The Inter-American Development Bank today announced the approval of a partial guarantee for a local currency bond to be issued by Sociedad Concesionaria Costanera Norte S.A., a single-purpose company dedicated to implementing an urban toll road concession in the city of Santiago de Chile.
The Costanera Norte project consists of the creation of a high-speed urban toll road network crossing metropolitan Santiago from east to west. Users of the system will be tolled through the use of a free-flow electronic system that will allow toll collection to take place without the delays and safety hazards created by traditional toll booth facilities. The Costanera Norte project will be one of four urban expressway networks in Santiago that will create the first "smart" toll road system of its kind in Latin America and the Caribbean.
The concession company will perform a series of complex capital investments in exchange for the right to charge a vehicle toll during a 30-year period. The majority of the works are located on the Oriente-Poniente section that extends 30.4 kilometers and runs along the north coast of the Rio Mapocho with an extensive number of bridges, over- and under-passes and a 4 km "cut-and-cover" tunnel. The project also consists of the upgrade of 7.4 kilometers on John F. Kennedy Avenue and the upgrade and expansion of a 4.3 kilometer extension to Route 68. Once constructed, the Costanera Norte system will help reduce traffic congestion, air pollution and noise, as well as reduce commuting time for users throughout the metropolitan area.
The sponsors of the project are Impregilo S.p.A. of Italy and two Chilean companies: Empresa Constructora Tecsa S.A. and Empresa Constructora Fe Grande S.A. The total cost of the project is estimated at the equivalent of US$442.2 million and the bond issue at US$240.1 million.
The IDB provides a financial guarantee equivalent to US$75 million of principal and interest due under the bonds. Ambac, a AAA-rated monoline insurer, will be the co-guarantor of the bonds. Financial guarantees organized by the IDB will cover up to US$240,1 million of bond issue.
The IDB-backed guarantee covers 40 semiannual (20 years) payments of principal and interest under the bonds. In 2002, the IDB structured and closed a financial guarantee for another Chilean concession company for a similar bond issue to finance the construction and rehabilitation of the Santiago-Valparaiso-Viña del Mar toll road. That transaction, which was the first bond guarantee of its kind by the Bank, was named "LatAm Deal of the Year" by Project Finance International and "Latin American Transportation Deal of the Year" by Euromoney Project Finance.
According to project team leader Philippe Birebent, "the well developed capital market in Chile creates an opportunity for the IDB to provide credit enhancements that will enable domestic savings held by pension funds and insurance companies to be invested in their own country’s infrastructure projects." In addition, says Birebent "As tolls are denominated and collected in local currency, the application of this guarantee instrument permits a local currency financing that offers a natural hedge to foreign exchange risks associated with traditional dollar-based financing."