LatinFinance - January/February 2013 - 66

Infrastructure finance

the project finance market is entering a “high cycle” as years of
bank. FPSOs cost some $1.7 billion with $1.2 billion typically
planning and legislating for PPPs are coming to fruition. “The
raised in debt. “It’s not easy to raise that kind of money unless
you have export credit agency support. But if we can get JBIC for frameworks are firmly in place, allowing countries to roll out
programs,” he says.
60% then we only need 40% from commercial banks, which is
As in more established programs in Europe and Canada,
totally manageable,” he says.
Recent deals have included a number of firsts, says Simonson. governments claim PPPs enhance efficiencies but they are
politically controversial and can be difficult to manage. “PPPs
New holding companies, such as Constellation, which owns
may be a political reality but significant work remains in
six projects in the space, have aggregated deals and are using
the implementation phase for governments to manage the
dividend streams to pay down bonds. “We’ve seen transactions
projects,” says Aboussouan. Governments must optimize
like this in the US and elsewhere but this is the first out of Latin
structures and the sharing of risks through clear contracts, he
America and I expect more of them,” he says. Constellation
says.
recently placed a $700 million issue of 6.25% senior unsecured
There have been substantial delays to key programs and
notes due 2019, priced at 98.6%.
doubts remain about how many PPP deals will get through.
Institutional investors are also getting involved earlier,
Part of that is down to ratings. Increasingly Latin
minimizing or eliminating the need for bank financing. SBM
governments are turning to availability contracts, where the
Offshore, the world’s largest FPSO company, recently issued
government ultimately pays for projects,
a $500 million 15-year 5.5% bond that
says Chee Mee Hu, managing director
got placed exclusively with insurers and
in the project finance and infrastructure
institutional investors, says Bartfeld.
group at Moody’s. For these, the
Yet there are concerns over the longgovernment must be well rated. That
term future for international financing
is why non-investment grade Mexican
of Brazil’s oil and gas sector. The number
states could struggle to implement these
of international deals fell last year. Local
programs while the Federal government
content rules hang over the market like a
will probably be successful.
dark cloud. Rules are being tightened and
“Availability programs are very
from 2016 rigs will be constructed in Brazil
complex legally, even more than demand
with minimum local content of between
risk projects,” she says. “I expect episodic
55%-65%. That will pull financing away
rather than linear progression in PPPs.”
from international banks into the local
Programs in Brazil, Colombia, Chile
market.
Jean-Marc Aboussouan, IDB
and Mexico tend to be dominated by
It will take time for Brazilian shipyards
transport, particularly roads but also ports
to get up the very steep learning curve in
this sector, says the Japanese banker, and at some point he hopes and airports. Colombia and Brazil are working hard to develop
that Petrobras “will soften the line a little bit. Shipyards overseas road programs with Brazil having a proven track record at the
state level and Colombia facing more of a blank slate. Chile and
have more experience in building this equipment and it works
Mexico, more established in that sector, are also working on
out cheaper.”
Brazil may soon face competition from Mexico. The intensely far-reaching programs, covering more unusual assets such as
hospitals, jails and even military academies.
debated liberalization of the industry could see foreign entrants
Simonson questions whether some bid winners in PPP
compete with Pemex although privatization of the state-owned
company has been ruled out. Last year, a precedent was set with projects will be able to make long-term profits. “It could prove
tough for some of the bidders to realize their expected rate of
Pemex completing a total of $1.2 billion in bonds guaranteed by
returns. The prices for Brazilian airport concessions seemed to
the Export-Import Bank of the United States in a deal that was
be a little tough for sponsors,” he says. The first three airport
very well received.
privatizations in Brazil were won by consortia in which the
Mexico is stepping up spending on exploration and
largest global companies were not present with question marks
production with demand covering everything from land rigs to
over the fitness of these consortia to run big airports – and that
deep water, says Clarence Tong, senior vp of project finance for
the Americas at Mizuho Corporate Bank in New York. Gas and oil has already provoked a Senate inquiry.
If these programs do get off the ground, they will have
pipelines are also coming to market and in October the Comisión
Federal de Electricidad awarded a 530-km build and operate gas a particularly strong impact in infrastructure basics such as
transport, sanitation and health. However, in Latin America,
pipeline to Sempra Energy with a 25-year contract.
these government projects have proven highly prone to political
meddling to favor key constituents, as well as to corruption,
PPPs: gearing up
Another prop for markets has been government-led deals, a trend price and contract over runs.
Governments will need to prove to an embattled financial
that is set to accelerate. Jean-Marc Aboussouan, head of the
sector and local investors that they can draft sensible contracts
infrastructure division of the structured and corporate finance
and manage these programs well. LF
department at the Inter-American Development Bank, thinks

“PPPs may be a political
reality but it remains to
be seen how government
departments manage
these projects”

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