For the financing for a new $150 million concentrates export terminal at Peru’s port of Callao two rival commodity traders joined forces. The project is also the first developer-driven concession in Peru, and the first Peruvian concession to feature a regulated revenue stream.

Transportadora del Callao

Status

Closed 4 October 2013, awaiting first draw

Size

$150 million

Description

Mineral export facilities at Peru’s port of Callao

Sponsors

Trafigura (30%); Glencore (30%); Santa Sofia Puertos (25%), Brocal (8%); Chinalco (7%)

Debt

$100 million

Lead arrangers

BBVA; BCP; Natixis

Sponsors’ financial adviser

Macroconsult

Sponsors’ legal adviser

Estudio Payet

Lender’s legal adviser

Estudio Rodrigo

Independent engineer and environmental consultant

SVS Ingenieros

Market consultant

Wood Mackenzie

EPC contractor

Odebrecht

Operations and maintenance contractor

Santa Sofia Puertos

Lenders’ insurance adviser

Willis

Glencore and Trafigura, the largest players in the export of Peruvian mineral concentrates, each own a 30% stake in the project company, Transportadora del Callao. Santa Sofia Puertos (25%), Brocal (8%) and Chinalco (7%) took smaller stakes. But Trafigura has been the lead promoter, after starting work on the project in 2002.

Strong commodity markets explain much of Peru’s impressive economic performance in the years before and after the 2008 financial crisis. But Callao, Peru’s largest port, and the main point of export for minerals from the central Andean region, is increasingly cramped. A variety of entities control land at the port, among them the Peruvian Navy, PetroPeru, and APM Terminals, which closed a $217 million International Finance Corporation-led financing for a container terminal at the port in April 2013.

The two lead sponsors own nearby warehouses where they blend concentrates for export. Trafigura had originally planned to build a tubular belt conveyor to take concentrate to a pier at APM’s terminal, but eventually decided to build a new pier to handle the minerals.

The Peruvian government owned some of the key land on which the mineral export facility would be built. So it insisted that the sponsors sign up to a regulated concession for the facility, with tariffs of $6.97 per tonne of concentrate handled by the 3.1km belt, and $0.97 per hour for each metre of pier used by a ship. The tariffs are indexed to the US consumer price index, and the project company would need the approval of the Peruvian transport regulator, Ositran, to offer any additional services at the port.

But while the port has price certainty, it does not have volume certainty. The project company does not have take-or-pay contracts with users of the facility, and does not even have a commitment from users to send all their concentrates through the facilities, only those concentrates that they are sending through Callao. The regulatory regime may borrow from the transport and utilities sector, but the project’s credit profile required considerable commodities expertise.

The project company signed a debt term sheet with three lenders – BCP, BBVA and Natixis – on 20 December 2011, after signing a concession in January 2011. BCP’s experience with Peruvian mining and PPP probably equipped it best to deal with the credit, while BBVA and Natixis ran the deal through their New York offices. The financing has a 10-year tenor, and a 15% balloon payment at maturity, slightly less than the 20% that the sponsors were seeking, but equivalent to a little under a two-year amortisation profile extension.

The financing might have been a candidate for a bond deal, given the concession’s 20-year length. But when the financing first came to market there was some uncertainty about the timing of Chinalco’s $3.5 billion Toromocho project. The Chinalco mine started production in December 2013, and is one of several new mines, including Glencore’s Las Bambas and Freeport McRoran’s Cerro Verde projects, that could take Peruvian copper production up to as much as 2.5 million tonnes per day by the end of 2016.

The difficulties that the sponsors faced in winning approvals and permits from Peruvian bodies, rather than the project’s credit profile, explain the gap between the term sheet and close on 4 October. While it waited on its approvals, the sponsors paid Jan de Nul $12 million for dredging.

On 19 July 2012 the project’s engineering, procurement and construction contractor, Odebrecht, started work on the concentrates terminal. The sponsors funded the initial work with their equity commitment of $50 million, and then spent around $36 million more than required and raised $58 million in bridge loans from the lenders.

The project company has now drawn on 70% of the final $100 million long-term debt package, paying down all of the bridge debt, and some of their additional equity contributions. The remaining draws would fund the rest of construction and repay the remaining excess equity.