Latin Finance - November 2008 - 24

of the 2008 The Go-To Guys by Ben Miller igning $2.3 billion for the Panama canal expansion was merely the end of a busy weekend. So it seemed in mid-October for Latin America’s multilateral and development banks. Tighter credit in the past 18 months has seen their relevance soar, and in the moments following the September meltdown, they have assumed the vital role of keeping liquidity flowing in the region. Once the stuff of vaccination programs and irrigation schemes in the hinterlands, multilaterals from all over the world now lend to and advise LatAm’s biggest projects and corporate borrowers. They must revisit their emergency role while also preserving gains they helped achieve in local markets, at the same time continuing to innovate as they prioritize tighter funds in a way that still makes a development impact. “We’ve seen a massive change in terms of the way sovereigns look at us,” says Hans Schulz, head of structured and corporate financing at the Inter-American Development Bank (IDB). “Opportunity costs are so high they are anticipating a slowdown, and commodities have turned. The governments that are forward looking are banging on the door. It’s happening to all the multilaterals.” He adds that they are increasingly on the radar of the private sector too. The IDB, Corporación Andina de Fomento (CAF) and Latin American Reserve Fund (FLAR) unleashed almost $10 billion in fresh credit lines midOctober, with the aim of safeguarding growth and employment through crisis. This paled in comparison to the trillions developed countries were throwing at their banking systems, but is a significant injection for a region that has not needed such huge multilateral aid since Argentina and Brazil got a set of $10 billion-plus credits from the IMF at start of the decade. The IDB opened a $6 billion liquidity program and accelerated specific loans for next year as it aims to provide $12 billion in S As capital markets implode, multilaterals are supporting the region’s borrowers like never before. Unprecedented cooperation is needed to confront the new lack of liquidity. total 2009 loans – $18 billion if the new facility is fully utilized – versus $10 billion in 2008. CAF meanwhile produced $1.5 billion and FLAR pledged $1.8 billion, with up to $2.7 billion more possible in coming months via contingent lines. The separate facilities were jointly structured and launched. success earlier this decade. Two days later, the Panama Canal Authority (PCA) announced that all of the $2.3 billion it would borrow to fund its $5.25 billion expansion would come from multilaterals. Lenders include Japan’s JBIC ($800 million), the European Investment Bank ($500 million), the International Finance Corporation ($300 million), IDB ($400 million) and CAF ($300 million). Bypassing commercial banks a year ago would have been unimaginable, and six months ago a luxury. Now, it is practically a necessity at a time when numerous ambitious projects in the region are on hold. “We entertained a commercial tranche, but the offer from the multilaterals was better in terms of length and rates,” PCA CEO Alberto Alemán says, after having received multilateral offers totaling $2.9 billion. The PCA got 20-year money with a 10-year grace period at spreads ranging from Libor plus 40 basis points to Libor plus 120 stepping up to 140 over. Alemán says the spreads represent an average effective interest rate of 5.48%. The PCA rate is much lower than what is achievable from international capital markets that have all but seized up. Private clients ranging from Ecuadorean wood products maker Novopan to Brazil’s Usiminas now depend on multilateral funding, as bond investors go on strike and commercial lenders pile on the basis points. “Probably that will be the type of financing we will see more of – directly with the multilaterals,” says Raul Alemán, general manager of Banco General in Panama, which is working with the IFC on medium-term financing for his bank. Sticking to schedule: BNDES’ Coutinho That same weekend Colombia bypassed the markets for its 2009 international funding, hammering out agreements to borrow $1 billion each from the World Bank and IDB, and $400 million from CAF. And Chile was understood to be discussing a contingent credit line (CCL) from the IMF as a backstop in case conditions worsen, according to a senior source familiar with the discussions. The news coincides with private sector calls for the IMF to bring back the CCL, which was floated without 24 LATINFINANCE November 2008

Latin Finance - November 2008

Table of Contents for the Digital Edition of Latin Finance - November 2008