineering and financial structuring contracts this quarter. Each would include about 1,000km of road that would eventually be split into two or three concessions, with each valued at under $1 billion. Consortiums of investment banks, advisers and engineering firms will be able to win up to two contracts and would be expected to complete work by the end of the year. Andrade says ANI has received interest from a wide variety of international and local banks, advisers and engineering companies, including Aecom, Bancolombia, BBVA, KPMG and Structure.
Other infrastructure deals are not much closer. A $3 billion rail project to connect Bogota and the countrys interior with its Caribbean coast is in the works and will be tendered at a later date. Hydrochina will submit recommendations on how to improve freight and passenger services on the Magdalena river this quarter. Andrade says a dredging and depth maintenance concession could be possible.
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