Managing Foreign Exchange Rate Risk in Infrastructure Investments: Case Studies

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Foreign Exchange Rate Risk for Infrastructure Investments

:

Case-Studies

May 19

th

 2020

Disclaimer:

The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Brazilian Ministry

of Economy. The Brazilian Ministry of Economy does not guarantee the accuracy of the data included in this work.

2018-2020

Construction and

subsequent

disbursements

March and

April, 2018

Execution of

financial

documents

March 2020

Commercial

Operation Date

April, 2018

Financial Closing of

debentures and First

Disbursement of IFC

and IDB loans

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Timeline

Context

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CELSE – Centrais Elétricas de Sergipe

S.A., is a joint venture between Golar

Power (Norwegian/English capital) and

Ebrasil (local player).  At the time it

successfully commenced its operations,

in March 2020, it was the largest LNG

powerplant in Brazil. The integrated

project also involved the need of

constructing a dedicated 33 km

transmission line, a dedicated gas

pipeline connecting the plant to an

FSRU, and the port terminal required to

anchor the FSRU. It raised BRL 5.4

billion in financing in 2018

Problem

•

Celse sold its power through 25-year PPAs

under an A-5 2015 Auction in the regulated

market in Brazil. Except for the portion of the

PPA price intended to remunerate the fuel

consumption, the remaining portion of the

PPA price is denominated in Brazilian

currency and indexed to local inflation

•

Brazil was still recovering from a major

economic crisis.  Local development bank

(BNDES) had reduced its loan capability and

was no longer offering subsidized financing.

Local capital market had appetite for simpler/

smaller renewable projects, but not for large

thermal plants. Cross border financing was

needed, but FX risk had to be addressed

Innovation

•

CELSE entered into local currency long term loans

with the IFC and IDB, for 1/3 of funding needs, and

local currency capital market financing for the

remaining 2/3 of funds, through tax exempted

infrastructure local debentures

•

Local debentures were 95% guaranteed by SERV.

Through the underwriting of Goldman Sachs, the

Brazilian currency denominated debentures were

fully acquired by an offshore trust who then issued

NY law governed project bonds to the international

market, backed up and secured by the debentures.

International investors had the option of either take

on Brazilian currency risk, or to enter into FX

hedging instruments

•

Such project bond structure was the first of its kind

in Brazil.  Although, IFC and IDB have already

entered into a few Brazilian currency loans before,

this was the largest Brazilian currency deal at the

time

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Useful Links:

CELSE

2

Key lessons

learnt

Results/Impact

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CELSE has been successfully constructed and entered

commercial operation in March 2020

•

Efficient LNG plants such as CELSE help to diversify

the Brazilian power generation matrix, reducing the

dependency of Brazil on hydro sources and mitigating

the risk of wind, solar and biomass projects which do

not have a stable/ flat generation profile throughout the

year or even during the day

•

Although benefiting from low prices of LNG globally, in

the long run these thermal projects may shift to locally

produced natural gas, including high volumes which are

expected to be produced in the pre-salt region

•

CELSE paved the way for other large LNG thermal

projects, such as GNA 1, GNA 2 and others to come

Despite the successful financing and implementation of

the project, the innovative and multisourced financing

required a long structuring and negotiation process

MDBs provided only 1/3 of the funds, but were key to

structure the financing in the first place and leave room

for a structured capital market solution

Under appropriate conditions, and properly developed

projects, MDBs, ECAs and other international

investors may be willing to take on local currency risk

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CELSE

3

May

2008

Approval of

IDB

financing

December

2004

Enactment of

the Federal

PPP Law

May

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Commercial operation

of the first segment:

Faria Lima - Paulista

November

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Execution of

the PPP

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Timeline

Context

•

Executed on November 29, 2006, Line 4 was

the first PPP (public private-partnership) in

Brazil, in a strict sense, i.e, governed by Law

11,079 of 2004 and thus relying on some level

of financial contribution of the Granting Authority

(the State of São Paulo), as opposed to the

more traditional common concessions (relying

solely on tariffs from end-users)

•

Such PPP was based on the sponsored

modality, pursuant to which the concessionaire

is entitled to direct payments from the

government, complementing revenues derived

from tariff collected from end-users

•

With a stated value of BRL 790 million at the

time of its execution, and an original term of 30

years, it was also one of the first private

concession of subway lines in Brazil (*).

Concessionaire was responsible for providing

the rolling stock, relevant systems, and the

operation of the line.  State of São Paulo

remained responsible for the excavation and

construction works

Problem

•

Direct payments from the State of São

Paulo and tariff revenues are

denominated in Brazilian currency and

indexed to local inflation

•

Nevertheless, debt service on IDB

financing was denominated in US

dollars. IDB finance to the

concessionaire consisted originally of a

USD 128.9 million A-loan, combined

with a USD 213.2 million B-loan

•

At that time, as the first PPP project and

the first private concession of a subway

line in Brazil, local sources of financing

were not available at an affordable cost.

IDB had international experience on

financing other subway lines, had

already helped the State of São Paulo

on prior phases of the project and was

committed to support the PPP

Innovation

•

To mitigate FX risk arising from mismatch between

debt service on IDB financing and local currency

revenues of the project, a relevant portion of such FX

risk is objectively allocated to the Granting Authority

•

Objective risk allocation was an innovation of the then

new PPP legislation. Such objective allocation is

automatic and does not require a long and less

predictable contractual revision process which would

necessarily result from the traditional economic

equilibrium rebalancing doctrine

•

Section 12.3.1 of the Concession Agreement

expressly attributes to the Granting Authority the risk

of 

“variations in the foreign exchange rate of the

Brazilian Reais against the  US Dollar, which may

cause an impact in the payment of foreign currency

debt”

, within the limits and conditions set forth in the

Agreement. The FX Impact must be demonstrated by

the presentation of an opinion of a qualified auditor.

The agreement also provides for additional conditions

for the recognition of the Concessionaire right to claim

for the rebalancing of the agreement

Brazil

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FX Risk partially and

objectively allocated to

Granting Authority,

under the relevant

Concession Agreement

2

(*) MetrôRio was, in 1998, the first private concession of a subway line in Brazil.

Useful Links:

ViaQuatro

IDB Info

May

2004

Enactment of

the São Paulo

State PPP Law

4

Key lessons

learnt

Results/Impact

•

Line 4 is currently operating through 10 stations, from

Luz to São Paulo-Morumbi, being one of the most

important lines in the Sao Paulo subway system.  It is

expected to be fully completed in the near future, when

it will achieve a 12.8 km of extension

•

As the first PPP in Brazil, it paved the way for many

other PPPs under Law 11,079 regime

•

It also offered a more suitable structure for the private

concession of other subway lines (as well as urban

trains) in Brazil

•

The objective FX risk allocation was only one of its

innovations.  The PPP also innovated in many other

aspects, such as on its guarantee scheme (to secure

the revenues payable to the concessionaire),

centralized tariff collection on a clearing house

responsible for the sharing of the revenues among Line

4 concessionaire, the Companhia do Metrô de SP and

other operators etc.

•

In a large metropolis as Sao Paulo, the expansion of

the subway system offers huge social and economic

externalities

MDBs and foreign lenders may not only offer more affordable

costs, in times of local funding scarcity, but they may also be

more prepared to take risks in innovative projects

The generic right to rebalance the agreement to restore its

economic equilibrium in many cases will not offer sufficient

mitigation to FX risk so as to attract foreign lenders and

investors (as such right, in most cases, will not offer

sufficient predictability in terms of actual monetary

compensation and time to complete such contractual

revision)

As a general rule, financing and FX risks are to be handled

by the private concessionaire.  Nevertheless, in projects that

are highly strategic for the Government or population;  are

very innovative; which present relevant social and economic

externalities, and/or where local sources of financing are not

available at affordable costs, partial allocation of FX risk to

the Government may be justified

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2

Useful Links:

ViaQuatro

IDB Info

5

May 2020

Execution of the

Concession

Agreement

October 2019

Tender documents

are officially

released

January 2021

BNDES approves BRL 3

billion financing covering

approximately 58% of

funding needs

January 2020

Opening of the

Bids (Auction)

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Timeline

Context

•

The State of São Paulo has one of the

most successful program for the

concession of toll roads in Brazil

•

As part of the 4th round of concessions,

PIPA Toll Road is the largest road under

concession in Brazil, with 1273km

•

The 30-year contract was signed in

2020. It was awarded to a consortium

led by local fund manager Patria, with

the participation of GIC, the sovereign

fund of Singapore

•

Such consortium offered a premium of

7,209% over the minimum bid, i.e., a

signing bonus of BRL 1.1 billion.  Total

required investment is estimated in BRL

14 billion

Problem

•

As the largest toll road concession in

Brazil and part of a round involving

other important road concessions in

the State of São Paulo, without

prejudice to toll roads also being

offered to the market by the Federal

Government and other states, there

was doubt as to whether there would

be sufficient local sources of project

financing to meet the huge funding

needs of the Pipa Toll Road Project

•

The State of São Paulo and

ARTESP also wanted to increase

competition, and attract potential

investors beyond the consolidated

players

Innovation

•

The concession was awarded to the bidder who offered the

highest premium over the minimum fixed amount of the

signing bonus (

valor de outorga

).  On the other hand, the

concessionaire must also pay a variable signing bonus,

consisting of 7% over the gross revenues of the concession,

throughout the concession term

•

If so elected by the concessionaire at the commencement of

the concession, it would be allowed to have the right to deduct

from the variable component of signing bonus instalments

allocated to the mechanism (up to 3% of gross revenues) the

adverse impact of FX variation in relation to the principal

amount of foreign currency indebtedness (but not interests)

assumed by the project company up to the limit set forth in the

tender documents (USD 500 million of principal amount) and

duly evidenced to the granting authority

•

The mechanism works both ways, though. Upon such

election, the concessionaire may also be obliged to pay an

additional amount of variable signing bonus, up to a total limit

of 6% (3% + 3%), corresponding to any gains arising out of

such FX variation in connection with the principal amount of

its indebtedness (i.e., in case of appreciation of the Real)

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3

Useful Links:

Parcerias SP

6

Key lessons

learnt

Results/Impact

•

The concessionaire of PIPA Toll Road has not yet elected to

trigger the FX mitigation mechanism.  It has two years from

the date it commenced to operate the road and so far it has

only announced a local financing from BNDES

•

However, even if the election is not made, the mechanism

was very well received by the market and seems to have

contributed to a strong competition for the concession

(which resulted in a 7,209% premium over the minimum bid)

•

At a minimum, it serves as an insurance for the private

investor. If BNDES had not approved the financing, cross-

border financing might be a necessity

•

As opposed to an open-ended government guarantee, the

mechanism is limited to the variable component of the

signing bonus and, therefore, cannot cause adverse

impacts to governmental budgetary funds (such as general

tax collections), nor it qualifies as public debt

•

Although offering only partial mitigation, simulation tests

show that, in practice, as designed, it would cover most

scenarios of FX devaluation

•

The innovative mechanism was replicated into the federal

road concessions, starting with the BR-153 Highway

(Tocantins – Goias), awarded in April 2021 to the

consortium led by Ecorodovias

Innovative mechanisms may be replicated and generate

positive effects beyond the project for which they were

originally conceived

Even when not absolutely necessary, proper FX risk

mitigation may increase competition, bring new

investors to the table and result in better bids to the

government.

Contractual mechanisms may offer relevant mitigation

to FX and other risks, without necessarily impacting

governmental budget

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3

Useful Links:

Parcerias SP

7

October 2020

Execution of USD

67 million 14.8y

Project Financing

2017

Launching of

Altas Renewable

February 2021

Installation of

first trackers

June 2020

Execution of

15-year PPP

Contract

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Timeline

Context

•

Atlas Renewable Energy is

developing the 187MWp

Jacarandá Solar Project, in the

Municipality of Juazeiro, State of

Bahia

•

 It will count with 450 solar

modules and produce sufficient

power to meet the nees of a city of

750,000 inhabitants

•

The project required financing of

approximately USD 70 million for

its implementation

Problem

•

Atlas is an international developer and

wanted to access international funding for

the project

•

However, power generation projects in

Brazil generate Brazilian currency

revenues, usually indexed to local inflation

(IPCA)

•

PPAs to supply power to the captive

market, through distribution utilities, must

follow standardized terms, set forth by the

Government/ regulator (the so-called

regulated market), without flexibility for

adjustments

•

PPAs to large consumers (the free market)

may be negotiated between the parties, but

the market has traditionally interpreted

Brazilian laws as prohibiting foreign

currency indexation in contracts between

Brazilian parties

Innovation

•

Following a 2019 law that reinforced the right of companies

to freely allocate risks in contracts entered between

themselves (the Economic Freedom Law), and a general

recognition that certain offtakers (e.g. exporters) may also

benefit from US dollar indexation in their long term

contracts (as corroborated by several bills of law in that

direction), Atlas and its offtaker relied on an interpretation of

existing legislation (Section 2, V, of Decree-Law 857/69), to

conclude that, on certain conditions, it would be permissible

for their PPA to remain denominated and payable in

Brazilian currency, but indexed to US dollar FX variation

•

In the case of Jacarandá project, there were several

elements of connection to justify the US dollar indexation

(project finance all in dollars, foreign sponsor, offtaker an

exporter and subsidiary of foreign company etc.)

•

There are at least 3 bills of law in advance stages of

legislative process aiming at, among other purposes,

expressly clarifying the possibility of such foreign currency

indexation in long term energy or infrastructure related

agreements with exporters

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Useful Links:

Project Website

IDB Info

8

Key lessons

learnt

Results/Impact

•

Jacaranda Project is being successfully implemented,

full force ahead

•

Atlas has already announced a new and larger project,

having Anglo American as its offtaker,  adopting a

similar structure.  Atlas Casablanca, in the State of

Minas Gerais, will have total capacity of 330MWp and

800 thousand modules

•

According to press articles, many other investors are

also considering to replicate the structure, which may

have high attractiveness to foreign lenders

Nevertheless, clarity in the law and legal certainty may

permit the larger dissemination of good practices and

structures that may permit projects in Brazil to access cross-

border financing in a cost efficient way

In many cases, there may be room for innovative

approaches without the need of specific changes in law

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Foreign currency financing may not only be cheaper than

local financing for certain projects and on certain

circumstances, but may also offer other benefits, such as

non-recourse features, faster deployment, attraction of non-

recurrent players more sensitive to local currency risk etc.

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Useful Links:

Project Website

IDB Info

9

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•

The program

 launched in 2015 aims

to shift the source of 20% of the

energy consumed in Argentina to

renewable sources until 2025, by

promoting renewable projects

necessary to produce 1.2GW per

year

•

RenovAr was designed to mitigate

relevant risks faced by investors in

renewable energy projects

•

Wind farms Chubut Norte III (57.66

MW) and Chubut Norte IV (83 MW)

developed in the scope of round 2

of the program came into operation

in 2021 with the capacity to

annually produce 669,100 MWh of

energy supplied to the Argentine

Interconnection System (SADI)

•

Difficult scenario in terms of

foreign investment, due to

macro-economic conditions

which entail high levels of

institutional risk, currency

fluctuations, and sovereign debt

risk

•

Currency devaluation,

international monetary defaults,

and strict regulations to deal

with FX risk

have been common

occurrences in Argentina, thus

affecting potential investments

•

The Chubut project secured a USD 131 million financing agreement

with KfW bank

•

The bankability of the projects within the scope of the RenovAr

Program was strengthened by several key features, of which we

highlight the following:

•

PPA tariffs in US dollars, but payable in local currency (ARS)

•

Compensation triggered by payment default or convertibility

restrictions in the form of a put option granted by the

Government of Argentina and payable out of a pre-funded

liquidity and guarantee fund (FODER)

•

Optional World Bank guarantees in the event that the above-

mentioned compensation is not paid or in the event of

inconvertibility or non-transferability

•

State-owned company, CAMMESA, acts as offtaker under PPAs,

being therefore responsible for the acquisition of the generated

energy and the sale and distribution of the energy to the consumers

(in 

pesos

)

•

FODER is responsible for mitigating liquidity and offtaker credit risks

by providing guarantees and direct financing for the projects

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5

Context

Problem

Innovation

Useful Links:

RenovAr Info

Genneia Info

IFC Report

Round 1.5

RenovAr is

launched

 Round 2

Stakeholders

Involved

Timeline

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August

2017

2015

Round 1

July

2016

October

2016

February

2021

Chubut Norte III  and IV

commercial operation

10

Key lessons

learnt

•

Chubut Norte III and IV, awarded in Round 2 of the

RenovAr Program, with 32 wind turbines, already

generate 140 MW of power, with a total installed

capacity to produce 669,100 MWh of renewable

energy per year for SADI

•

Despite the very adverse macroeconomic

environment in Argentina, the Program was able to

attract international investors and to make those

projects economically viable at an acceptable cost

Although the government did not initially want to take on

some of the risks, it eventually acknowledged that this was

necessary to attract investors and create the positive track

record required to advance the program and perhaps

improve the overall conditions, reduce the risks allocated to

the Government of Argentina at subsequent phases

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The RenovAr program is still ongoing, on its 4

th

 round of

concessions, but macro-economic issues and

governmental decisions are lowering the construction

rhythm and amending original guidelines. Government’s

commitment to infrastructure projects is essential to

ensure legal security for the market players

Results / Impacts

Argentina

R

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5

Useful Links:

RenovAr Info

Genneia Info

IFC Report

11

August

1999

Beginning of

the Concession

Term

February

1998

Economic

Offers Opening

Date

April

2002

Financial

Closure

May

1998

Decree officially

granting the

Concession

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6

8

Stakeholders

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Timeline

Context

•

The Santiago-Valparaíso-Viña Del

Mar toll road project consists of the

construction and operation and

maintenance of a total of 141.36 km,

contemplating 4 tunnels, 16 bridges,

22 interchanges and 14 crossings

and additional 19.6 km of rural

service streets

•

With 

an original term of 25 years, the

concession favors the fluid

transportation of cargo and

passengers and allows easy access

to the port of Valparaíso and other

inner cities, also improving

accessibility to Gran Santiago

Problem

•

Direct payments from the Government

of Chile and tariff revenues are

denominated in Chilean peso and

indexed to local inflation

•

At that time (late 90s), structuring and

financing of similar projects were

especially challenging due to the lack

of long-term local funding and lack of

long term foreign exchange hedging

instruments available

•

In addition, as the Concession System

was only gaining initial traction, the

project companies and

concessionaires expected more

governmental activity and support

Innovation

•

As one of the first and most relevant PPPs in Chile, the

project financing was structured through a bond issuance

with an innovative “multilateral wrap” model with IDB

•

This was the first cooperation of a multilateral institution

with a private monoline insurer. IDB was the guarantor of

record before bondholders and Financial Security

Assurance (FSA) co-guaranteed the remaining amount,

benefitting from IDB’s preferred creditor status. The

structure is analogous to IDB’s A/B loan structure

•

The issuance amounted to 11 million Unidades de

Fomentos (UF) (USD 300 million equivalent). UF is a

Deference unit readjusted to cover inflation

•

A relevant portion of FX risk was objectively allocated to

the Granting Authority through a public insurance

available at the time, to compensate the concessionaire

for the adverse impact on the debt service of depreciation

against the US dollar by more than 10% relative to a rate

locked in at the time of the debt placement

Chile

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6

8

I

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n

T

y

p

e

:

FX Risk partially and

objectively allocated to

Granting Authority,

under the relevant

Concession Agreement

6

Useful Links:

Project Page

IJGlobal Info

12

Key lessons

learnt

Results/Impact

•

Route 68 Concession is currently operating and has had a

significant impact on the way of life for a large portion of the

Chileans, since it is the main route responsible for

connecting two very populous urban areas of the country:

Gran Santiago and Gran Valparaíso, constituting the busiest

land route in Chile

•

As one of the first PPP in Chile, it paved the way for many

other PPPs under Decree No. 900 of 1996, responsible for

the regulation of the Concessions System in Chile

•

The objective FX risk allocation was only one of its

innovations. 

Due to the public insurance available and used

at the time, the Government would cover the local currency

depreciation against the US dollar by more than 10% and, in

the other hand, the concessionaire would pay to the

Government if the local currency appreciated by more than

10%. With such structure, the private entity could be ensured

that it was protected against the foreign exchange risk upon

currency devaluation and against the inflation variation

during the term of the Concession

•

The success of the concession program of Chile and the

economic stability of the country enabled subsequent

projects to access cross border financing at attractive rates

without the need for Chilean government to assume any FX

risk

In addition to the mitigation of FX risk through the

private banking market and usual hedging strategies, it

is also legally permitted under Chilean law for

companies to enter into short or long-term contracts

and transactions denominated or indexed in US dollars

or other currencies

Despite the successful structure of a public insurance

protecting the private entity from the foreign exchange

risk and inflation variation, considering the low variation

of the Chilean currency over the years, the Government

does not currently provide any government support in

respect of FX risk, leaving the foreign investors to find in

the market the necessary tools to protect their

investments and financing

As a general rule, financing and FX risks are to be

handled by the private concessionaire.  Nevertheless,

in projects that are highly strategic for the

Government or population, including initial projects

under a new program or investment regime, as the

present case, partial allocation of FX risk to the

Government may be justified

Chile

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:

FX Risk partially and

objectively allocated to

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Concession Agreement

6

Useful Links:

Project Page

IJGlobal Info

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6

8

13

October

2015

Beginning of

the Concession

Term

December

2022

Estimated

commercial

operation

March

2015

Concession

was awarded

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Timeline

Context

•

The Arturo Benitez International Airport in

Santiago is the main air terminal in the country,

concentrating the largest movements of both

passengers and cargo. In 2013, the Chilean

Ministry of Public Works designed a plan to

increase airport capacity and make the airport

the most modern in South America

•

As part of the second concession, the project

involves the renovation of existing installations

with the redesign and extension of the existing

terminal and the design, build and finance of a

new 175,000m² terminal for international

flights, doubling the airport's capacity to 30

million passengers by 2030. The term for the

second concession is of 20 years

Problem

•

Direct payments from the Government of

Chile and tariff revenues are

denominated in Chilean currency and

indexed to local inflation. Certain

revenues (duty free and certain

international fees) might be correlated to

foreign currency

•

Challenge of structuring a new

concession for a previous project already

granted to the private sector, with the

purpose of providing new resources and

carrying out necessary expansion works

and projects to better serve the final

users and also to increase the relevance

and importance of the International

Airport in Latin America

Innovation

•

Structure of a multinational consortium with

access to capital and industry experience

and expertise, being also responsible for

providing amounts in equity upfront

•

Execution of different multisource financing

agreements with local and foreign banks,

denominated both in US dollars and Chilean

pesos 

to match the concessionaire’s

income generation

. FX mismatch risk was

mitigated via derivative agreements

•

According to the terms of the Concession

Agreement, the concessionaire and the

State would share the commercial income of

the Concession and the airport tariffs from

the passengers boarded by 22.44% and

77.56%, respectively

Chile

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:

FX Risk partially and

objectively allocated to

Granting Authority,

under the relevant

Concession Agreement

7

Useful Links:

Project Page

InfraPPP Info

Concessionaire Annual

Report

July

2016

Financial

Closing

14

Key lessons

learnt

Results/Impact

•

In an important country as Chile, the modernization and

expansion of its main International Airport offers huge

social and economic externalities. The investments

planned are aimed at the consolidation of an important

hub for pan-Pacific traffic

•

Expansion works are currently in progress

Considering that Chile has been successful in

maintaining economic stability, with a very low volatility

of its local currency, long term FX hedging is available

at feasible costs. Investors are also keener to face on

risks that would not be acceptable in other emerging

economies

Due to favorable macroeconomic conditions, private

entities in projects structured in Chile usually mitigate

their FX risks through 

the private banking market. In

this specific case, the concessionaire entered into

derivatives agreements in order to protect itself from FX

risk and from variable interest and inflation variation

Chile

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Concession Agreement

7

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15

Useful Links:

Project Page

InfraPPP Info

Concessionaire Annual

Report

February

2016

Date of

financial

closing

September

2014

Concession

was awarded

Apr 2020

Completion of

Tesalia Tunnel

drive

Stakeholders

Involved

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Timeline

Context

•

The project includes the improvement

and construction of 146km of roads as

well as tunnels, bridges and viaducts, to

connect the regions of Antioquia, Caldas,

and Risaralda. Following construction,

the project will be operated by the

concessionaire for 25 years

•

The Project is part of the first wave of

Colombia’s National Infrastructure

Agency 

4G (Fourth Generation) program

under PPP scheme, which aimed to build

or expand 8,000 km of roads

Problem

•

Prior private investment initiatives had

not accomplished great results in

Colombia due to inefficient institutional

framework, risk allocation and

contractual structure

•

The Government had limited financial

resources for the investments needed

and, thus, Colombia had to rely on

private investment

•

Due to the limited capacity of local

investors, the 4G Program had to be

attractive for foreign investments as well

•

An increased sector-concentration and

emerging regulations restricted

commercial banks’ capabilities to provide

the financing for infrastructure projects

Innovation

•

4 Generation PPPs resulted from an improved legal

framework, starting with the creation of ANI, the National

Infrastructure Agency

•

Under 4G PPPs, risk is shared between public and private

parties.  Once defined functional units of a toll road are

completed, concessionaire shall be remunerated by a

combination of tolls and payments by ANI (part of which may

be indexed to US dollars), including payments to mitigate

risks of construction and demand

•

In case of early termination, concession agreement secures

indemnity payment sufficient to pay outstanding debt

•

The

 financing structure used in this project (total of

approximately USD 650 million) included a USD 260 million

144A/Reg S note, which was the first overseas bond for a

Colombian toll road

•

The complete multi-tranche, dual-currency, hybrid financing

package includes three separate loan tranches along with a

credit enhancement facility provided by Financiera de

Desarrolo Nacional (FDN), a Colombian state-owned

economic development bank

•

The introduction of the FDN was one of the main institutional

innovations. FDN grants subordinated loans and liquidity

guarantees, and at the same time may finance the

structuration of projects and advice regional governmental

entities

•

Although revenues of the project were in local currency, based

on the overall structure, risk sharing and credit enhancement

of FDN, foreign investors buying USD denominated notes

were willing to absorb FX risk

Colombia

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4

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:

Improved PPP

Framework,

Project financing –

Issuance of bonds

internationally and

FDN credit

enhancement

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Bonds&Loans Case Study