Private Enterprise and Financial Markets > Infrastructure and Financial Markets
Directory of Innovative Financing: Colombia
Colombia
Project Title: Puerto Salgar-Tobia Grande Toll Road Concession
Project Title: Private Sector Infrastructure Development Project
Project Title: Centragas Bond Issue
Project Title: OCENSA Tranche D Bond Offering
Project Title: Puerto Salgar-Tobia Grande Toll Road Concession
Country: Colombia
Project Cost: Approximately $200 million
Sector: Transport
Status: Concession structure currently being designed; likely to be put out to bid in 1996.
Sponsors/Lead Manager: Government of Colombia, which will choose a concessionaire that will have access to a World Bank guarantee of approximately $70 million.
Customer: Colombian motorists.
Financing Package: Although the debt-equity ratio has not yet been determened, the sponsor will be responsible for raising its own financing, and will have to assemble an international commercial loan syndication.
Innovation: The Colombian government is using this concession as a pilot project in what it hopes will grow into a much larger program of privately financed toll roads. It has already awarded an initial set of 11 smaller toll road concessions that will be locally financed, but sees this project as being different in the following key ways: 1) its budget is four times larger than any of the previous 11, and will require hard currency financing; 2) the concession period is likely to be 20 years, a big increase from the earlier ones that ranged from 10-16 years that means access to long-term debt will be essential; 3) the government is intersted in reducing the support it offered the earlier projects, such as partial coverage of any cost overruns incurred by the sponsor.
To make this pilot project successful and pave the way for several subsequent privately financed toll roads, some form of credit enhancement will likely be necessary. The nature of the World Bank guarantee has not yet been determined, but could be structured either as a rollover facility to ensure that the capital markets refinancing needed to keep tariffs down is always possible, or as a partial risk guarantee to cover some government obligations.
Brief: Toll roads and power plants are key aspects of infrastructure that Colombia is hoping to develop largely through the private sector. This road would be an important upgrade of the existing links between the country's two largest cities, Bogota and Medellin. The guarantee being considered here could work in tandem with the Private Sector Infrastructure facility Colombia is also developing with the World Bank.
Project Title: Private Sector Infrastructure Development Project
Country: Colombia
Issue Amount: At least $300 million (proposed)
Sector: Power generation, transport, water, gas and others
Status: Under discussion between the Colombian government and the World Bank; unlikely to be finalized until mid-1996
Sponsors/Lead Manager: An infrastructure financing facility would be administered by the Colombian national export credit agency, BANCOLDEX, which is currently soliciting proposals from eight leading investment banks and management consulting firms on the design of financial instruments to be offered by the facility on implementation.
Purchaser: Sponsors and/or financiers of private infrastructure projects in Colombia.
Financing Package: The World Bank has tentative plans to lend $300 million to this facility next year and may seek cofinancing from other bilateral and multilateral institutions active in Colombia.
Innovation: Although the project is still in the early stages of design, the idea is to help mobilize long-term debt finance from domestic and international markets for Colombia's long list of proposed private infrastructure projects. One possibility is that the facility could address refinancing risk by providing commitments, made at the time of initial financial closing, to refinance the debt of projects, subject to agreed financial and operating requirements being met. The facility's refinancing commitments would be priced so that projects would usually refinance themselves in the market and would seek refinancing from the facility only in times of market disruption.
Brief: As one of only two investment grade countries in Latin America, Colombia has already seen some sponsors able to access long-term debt for limited recourse projects (see Centragas and Ocensa). But in order to increase the pace and broaden the scope of this effort in the future it needs greater assurance.
Project Title: Centragas Bond Issue
Country: Colombia
Issue Amount: $172 million
Sector: Oil and gas
Status: Long-term bonds sold in oversubscribed Eurobond/Rule144a offering, December, 1994
Sponsor/Lead Manager: Centragas, a newly formed Colombian gas pipeline limited partnership 100% owned by Enron and affiliates; Lehman Brothers was lead manager.
Purchaser: US and European institutional investors.
Financing Package: $172 million, 10.65% 15-year bond issue priced at 300bp over Treasuries with 9.75 average life rated at BBB-. The issue carries no guarantee, but is secured by a pledge of Centragas assets. Enron has also contributed $88 million in equity.
Proceeds of the bond issue will be used to cover construction and working capital. They will be placed in an escrow account at the Bank of New York and made available to pay project costs subject to pre-agreed conditions.
Innovation: This precedent-setting transaction stands out in several regards. It is the first investment-grade project finance bond issue from an emerging market and the longest term offering out of Colombia to date. It also allowed the project to achieve long-term flexible pre-construction financing in the capital markets. Lehman also developed an investor base for the issue primarily made up of investment grade and crossover investors, as opposed to emerging markets specialists. About 45% of the bondholders had not bought Colombian paper before.
There are several risk mitigation measures for the bondholders. Ecopetrol has provided dollar-denominated "permanent availability tariffs" to Centragas that cannot be reduced by more than 20% under any circumstances, which is more than enough to cover the project's debt service obligations. Ecopetrol has also reduced construction risk by agreeing to buy the pipeline if it is not completed at a price of $196 million times the percentage not complete less liquidated damages covered by Enron's performance bond, and has a contractor building the pipeline as a fixed-price, turnkey project.
Brief: Enron-owned Centragas has entered into a 15-year BOT transport services contract with Colombia's investment grade state oil and gas company Ecopetrol to carry natural gas for 357 miles from Ballena on the Caribbean coast to Barrancabermeja in central Colombia. A large market is expected to develop in Colombia's urban centers as the gas becomes available to replace more costly power sources.
Country: Colombia
Issue Amount: $70 million
Sector: Power generation
Status: Underwriting closed in January, 1993; commercial operations began in September, 1994
Sponsors/Adviser: K&M Engineering and Consulting was the developer and lead investor, with Scudder, Stevens and Clark and the Rockefeller Group; Chase Manhattan Bank was financial adviser.
Purchaser: Proelectrica, a group of 24 industrial corporations from the Mamonal region of Cartagena holding a 15-year power purchase agreement.
Financing Package: The project is based on a 75/25 debt equity structure, with $14 million of sponsor equity and $56 million in long-term loans. The debt portion was fully underwritten by Chase. That bank subsequently placed $35 million of the debt with OPIC, which then in January 1994 lent it at 13-year maturities while also assuming some construction risk. OPIC also provided political risk insurance.
Innovation: This is the first IPP in Latin America financed on a limited-recourse basis, with no government or sponsor guarantees. It applied some of the classic models of project financing of US power plants to the Colombian context, but required developing a new regulatory, legal and securities framework. The state's only involvement is in fuel supply, where the oil and gas is being provided by investment grade Ecopetrol.
Brief: Mamonal is a 100MW gas-fired "inside the fence" power plant supplying power to a dedicated group of industrial users, one of whom is the local utility Electribol. As such it has set important precedents for Colombia's subsequent development of privately financed pipelines and power plants. The current goal is to privatize 70% of power generation in the country.
Although it did not require any multilateral support, an important source of equity was the Scudder Latin American Trust for Independent Power, whose investors include the IFC.
Project Title: OCENSA Tranche D Bond Offering
Country: Colombia
Issue Amount: $60 million
Sector: Oil and gas
Status: Successfully placed in June, 1995; project due to become operational in late 1997.
Sponsors/Lead Manager: Oleoducto Central S.A. (OCENSA); lead managed by J.P. Morgan Securities.
Purchaser: US qualified institutional investors.
Financing Package: Rule 144A bond issue with 12-year maturities and 8 year average life sold with a 9.66% coupon at 365bp over Treasuries; rated at BBB-.
Innovation: OCENSA is a Colombian company sponsoring a $2 billion, 800km pipeline that will carry 500,000 barrels of oil a day from the company's two largest oil fields, to the Caribbean port city of Covenas. The two fields, Cusiana and Cupiagua, comprise 2 billion barrels of proven oil reserves, making them the largest oil discovery in the Western Hemisphere since Alaska's Prudhoe Bay. It is being financed on 70/30 debt-equity structure.
This transaction was considered only the second capital markets project financing in Latin America, coming a few months after the Enron Centragas project bond offering. Through it OCENSA financed its initial needs related to the 9.6% interest of one of its participants, Triton Energy. OCENSA may do another similar offering in several months to raise another $60 million.
Having a strong offtaker in Ecopetrol, Colombia's state oil company, and a throughput commitment from the operators of Cusiana and Cupiagua oil fields allowed OCENSA to secure the investment grade rating necessary to access the long-term bond markets. The pipeline is the only way to carry oil from the multibillion-dollar Cusiana/Cupiagua onshore oil field development project, and bondholders saw Triton's throughput commitment as strong backing for the issue.
Brief: This transaction financed part of Triton's participation in OCENSA, in which Ecopetrol is the lead equity holder at 25%, followed by IPL Energy and TransCanada Pipelines (17.5% each); British Petroleum and Total of France (15.2% each) and Triton (9.6%). Each participant in OCENSA raised their portion of the debt over the summer. Ecopetrol had the largest commitment, helping OCENSA sell $150 million in 10-year, 9.3% BBB- Eurobonds priced at 335bp over Treasuries in late June, Goldman Sachs was lead manager. In early July, Ecopetrol also arranged $700 million in bank debt with average maturity of 10-years at 8.6%. Of that, $270 million came from a commercial syndicate arranged by Chemical Bank, and the remaining $430 million came from the export credit agencies of Japan, Italy and the US OCENSA's component related to Triton, the original discoverer of Cusiana and Cupiagua in 1987, is being financed in the Rule 144a offerings. OCENSA also obtained loans from European commercial loans to fund the portion of its debt supported by Total's throughput agreement and loans from a subsidiary of BP for the portion supported by BP's throughput agreement.
Infrastructure
and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank
Last updated: 02/26/07
