A new approach to infrastructure financing in Colombia

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

5

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