Latin Finance - September/October 2014 - 80

would grow by 4.5% a year during that
period. The department estimates that between 180,000 and 450,000 new jobs will
be created during the construction period.
4G's long-term benefits will be even
greater. On average, road travel time will be
reduced by 25% to 30%, and transport costs
will fall by 15% to 20%, according to government forecasts, which also estimate the
long-term growth potential of the economy
after the construction phase will increase
from 4.6% to 5.3%.
Among the non-road transport projects,
ANI is working with Bogotá city council to
build two suburban railway lines, each costing $1.6 billion.
The agency is also supervising two
airport projects: a $150 million-extension
at Barranquilla, and an upgrade of three
smaller airports at Armenia, Popayan and
Neiva, also set to cost $150 million. ANI is
also in charge of an additional $1 billion of
railway projects, including the recovery of
abandoned railways in Magdalena Valley,
along the Cauca River, and in the highlands
close to Bogotá.
In addition, ANI has received around 100
unsolicited private initiatives for new transport projects. It is evaluating 40 of them
and has already approved 11.
There are also a large number of other
big projects in Colombia which are not managed by ANI. Cormagdalena, for example,
is an agency in charge of a $1 billion project
for dredging and other works on Colombia's
biggest river, the Magdalena, which runs
from the country's south, to the northern
coast at Barranquilla.
The city of Bogotá is further supervising construction of a $3.2 billion metro in
the capital, which initially will involve one
27.5-kilometer line with 27 stations. The
basic engineering and design stage for the
metro will be ready by the end of September. It will be put out to tender at the start
of next year and the concessionaires will be
announced in the final half of the year. The
city will finance 30% of the project and the
federal government will finance the other
70%.
Bringing in capital
As ever, the biggest challenge with such
ambitious programs - and above all the
4G scheme - is how to attain the financing.
These projects must compete for capital
with other projects in Colombia, and
around the world.
Typically, consortia made up of one
or two Colombian firms and one foreign

80 L ATINFINA NCE.COM - September/October 2014

company are bidding for the contracts,
according to ANI, and Luis Fernando Andrade, ANI's president, says the agency has
already made good progress in helping the
consortia raise funds.
"A lot of anxiety stemmed from the size
of the program, but now as we begin to talk
about specific deals and specific sums for
those deals, fund raising becomes easier,"
he says.

CAMILO VILLAVECES, ASHMORE

"THE NEW DECREE
HAS CREATED A
BRIDGE BETWEEN
THE PENSION FUNDS
AND THE INFRASTRUCTURE
PROJECTS"
ANI expects 25% of financing for the
4G projects to come from equity, and 75%
from debt. It estimates that Colombian
companies can contribute up to $2 billion of
4G's total equity component of around $6
billion, while the foreign partners should be
able to contribute the rest.
The agency estimates that Colombian
banks will be able to allocate around 10% of
their total expected lending of around $80
billion to the 4G infrastructure projects. But
sourcing the requisite funding for the 4G
roads from local banks alone would not be
easy, says Camilo Villaveces, Colombia chief
executive at fund manager Ashmore, which
has experience managing infrastructure
funds in the country.
"The equity part of the equation is not a
problem," he says. "The Colombian and international companies pre-qualified to take
part in the bidding process all have deep
pockets and access to capital. Many major
international private equity managers have
set up shop in Colombia; they will invest in
some of the projects. The problem is with
the debt side."
Colombian banks are simply not big
enough on their own, he says, adding that
Basel III rules further limit the banks' ability
to take on long-term liabilities.
Colombia's four private pension funds,
the AFPs, between them manage almost
$79 billion, and are expected to also invest
in the 4G program, says Villaveces. Indeed,

the government forecasts pension funds
will contribute $12.7 billion of the $30 billion needed for ANI's infrastructure projects over the next six years.
A decree passed in April could sharply
increase the local financing available for
Colombia's infrastructure projects. It allows
Colombia's AFPs to invest up to 5% of their
assets in private equity funds, which in turn
can finance infrastructure projects. AFPs
can also buy debt sold by special purpose
vehicles developing infrastructure, and
purchase account receivables originating in
infrastructure projects.
Meanwhile, in July, development bank
CAF contributed $50 million to a new fund,
managed by Ashmore, which hopes to raise
$1 billion - including from local AFPs - to
invest in Colombian infrastructure projects'
senior debt. It is hoped the fund will encourage Colombian banks to lend to infrastructure projects during the construction
phase, after which they will be paid back
out of the fund, removing the refinancing
risk.
"We are evaluating the risk-adjusted returns of the new infrastructure debt funds,"
says Omar Rueda Galvis, vice president of
investment at AFP Protección. "If we feel
comfortable with the managers and their
investment strategy, and if it will mean the
best for our affiliates in the long term, this
kind of opportunity will be welcome."
Villaveces is confident Colombian
infrastructure funds can attract more
international institutional investors. "The
new decree has created a bridge between
the pension funds and the infrastructure
projects. I think more and more financing
will become available for Colombia's infrastructure program. As investors start to see
the projects' success, they will want to get
on board.
"In the longer term there is no reason
why international institutional investors
will not be interested in putting their
money into funds dedicated to Colombia's
infrastructure."
ANI expects an additional $3 billion of
the $30 billion needed to come from the
national development bank, FDN, created
in 2011. It also estimates a further $2 billion
of this total will be financed through loans
from the Inter-American Development
Bank, the IFC (the World Bank's private sector arm), and from CAF.
"It is increasingly clear that the market is
prepared to finance the projects, whether
that be through infrastructure funds, or
other means," says Andrade. LF

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Latin Finance - September/October 2014

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