LatinFinance - Special Edition - August 2013 - 26

1
THE
EVOLUTION
OF THE
MARKETS
1988-2013

the simple cost of getting
exports to port and onto a ship
can make a crucial difference
to a country’s competitiveness.
it’s a problem that’s not lost
on many latin nations, where
authorities are painfully aware
how decrepit infrastructure
remains one of the main
impediments to the sustainable
growth of their economies.
colombia is one such
country; it has for years
pondered a range of options
to improve its infrastructure.
in mid-2013 it announced
plans to privatize a power
company, to raise cash to
pay for better transport
links. the move followed
the setting up of a national
development bank aimed at
better deploying much needed
financial resources, while also
promoting a road building
effort unprecedented in its
scale.
the trick, finance
minister mauricio cárdenas
told LatinFinance, lies
in balancing private and
public participation. “the
government’s money is going
to work as a lever in order
to bring in more private
investment,” he said of the
development bank. “We want
to make sure infrastructure
development is not
constrained by limitations on
the part of commercial banks
to extend long-term loans.”
across latin america,

That private sector involvement is vital for the development of
infrastructure in Latin America is no secret. But enticing it has proved one
of the region’s enduring challenges. By Karen Schwartz

Infrastructure finance
High wire act

SPREADING SUPPORT: Threading together the right funding
mix is crucial for more infrastructure build-out

with long tenors. countries
with more stable regulations
and investment frameworks
– such as chile, colombia and
mexico – have been successful
in welcoming investors.
the choices these and other
countries make about private
and public investment based
on their own social parameters
go beyond the politics of their
next elections and will frame
their investment environments
for the long-run.
“Ultimately, each country
will see what works and as you
see throughout the region,
it’s not one size fits all,” says
Gabriel Goldschmidt, senior
manager for infrastructure
in latam at the international
finance corporation.
“Different countries manage
this continuum of public and
private investment in different
ways, and different ways can
work.”

governments are grappling
with similar issues. Ports,
bridges, railways and pipelines
may be dreary. But they are
vital for latin america’s
sparkling growth to continue.
Policymakers understand that,
but must find the best way to
mix public and private sector
financing for infrastructure.
Private investors want
stability, not just in a country,
but also in its rules. that is
especially true for projects

Security and stability
financing infrastructure in
latin america has evolved
significantly over the past
25 years. take the antamina
project finance loan, signed in
1999. the Peruvian copper and
zinc mine raised $1.32 billion
from 23 lenders – but to get
done, the deal also brought in
eight political risk insurers and
guarantors.
the following year, an
ecuadoran pipeline signed a
$900m project loan. coming

26 l atinfina nce.com - 25 Years - August 2013

soon after the sovereign’s
default, the introduction of
the dollar, and a military coup
attempt, the package was an
effort. contracts known as
“hell or high water”, ship-orpay agreements helped the
deal succeed. Under those
contracts, the shippers taking
the oil from the end of the
pipeline agreed to pay for
it, at a set rate – regardless
of whether the project
was expropriated, or even
completed.
today, the challenges are
vastly different. in the wake
of the 2008 and subsequent
eurozone crises, many
commercial banks cut lending
in latam. Development banks
and other public agencies
stepped in, structuring far
beyond previous transaction
volumes, says Jean-marc
aboussouan, chief of the interamerican Development Bank’s
infrastructure division.
Regional banks such as
colombia’s Bancolombia
and Brazil’s itaú started to
take a bigger role, he says,
as did BnDeS, the Brazilian
development bank. But the
sheer size of latin america’s
infrastructure needs means
that investment must come
from a wider range of sources
than bank lending.
indeed, today, a growing
array of projects are bondfunded: project bond sales
picked up in 2011 and 2012 and
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