Latin Finance - March/April 2011 - 88

Andean colombia infrastructure

Institutional investors are meanwhile deterred by restricted size and liquidity in capital markets, according to a 2010 Latin American Venture Capital Association (LAVCA) Scorecard, which ranks 12 of the region’s economies. There have been delays in moving toward international accounting standards, LAVCA adds. “Almost all kinds of funds – hedge funds, pension funds – want to know how to get into infrastructure here,” says Stebbings, referring to both foreign and local investors. “That’s a problem, because in Colombia there are only a very few places that are liquid – stocks of [Colombian construction company] Odinsa, for example, are almost totally illiquid for any size of investor to buy.” One alternative for institutional investors, such as pension funds and insurance companies, is to invest in private equity. In 2007, the government introduced a new regulation, Decree 2175, which enables domestic pension funds to invest 5% of their assets in local private equity. Before this, pension funds were limited to conservative investment in areas such as government bonds and corporate fixed income. The 2007 regulatory change has also provided a boost to the fledgling industry that has attracted some foreign managers. It has also helped local pension funds (AFPs), the biggest private investors in Colombia’s infrastructure sector, to branch out. “Before the arrival of infrastructure-focused private equity funds, AFPs only invested in listed equity or bonds,” says Torres. “Today, pension funds are investing in individual infrastructure assets through independent money managers like ourselves.” In Colombia, the average internal rate of return for infrastructure investment lies between 15%-25% in nominal pesos annually, says Torres. But for private equity, exit strategies can be a problem since IPOs are challenging due to local stock market constraints. Nexus Capital Partners launched its first infrastructure private equity vehicle, Nexus Infraestructura I, in 2009, raising 104 billion pesos. Up to 97% of Nexus’s clients are AFPs. The latter are the biggest private investors in Ecopetrol, electricity generator Isagen and energy company Interconexión Electrica (Isa). Nexus invested 57% of Nexus Infraestructura I from 2009 to 2010 on projects including Airplan and Aeropuertos de Oriente, concession agreements for 12 airports in the northwest and northeast of Colombia. The fund has also invested in TransCaribe, the bus system in the city of Cartagena, and section two of the IIRSA Centro road in Perú, which links the production center of the country to Lima. The remainder of Nexus Infraestructura I will be invested by year-end, according to Torres. But the Colombian fund faces stiff competition from a number of international private equity-styled funds. Canadian asset manager Brookfield launched an infrastructure-focused private equity fund that raised $320

Luring Private Investors

million for its first closing in September 2009. Brookfield is also working on a similar fund for Peru. In 2010, Darby Overseas Investments – the private equity arm of US-based Franklin Templeton Investments which has over 40 funds in Latin America – raised its first $150 million for a Colombian infrastructure vehicle with a target of $300 million. Meanwhile, Ashmore, the emerging market-focused UK-based investor, won a bidding process in 2009 to manage a government-sponsored infrastructure fund, Colombia Infrastructure Fund Ashmore I FCP. The fund raised $170 million at initial close in 2009 and received an additional $75 million in January from the IDB. It is looking to raise a further $255 million over a five-year investment period, and plans to develop new vehicles to channel foreign investment and local pension fund liquidity. Up to $35 million has already been invested in two thermal power plants – TermoEmcali and another which has yet to be closed, according to Ashmore’s research head, Jerome Booth, who declines to provide further details. Ashmore is active in infrastructure investing in LatAm through Ashmore Energy International (AEI), previously the international energy unit of Enron. In January the US energy company announced the sale of 10 operating companies in a $4.8 billion deal that represents 80% of its total assets. The sale includes companies in Brazil, Argentina, Chile and Colombia.

Transport Pipeline Builds

A surge in FDI since 2002 has been a key driver of growth. Private investment rose by 25% per year in 2002 to 2008, with Colombia experiencing record FDI levels from 2005 to 2008, according to the national planning department (DNP). Today, the government is looking to channel rising FDI into a pipeline of infrastructure. Railroad networks, such as Tren del Carare and Corredor Ferreo del Pacifico will need $1.2 billion and $7.1 billion, respectively, over seven years. New ports require $2.65 billion, including facilities at Santa Marta, Cartagena, Buenaventura and Baranquilla. Meanwhile, fluvial and maritime navigation on the Magdalena River need $830 million, the first phase of the Bogotá Metro requires $2.5 billion and Barranquilla airport demands $42 million over the same period. The list goes on. In mid-February, China confirmed that it is in talks with Colombia over the construction of a 220 kilometer “dry canal” that would provide an alternative to the Panama Canal. The project, which would connect Colombia’s Atlantic and Pacific coasts by rail, is one of a series of Chinese proposals to boost Colombia’s trade links with Asia. Colombia is also planning multi-lane highway systems linking the inland cities of Bogotá, Medellin and Cali to the Caribbean ports of Barranquilla, Cartagena and Santa Marta. The 5.6 trillion peso Autopistas de la Montaña, which will expand four highways into four lanes, is up for approval this year. The 2.2 trillion peso Transversal de las Americas, which will connect Colombia’s Caribbean coast with Venezuela and Panama is also to be approved. LF

88 LatinFinance

March/April 2011
Latin Finance - March/April 2011

Table of Contents for the Digital Edition of Latin Finance - March/April 2011
