LatinFinance - September/October 2015 - 30
PERU
PROJECT
FINANCE
The financing for Gasoducto Sur Peruano offers a glimpse into the possibilities -
and difficulties - of funding Latin America's biggest infrastructure projects.
By Jennifer P. Roig
Making the case
G
asoducto Sur Peruano's significance in the project finance market is clear. The
$4.125 billion deal backing the 621-mile pipeline is set to be the largest financing for a greenfield project in Latin America and its execution is expected to be a testament to the deepening
bank loan market in a region facing hundreds of billions of dollars of infrastructure megaprojects in the coming decades.
The non-recourse, mini-perm has attracted international lender participation, a target
demographic that will also be critical to realizing the region's infrastructure needs in light of
a relatively shallow pool of local banks. SMBC is advising sponsors Odebrecht Latinvest and
Spanish gas distributor Enagás, which own 75% and 25%, respectively, of the pipeline. SMBC
is among fourteen bookrunners that comprise BBVA, Citi, Crédit Agricole, DNB, ICBC, ING,
Spain's Instituto de Crédito Oficial, Intesa Sanpaolo, Mizuho, MUFG, Natixis, Scotiabank and
Société Générale, which have each agreed to make $275 million commitments to the sevenyear loan.
LatinFinance spoke to several sources familiar with the details of the financing plans for
this article, although all asked not to be identified before the terms of the deal are fixed.
These commitments are likely to be reduced pro-rata if second tier banks - between six to
ten institutions -- come in as senior mandated lead arrangers with tickets ranging between
$125 million and $200 million. These banks would not take underwriting risk and book runners would allot final ticket sizes. The deal will include an interest rate swap for close to 100%
of the principal, as well as a hedging instrument.
A transaction of this size and novelty is likely to be tough in almost any region: corralling
14 book runners around the negotiating table suggests a Herculean task in itself. In addition
to lenders, a veritable army of consultants and attorneys have been employed to ensure
environmental and social compliance, including Canadian consultant Hatch for engineering,
ERM for social and environmental matters, AON for insurance issues and Ernst & Young as
financial model auditor.
The deal has also faced a number of obstacles that are unique and potentially emblematic
to project financing in Latin America, providing a learning exercise to prospective investors,
lenders and regional governments looking to buoy sliding growth with sweeping infrastructure concessions.
Speed bumps
The consortium had originally aimed to wrap the project financing backing GSP during the
first half of 2015, after it garnered a 34-year concession in June 2014 from Peru's energy and
mining ministry through ProInversión, the government agency tasked with promoting busi-
30 L ATINFINA NCE.COM - September/October 2015
ness opportunities in the country, including
management of tenders for public-private
partnerships. The sponsors closed a bridge
loan in September 2014, shortly after the
concession was awarded, with a group of
five banks. BBVA, Intesa Sanpaolo, MUFG,
Natixis and SMBC came in on the $600 million 18-month facility.
The first hurdle lay in the underlying
concession agreement, which required substantial time and energy from lenders and
sponsors as well as cooperation from the
Peruvian government, to make it palatable
for bank financing. "Such a large contract
should have drawn global companies to the
bid, but there were only two in the competition," says Pablo Secada, chief economist
at the Peruvian Institute of Economy (IPE),
a think tank. "The contracts are designed
in a way that then lead to a lot of contingencies, because the financial schemes were
initially archaic, and need a lot of work
before presenting it to the market."
Ideally in project finance, an investment
grade counterparty pledges to make regular payments of a certain amount for the
project's product or service over a period of
decades, known as an off-take agreement.
Peru, however, lacks a single entity large
enough to play this role for GSP, which will
be able to transport 500 million cubic feet
of gas per day. Thus, the government created a complex scheme where GSP delivers
gas to the Transportadora de Gas del Perú
(TGP) pipeline system, which sells the gas
to electricity generators and industrial
customers under tariffs. Proceeds from
these sales are then put into a trust which
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Table of Contents for the Digital Edition of LatinFinance - September/October 2015
Contents
LatinFinance - September/October 2015 - Cover1
LatinFinance - September/October 2015 - Cover2
LatinFinance - September/October 2015 - Contents
LatinFinance - September/October 2015 - 2
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LatinFinance - September/October 2015 - 32A
LatinFinance - September/October 2015 - 32B
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LatinFinance - September/October 2015 - G1
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