LatinFinance - March/April 2015 - 46

grow this year and next. "If the government
really wants to fulfill all its infrastructure
plans and achieve its goals, it is going to have
to look at the concessionaires to develop
that part of the plan," he says.
Several companies that had debt for
projects launched a long time ago, started to
refinance a couple of years ago, says Astra
Castillo, a director at Fitch Ratings. "The
rush to get that liquidity was to participate
in these rounds in the tender offerings of
these new projects. It's a big challenge for
them because they need to coordinate the
funding."
Highway developer Pinfra is a case in
point. It paid off a bond secured by revenues
from its Mexico City-Toluca toll road with a
4.5 billion peso bank loan finalized in August
and a July 7.5 billion pesos equity offering.
Others may have to sell some holdings to
free up cash to participate in more tenders,
says José Espitia, manager of Banorte's bond
analysis and an infrastructure analyst. OHL
México underscored this point when it
agreed to sell 25% of two subsidiaries for 8.8
billion pesos in January.
Project bonds are also increasingly
popular forms of replacing construction
loans for banks once the project is
operational. ICA's Bravo says the company
sees capacity in the project bond market
for further financing, and plans to continue
tapping that market. For others, it is
becoming a well-trodden path.
"Every time we finance over the long
term, once the project enters operations, we
go to the market immediately," says César
Vértiz Pedemonte, head of project finance at
Santander's Mexico office.
In the past, toll road bonds typically
required 80% of the highway's revenues to
be earmarked to repay the debt. As investors
become more comfortable with the
structure, that required amount is falling.
Performance to date of project bonds sold
after construction is completed has earned
the instruments a good reputation among
investors, says BBVA Bancomer's García
Franco. Extending that enthusiasm to deals
coming to market while the project is still
being built may be more difficult, he says.
"There are already several projects at a
brownfield stage that could be ready to go to
market," he says. "However, since current
conditions in the capital markets are not
optimal, sponsors are waiting for the right
time. When that happens, we will see more
activity for project bonds."
While local capital markets are limited
compared to the international ones,

46 L ATINFINA NCE.COM - March/April 2015

VÍCTOR BRAVO, ICA

"WE HAVE SEEN VERY
INTENSE COMPETITION. THERE ARE A
LOT OF PROJECTS, A
LOT OF INTEREST IN
THE TENDER OFFERS"

Mexican pension funds are set to offer one
pool of capital to finance the development,
says Fitch's Castillo.
"Every three months they receive more
funds, and the investment objectives
of these funds is very similar to the
infrastructure projects, because they offer
good returns over generally long-term
periods, and protections."
But for the bigger projects, like the
airport, Mexico will need foreign investors
to participate, she adds.
The government has said it will come up
with about 7.5 billion pesos ($500 million)
for the Mexico City airport, but needs
to attract another 6 billion pesos ($400
million) in private investment.
GACM, which is building the airport,
already has a $1 billion syndicated loan.
Equity contributions are next on the list:
later this year, the construction consortium
plans to meet investors to drum up interest
for at least $1.5 billion in equity. It hopes to
close that in the second half. Syndicated
loans and mid- and long-term bonds are set
to make up the third batch of financing for
the airport.
Bumps in the road
Yet even before the financing start to take
shape, the ambitious infrastructure agenda
faces a series of hurdles. The government's
budget cuts, market volatility and concerns

over transparency are at the top of the list.
The infrastructure plan details more
than $30.2 billion (452 billion pesos) of
spending on highways, from public and
private sources. And while the government
has not changed the plan itself, it is cutting
its own investment in highways this year by
4 billion pesos.
Major projects include the building of
an elevated route over the Mexico City-
Veracruz highway, a route from Palenque
to San Cristóbal and the completion of a
highway in Oaxaca. The projects have price
tags of roughly $800 million, $760 million
and $700 million, respectively.
The rail projects are similarly ambitious,
entailing $10 billion of investment (150
billion pesos). Here, too, the government
will rely increasingly on the private sector:
it reduced its 2015 budget for the area by 3.3
billion pesos in February.
Already, some projects have been singled
out for cuts. A $1.4 billion project to build a
high-speed train in the Yucatán Peninsula
was scrapped in January, at the same time
as the government shelved one of the
most celebrated projects, a $3.75 billion
high-speed train between Mexico City and
Querétaro. Such high-cost projects were set
to benefit relatively small populations.
Yet there were other issues. Shortly
after it was revealed that a company in the
winning consortium owned the homes of
Mexico's First Lady and Finance Minister
Luis Videgaray, Peña Nieto canceled the
concession awarded on the Querétaro
train project. A new bidding round is to
come, in an effort to underscore clarity,
legitimacy and transparency of process, the
president's office said.
Public outrage pushed Peña Nieto to
appoint a new head of his corruption team
and launch a probe into the matter.
Amid a falling peso, low oil prices and
an economy growing below forecast, the
controversy highlighted another stumbling
block to the country's ambitions.
"The most important goal, in general,
for the country and for the development of
the infrastructure plan, is that transparency
and trust are kept," says Adrian Garza, an
analyst at Moody's.
Yet investors and planners must look
beyond short-term issues, says Gerardo
Rodríguez, emerging markets strategist at
BlackRock: "Infrastructure projects are for
30 years, 25 years, so you have to have a
long-term view to think about potentially
getting involved in infrastructure of this
nature." LF


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LatinFinance - March/April 2015

Table of Contents for the Digital Edition of LatinFinance - March/April 2015

Contents
LatinFinance - March/April 2015 - Cover1
LatinFinance - March/April 2015 - Cover2
LatinFinance - March/April 2015 - Contents
LatinFinance - March/April 2015 - 2
LatinFinance - March/April 2015 - 3
LatinFinance - March/April 2015 - 4
LatinFinance - March/April 2015 - 5
LatinFinance - March/April 2015 - 6
LatinFinance - March/April 2015 - 7
LatinFinance - March/April 2015 - 8
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