Directory of Innovative Financing: Chile

Chile

Project Title: Talca-Chillam Toll Road Concession

Project Title: El Abra Copper Mine

Project Title: Talca-Chillam Toll Road Concession

Country: Chile

Project Cost: Approximately $180 million

Sector: Transport

Status: Eight consortia have already been pre-qualified; likely to be awarded in 1996

Sponsors/Lead Manager: Government of Chile, which will choose a concessionaire that will have access to a World Bank guarantee of approximately $115 million.

Customer: Chilean motorists

Financing Package: Although the debt-equity ratio has not yet been determined, the sponsor will be responsible for raising its own financing, and will have to assemble an international commercial loan syndication.

Innovation: The Chilean government is using this pilot project to help launch an ambitious $1 billion program of expanding the country's principal north-south artery, the Pan-American Highway, though 11 28-year concessions. It will be awarded to the concessionaire bidding the lowest tariff.

The first concession, Accesso Norte a Concepcion, was awarded earlier in the year to a consortium that includes Grupo Tribasa of Mexico, which has reportedly recently arranged a $93 million financing package through Grupo Financiero Bancomer, including an $18 million working capital facility, $20 million completion guarantee, $40 million advanced payment guarantee, and $15 million letter of credit guaranteeing payment on equipment used during construction.

Now access to a World Bank guarantee of sovereign credit risk, access to capital market refinancing, and other factors has been included in the structure of the more costly Talca-Chillam concession. That makes this project a test case, and one that should show whether such credit enhancements are truly necessary to bring these concessions to closure during the risky pre-construction period.

Brief: This is a 187km concession in the most heavily travelled Chilean section of the Pan-American Highway. The government is reportedly considering a possibility of minimum revenue guarantee, but is anxious to avoid some of the key weaknesses of the Mexican toll road program such as: 1) concessions of too short a duration; 2) financing construction with high-interest, short-term borrowings from government banks with a hope of subsequent capital market refinancing; and 3) lack of independently tested traffic projections.

Project Title: El Abra Copper Mine

Country: Chile

Project Cost: $1.05 billion

Sector: Mining

Status: Closed in July, 1995; construction underway with a target completion date of early 1997.

Sponsors/Adviser: Sociedad Contractual Minera El Abra (CMA), a consortium of Cyprus Amax Minerals Co. (US, 51%) and Codelco (Chile, 49%); Rothschild Natural Resources Inc. was their financial adviser, with ABN-Amro and Chemical Bank agenting the commercial loan syndication.

Purchaser: Marubeni Corp. and Mitsubishi Corp.

Financing Package: This BOO copper mining project's financing package was put together on a limited recourse basis, with ABN AMRO, Bank of Montreal, Chemical and Industrial Bank of Japan acting as leads in a 14-member, $250 million, 10-year commercial tranche. Another $300 million in subordinated debt is provided by Cyprus Amax, with offtakers Mitsubishi and Marubeni providing $350 million. Export credit agency cover came from Kreditanstalt fur Wiederaufbau of Germany, which will provide $150 million in 12 year term facilities, and the US EXIM, which will provide $150 million upon completion in a fixed rate long-term takeout loan.

Innovation: El Abra contained a $250 million uncovered commercial bank tranche - the longest uncovered bank project financing since the advent of the 1980s Latin American debt crisis. The 10-year tenor established a new benchmark for clean Chilean risk, as all political risk is being borne by project participants.

Brief: This project in northern Chile's mining region involves development of 800 million tons of oxide ore, and will produce 500 million pounds of copper cathode a year when it reaches full capacity.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07