LatinFinance - July/August 2015 - 35

Brazil's development bank, BNDES,
usually works with local companies taking
the role of engineering and procurement
contractors for foreign government-backed
projects. "That means that we deal with
sovereign risk. In a few cases we have had a
project finance, when Brazilian companies
are sponsors or developers, but it isn't the
norm," explained Luiz Filipe Castro Neves,
head of operational department at the
export credit division in BNDES.
Other financial institutions, such as
US government agency Overseas Private
Investment Corporation, are offering a
set of financial tools that range from debt
financing to political risk insurance. OPIC

Hungry for more
Foreign Direct Investment - Central America
6,000

Belize

Guatemala

5,000

Costa Rica
El Salvador

Honduras*

4,000
(USD Millions)

completed a $90.5 million financing package for Compañía Hondureña de Energía
Solar (Cohessa), a developer of the Valle
Solar project. This project comprised the
development, construction and operation
of a 72.9 megawatt solar plant in Nacaome,
Honduras, part of the largest solar park
in Latin America. The IFC committed $30
million and helped structure an additional
$60.5 million to fund the plant. Moreover,
it provided a $300 million financing package for the construction of Phase II and III
of the Penonome wind project, the largest
wind farm in Central America. The financing included $80 million senior debt from
IFC's own account, $60 million of senior
debt from its managed co-lending portfolio
program, and $144 million in syndicated
senior loans from other lenders.
Multilaterals also play a role in hedging
risks inherent to project finance, ranging
from construction to political and financial.
They also offer guarantees which are often
key to solidifying deals and garnering commercial lender participation. The World
Bank's Multilateral Investment Guarantee
Agency (Miga) guaranteed $56.7 million of
SunEdison's equity investment in its three
solar assets in Honduras.
Miga was also pivotal to the Autopistas
del Atlántico toll-road project in Honduras,
providing a $124 million guarantee, covering JPMorgan's $100 million contribution
and part of Ficohsa's $30 million commitment. The Corporación Interamericana
para el Financiamiento de Infraestructura
(CIFI), a member of the IDB, pledged $15
million to round out the deal.
"The IDB has provided technical and
financial support for the region's major and
most complex infrastructure projects, as
well as for social and productive development, fiscal and financial policy reform
programs, and social operations to improve
healthcare and education access and quality," says Montiel.
The Export Import Bank of the United
States (Ex-Im) has a record of facilitating
American companies' operations in Central
America. Paula Swain, managing director in
Ex-Im's structured finance division, notes
that the bank is open to supporting transactions of up to 14 years. "The potential
pipeline from Mexico to Central America
would provide opportunities for US exports
that Ex-Im Bank may be able to consider
financing. We have had a long and successful relationship with Pemex, supporting its
purchases of US products and services,"
says Swain.

3,000
2,000
1,000
0
-1,000
2010

2011

2012

Source: World Bank
*2014 data for Honduras N/A

is also coordinating with the US Trade and
Development Agency, the US Agency for
International Development and the Department of State in an initiative called the Clean
Energy Finance Facility for the Caribbean
and Central America. The program offers
early-stage funding of $20 million for clean
energy projects.

Overcoming risk
Political will from Central American governments and pledges for support from
international institutions and donors exist
in theory. However, the risk assessment
necessary for project financing execution
is arguably more difficult than corporate
funding exercises. Several variables need
to be controlled: developers, technology,
engineering and procurement contractors,
location, quality of supplies, as well as
financial, institutional and political risks.
This cornucopia of factors can be unique
to each asset, leading lenders and sponsors
to agree that projects have to be evaluated
individually, regardless of the host country.
Improving the quality of research and
the communication
of risks will also
provide investors with much
Nicaragua
needed clarity and
Panama
comfort. "It is all
starting now with
project finance...
But I saw it happening in the fixedincome space,
from zero attention
to more awareness,
more diversification, stronger fundamentals... It all
evolved," observed
2013
2014 Magana.
While multilaterals are providing financial solutions,
the private sector is crucial to bringing the
technical expertise. Most of the sponsors
and developers winning these concessions
and tenders have global experience and
faced similar challenges in other developing countries, says Gavin Strong, Central
America risk analyst at consultancy firm
Control Risks. They will have to carry out
due diligence and conduct consultations
on the ground to understand, for instance,
the level of community engagement. "Problems with community activism have arisen
because relationships haven't been managed from the get-go the way they should
be," he says.
Strong puts security concerns at the
top of a list for the region that includes
countries' reputational and financial risks,
operational challenges, and widespread opposition from community activism. While
these are significant challenges, "they don't
necessarily represent unsurmountable
obstacles," Strong says. LF

July/August 2015 - L ATINFINA NCE.COM 35
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