LatinFinance - September/October 2016 - 81
Innovation attracts capital to Colombia's Infrastructure
Colombia's Financiera de Desarrollo Nacional (FDN) was established
by the government in 2011 with a mandate to mobilize resources
for financing large infrastructure projects - and to kickstart the
country's project finance market. Its successes to date in Colombia's
4G infrastructure program are evidence the strategy is working, says its
president, Clemente del Valle.
How has the FDN evolved since its launch?
Del Valle: There are different angles in seeing how the institution has evolved
since its transformation. It was born out of another institution, an energy
development bank, which the government transformed into the FDN.
The main challenge was changing corporate governance. We moved from
being a public development bank 100% owned by the government to a
financial institution that is 67% owned by the government and 33% held by
other shareholders, two multilaterals (IFC and CAF) and one private sector bank
(Sumitomo Mitsui Banking Corporation).
One of the agreements between the government of Colombia and the
new shareholders was that it moved away from a traditional second-tier
development bank to be a specialized, first-tier infrastructure financial
institution. The changes have allowed us to take a strong leadership in defining
project finance standards in the country and becoming a market-maker in
Colombia.
How has this impacted the role of project development?
Del Valle: The philosophy of the institution is to be a catalyst, a resource
mobilizer. We were not created to take a majority participation in projects, but
to have participation that allows us to mobilize capital.
We take between 20% and 30% in any given project, so the challenge is to
mobilize financing up to 80% for each project in the 4G road infrastructure
program.
Our role has to be very strategic in each project, identifying the main obstacles
that limit the participation of different sources -- local banks, international
banks, multilaterals and capital markets.
What were some of the obstacles and the solutions?
Del Valle: Some of them were regulatory, others required us to do project
innovation, developing instruments that would attract other sources into the
projects.
Initially, we knew local banks had to be a very important player. We had to
bring all local banks into project finance and we worked with the Ministry of
Finance to increase the participation of banks in projects. There were restrictions
on the exposure of project finance on the balance sheet of banks, which were
changed.
We created mechanisms for debt funds in Colombia. Pensions funds were not
allowed to invest in funds that would originate loans, they had to do everything
through securities. Here, we created the concept of the specialized debt
funds for infrastructure and they are now participating in the project loans.
There are two debt funds of around USD$1.0 billion and we are currently in
discussion with two new funds that will be created over the next six months
for another USD$1.0 billion. Being able to generate four new players is a major
achievement. They are a kind of a hybrid between capital markets and bank
financing.
Our challenges were to get capital markets involved in the financing of 4G
projects and also to participate in the financing during the construction phase.
Capital markets have had very important role once a project reaches the
operational stage, but not in the construction phase. Our local institutional
investors are very conservative, with very limited experience in project finance.
They are primarily invested in listed securities, especially BBB (international
rating) and AAA (local rating) securities issued by large commercial banks,
corporations and the
government.
A solution to these
challenges was introducing
Clemente del Valle, president of FDN
a credit enhancement
mechanism to potential
bonds to make them
attractive to local and international capital market investors. The first two
projects, Pacifico 3 and Costera, issued bonds for USD$377 million and
USD$264 million, respectively. The mechanism has been very successful and
70% of the projects of the first phase of the program have been financed.
One of the main characteristics of this program is that there are no revenues
until the project is completed, which could potentially create cash flow
constraints. We developed a liquidity line, which is multi-purpose and allows
projects to deal with liquidity crunches.
Finally, to get international commercial banks involved, the government allowed
projects to be remunerated by the government in dollars.
Where do projects stand today?
Del Valle: Five projects have loan agreements signed and bonds issued, and
three more are very close to doing so. They have the money committed, but
have not finalized the conditions to sign the loan agreements.
We expect to close another 20 transactions over the next 18 months. In three
years, we will have financed 32 projects.
If we look at the five that have reached financial closing, 46% of financing
comes from local banks, 26% from capital markets, 11% from international
banks, 7% from multilaterals, and we have 10%. This gives you a sense of
the mix of financing, which we want to maintain for the others that have not
closed yet.
Colombia has been really innovative in the way it has approached the financing
of one of the largest toll road programs in emerging markets. It has been a
huge challenge for a country like Colombia and we are satisfied with the results
so far.
What is the next step?
Del Valle: We still have a long way to go, but we are encouraged by having
had a successful start by getting the first projects financed with a mix of
sources, including the issuance of bonds and the creation of debt funds.
We have been very innovative with the products developed to attract the
financing needed. It has been an aggressive change to the traditional
parameters in which financing was taking place in Colombia and in some ways
in the region.
Every day brings new challenges and today we are dealing with equity
constraints for the program and the projects in the pipeline. We are starting to
design our equity strategy, to do something similar to what we did with the debt
market. We should be ready to
launch the equity strategy at
the end of the year and we are
looking at partnerships with
key players in the infrastructure
equity market around the world.
Table of Contents for the Digital Edition of LatinFinance - September/October 2016
Contents
LatinFinance - September/October 2016 - Cover1
LatinFinance - September/October 2016 - Cover2
LatinFinance - September/October 2016 - Contents
LatinFinance - September/October 2016 - 2
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