a new approach to infrastructure financing in colombia
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A new approach to infrastructure
financing in ColombiaClemente del Valle, FDN President, April 2014
World-class infrastructure program
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Colombia’s infrastructure ranks poorly…
The most problematic factors for doing business
Percent of responses
Source: The Global Competitiveness Report 2013-2014 © World Economic Forum
Corruption
Inadequate supply of infrastructure
Inefficiente gobernment bureaucracy
Access to financing
Crime and theft
Tax rates
Tax regulations
Restrictive labor regulations
Inadequately capacity to innovate
Insufficient capacity to innovate
Poor work ethic in national labor force
0 5 10 15 20 25
20.2
14.6
12.2
8.1
8.1
7.7
7.4
6.3
3.3
2.8
2.4Indicator
Rank/ 148
Quality of overall infrastructure
117
Quality of roads 130
Quality of railroad infrastructure
113
Quality of port infrastructure
110
Quality of air transport infrastructure
96
The Global Competitiveness Index
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Solid and sound fiscal and macro
environment
Institutional framework
development
PPP
standard
contract
Bankable
project
pipeline
Infrastructure financing
…but we are implementing an ambitious infrastructure program
Top-notch projects
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USD 1,310 million Three airports
USD 27 billion 40 projects
Over 8,000 km
USD 3 billion10 railroad
projectsUSD 1 billion
More than 5 port projects
USD 1 billion Magdalena River
navigability
Developing a well-structured project pipeline
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Scope
Term
Project Structure
Revenues
• Design• Rehabilitation, construction and/or improvement• Operation and maintenance• Financing
• Variable – Between 25 and 30 years
• Project divided in Functional Units: Infrastructure units with functional independence• Percentage of revenues once a functional unit is finished • Functional Unit Size: Capex + Opex over ~US$ 50 million per Unit
• Three sources: Tolls, Government Availability Payments and Commercial Revenues• All sources are subject to availability discounts (Indicator for availability, service levels and
quality standards). Discounts are capped at 10%• Ongoing evaluation of quality standards and service levels per Unit by an independent
engineer, hired by ANI
PPP standard agreement highlights
• The Government approved 25% of total availability payments of all the projects in USDAvailability
Payments in USD
• There are partial availability payments when the investment made by the concessionaire in the estimated construction period is equal or more than 40% of the total investment and the cause for the incompletion is not attributed to the concessionaire
Partial Availability Payments
• The government guarantees the toll revenues through compensations of the difference between the expected and the real toll revenues in years 8, 13, and 29
Toll Revenues Compensation
• The government assumes part of the cost overruns in land acquisition, environmental license, and utility networks
Between 20%-100%: 70%Above 100%: 100%
Cost Overruns
• The contract allows the concessionaire to start the construction phase after possessing the land equivalent to the 40% of the length of the corridor
Land acquisition threshold
• The Government recognizes in a termination formula all the investment made until termination date discounting the received revenues. That formula covers the value of debt in the most critical periods
Termination value
PPP standard agreement highlights
FDN: Colombia’s development bank
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Full-service infrastructure financing institution
Advisory Services
Financial Products
Leveraging with
• Project structuring • Proposal evaluation • Financial evaluation
• Studies
• Project management
• Senior debt• Subordinated debt• Liquidity guarantees
• O&M bond (partial
guarantee)• Construction bond (full
wrap)
FONDES
Strong shareholder support
USD 230 million
USD 50 million USD 120 million
• Investment grade country with strong economy prospect
• Multilaterals with strong shareholders commitment to infrastructure development in Colombia
Sound financial prospects for 2015
• With IFC, CAF and prospective private investors, FDN’s equity will increase 2.4x, from USD 230 million to USD 550 million approx.
• By the end of 2015, FDN will have provided approximately USD 2.5 billion in financing for infrastructure, up to USD 150 million per project
• FDN will have also mobilized up to USD 10 billion in financing for infrastructure in Colombia during its first two years of operations
Positioned to play an important catalytic role
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Our focus:
• Financial products
• Regulatory changes
• Pilot projects
• Training programs
• Project finance standardization
FONDESUSD 2.5 bn
LOCAL BANKS
USD 13.5 bn
LOCAL INVESTORSUSD 12.5 bn
INTERNATIONAL BANKS
USD 1.8 bn
INTERNATIONAL INVESTORSUSD 1.8 bn
MULTILATERALS USD 1.5 bn
USD 2 bn
Mobilizing resources for infrastructure financing
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Demand-driven solutions for everyone
Players
Concessionaires
Concerns FDN solutions
Competitive sources of funding
• Senior long-term debt
• Sub long-term debt
BanksLiquidity and
refinancing risk
• Guarantees• O&M bond
Institutional investors Construction risk
• O&M bond • Construction bond• Debt fund
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Providing long-term financing
Construction Operation and maintenance
International + local banks debt
Local banks debt
Multilaterals debt USD
FDN subordinated and senior debt
7y
12-15y
18y
20y
Benefits:• Cushion for senior debt• Longer repayment period• Debt service flexibility according to cash flows
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Reducing liquidity risk caused by project delays
ConstructionDelay
s Operation and maintenance
Bank and multilateral debt
Guarantee for interests exceeding initial scheduled payments
Cash sweep amortization after senior debt
Benefits: • Reduces contingent equity• Mitigates uncertainty in debt service payments• Provides additional resources to finance construction during delays
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Mobilizing institutional investors in O&M phase
Construction Operation and maintenance
Loans- Local and global banks loans - A/B loans through multilaterals- Guarantees
O&M bond: securitization of the project upon completion
• Senior: institutional investor engagement
• Subordinated: FDN + multilaterals
• FDN’s partial liquidity guarantee
Benefits: • Project cash flow better aligned with liabilities• Structures can be standardized and replicated• Competitive rates due to low credit risk• Issuance in tranches
Mobilizing institutional investor from day zero
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Construction Guaranteed Project Bond: >[20] years
Operational Phase; >[20] years Time
Cas
h F
low
s
(+)
(-)
Cash flows generated
Construction Operation and maintenance
Benefits:• Limited refinancing risk• Long-dated inflation-linked COP asset• Opportunity for yield pick up• Limited counterparty risk (triple-A rated guarantors)
Syndicated full wrap guarantee
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Mobilizing institutional investor from day zero
Construction Operation and maintenance
Loans- Local and global banks loans - A/B loans through multilaterals- Guarantees
Debt fund with a component in USD and COP
FDN is considering issuing a partial credit guarantee to cover interest payments in the event of construction delays
Initial commitment
Benefits:
• An experienced general partner• Financial commitments to refinance projects through senior debt or bonds
FDN’s value-added
FDN can provide an opportunity for international players to:
• Participate in world-class infrastructure projects in Colombia
• Participate in innovating financial product to mobilize capital for infrastructure
• Understand regulatory framework for project finance
• Bring together concessionaires with international players to finance infrastructure
• Share successful experiences with other markets
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THANK YOU
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COLOMBIAStandard agreement
Sponsor Risks
• Construction (except tunnels)
• Operation and maintenance
• Financing
• Change in construction and operation & maintenance input prices
• Land acquisition management (with supervision of ANI)
• Insurable Force Majeure events
• Traffic (liquidity risk)
• Macroeconomic risks
Shared Risks
• Construction (tunnels)
• Land acquisition (cost overruns)
• Environmental and social management (overruns in environmental compensations)
• Utility networks (overruns)
ANI Risks
• Force Majeure events
• Non insurable events (e.g. natural disasters)
• Delays in land acquisition
• Delays in social consultation
• Delays in environmental licensing
• Traffic (Aggregated Income)
• Utility networks (non identified networks)
Risk Distribution
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