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infrastructure awards for international debt markets. As RFPs went out to potential lenders in late 2007, bond markets were already in the throes of the credit crunch, though bank market appetite was still strong. That, say bankers at SG, called for a rethinking of the financing plan, which originally included a $400 million bond. “The offers we had received from B loan lenders were so competitive that we decided to increase this part of the financing,” says Alejandro Valencia, director of project finance at SG. He adds that it was better to secure funds up front from lenders than to hope bond markets would have appetite for $400 million. Peru LNG Financing Sources Assembling the puzzle % total Lenders ($ millions) financing US Exim 400 10.40% K-Exim Direct 165 4.30% SACE 250 6.50% IDB A-Loan 400 10.40% IDB B-Loan 400 10.40% IFC 300 7.80% K-EXIM Guaranteed 135 3.50% Local Bond 200 5.20% Total Debt 2,250 58.00% Equity 1,599 42.00% Total 3,849 100.00% Source: Société Générale Indeed, pricing on the IDB B loan, upsized to $400 million from an originally targeted $200 million, starts at 75 basis points over Libor during the three-year construction period, and steps up from 100 to 137.5 basis points during the 12year post-completion period. Prospective lenders later whined that pricing was too tight given changing market conditions, and received an increase in up front fees to around 100 basis points from a rumored 75. In March the debt markets had deteriorated even further and several large bond deals were pulled. By July all of the multilateral and commercial bank debt had been delivered to Peru LNG. Financing Blueprint Syndication of the $400 million IDB B loan, closed a month earlier, went smoothly with few apparent hitches and no margin flexes, claim lead bankers at SG and the IDB. Calyon, ING, TokyoMitsubishi, Sumitomo Mitsui and Mizuho made up the remainder of the lending group. Financing Peru LNG struck a number of firsts. It is the largest IDB A/B loan ever approved in the region and includes participation from all three major export credit agencies SACE, Kexim and US Exim, according to SG. For the project market, however, the main takeaways are lessons on how to finance pieces of a gargantuan, integrated project with multiple moving parts. For Peru LNG, two other essential components to its success – a pipeline to channel gas from Camisea, as well as the extraction of the gas itself – are being developed in conjunction with the liquefaction unit. More pipelines are likely to be added as other gas fields are developed. “We now have a blueprint for financing single pieces of a large project on an unintegrated basis,” says Valencia. At issue is the fact that risk is multiplied when the success of one project relies on completion and sound financing of another, he notes. “You need to have agreements with all the parties involved,” says Valencia. He adds that this was among the major challenges early on in the process, keeping in mind that all contracts for the project and related parties must have matching terms and provisions. Going forward in LatAm, project financiers may look to Peru LNG as they seek to develop infrastructure that relies on third party projects. Valencia notes that in Brazil, El Paso and Petrobras want to build gas-fired power plants that will someday power the refinement of oil that is still far from being extracted. In Chile, new pipelines are needed to draw from the Quintero Bay regasification terminal, while in Mexico, Pemex is looking for third party developers to build co-generation plants. With several new data points from its trials and successes, after Peru LNG, executing these projects may be just a little easier. LF Drilling Down Delba Best Oil & Gas Deal en deepwater platform financings have been done in LatAm over the past two and a half years and there are more on the way from regional oil giants Petrobras and Pemex. As such, lenders and sponsors have much to gain by demonstrating creative thinking for these deals. Liquidity constraints and the fact that G7 projects and borrowers are offering attractive spreads with relatively lower risk than what is found in LatAm spell trouble for a potentially large number of project sponsors competing for platform dollars. Delba, an experienced Brazilian shipbuilder and rig operator, won a mandate in early 2007 to build a new platform for Petrobras. Despite its 40-year history in the business, Delba had a weak balance sheet, with no equity to contribute to the deal – something that set it apart from competing local sponsors working on Petrobras platforms such as Schahin, Petroserv, Odebrecht, Queiroz Galvão and Etesco. WestLB was tapped to lead the transaction, which, from the outset, demanded advice beyond merely providing a project loan. It combined a network of global investor relationships with savvy deployment of balance sheet to help the sponsor overcome a lack of equity and a debt capital. In order to get other banks to invest in the $488 million credit facility, Delba needed to demonstrate it had a stake, but it had only a negligible amount of cash to contribute. Delba sets up special purpose vehicles and works through partnerships on deals. In this particular case it did not have the funds available. “If the deal was going to happen, it was up to us to raise the equity,” says Thomas Friebel, head of syndications for the Americas at WestLB. LF T UPDATE For more about this award, see www.latinfinance.com > October 2008 LATINFINANCE 37

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Latin Finance - October 2008

Table of Contents for the Digital Edition of Latin Finance - October 2008