Agenda LatAm Infrastructure Needs – Supporting Evidence Infra Programs Across the Region Macro Conditions and Regulatory Environment Financing Sources Investors’ Profile Addressing Investors’ Concerns – Typical Transactions Market Characteristics and Dynamics What to Expect?
LatAm Infrastructure Needs – Supporting Evidence The region is under-investing in infrastructure as % of GDP
Source: IDB
Source: IDB
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What are governments doing? Governments across the region have put together ambitious infrastructure programmes. The challenge is to sustain the increase in public investment in infrastructure in the light of deteriorating fiscal conditions …
Source: IDB
Source: IDB
Source: IDB
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Infra Programs Across the Region – Some Examples Is history repeating itself (again)? • Mexico • Ambitious Infrastructure National Plan (PNI) announced in 2014 – 743 projects in 6 sectors worth MXN7.5 bn (approx. USD 0.5 bn). • Significant budgetary cuts for 2016 and 2017, mostly in Pemex’s budget.
• Brazil • In June 2015, Brazil has launched its largest logistics investment program (PIL) – BRL198.4 billion: BRL66.1 bn in highways, BRL86.4 bn in railways, BRL37.4 bn in ports and BRL7.8 bn in airports. • Yet, the program has not gained any traction. • In Energy, activity remains.
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Infra Programs Across the Region – Some Examples • Colombia • COP280 trillions in CAPEX the next decade via concessions and PPPs: COP52 tn in 4G, COP37.15 tn in urban highways, COP22.4 tn in urban mobility, COP105 tn in the PTMI, COP12.4 tn in social infrastructure and COP49.6 tn in energy, oil & gas. • Budgetary pressures have obliged the government to seek alternatives for most of the 3rd round 4G projects:
• Chile:
Source: FDN
• Governmental finances impacted by low copper prices. • In an effort to reduce dependence on the mining sector, the government has been aggressively investing in infrastructure, particularly in renewable energy infrastructure.
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Infra Programs Across the Region – cont. • Peru • Investments under way in transport infrastructure for USD13.8 bn. • Between 2014 and 2016, additional USD19.3 bn are expected to be executed by the MTC through public works and PPPs. • Investments expected to continue - both candidates running in the second round of presidential elections in June 5 are viewed as market-friendly.
• Argentina • Ambitious infrastructure transportation 4year plan under Mr. Macri- USD15 billion in highways, USD17.5 billion in commercial and passenger railways, USD1.5 billion in air transportation, and USD2 billion in ports/waterways. • Funding is to come from private sector mostly, thus the need to resolve immediate confidence issues to attract investors.
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Infra Programs Across the Region – cont. • Uruguay • 2015-2019 Plan - USD12 billion, approximately 25% higher than the 2010-2014 plan. The expectation is that approximately 35% will be funded from the private sector. • Two availability toll roads and one railway are currently up for bids from the private sector.
• Paraguay • Law No 5,102/13 regulated by Decree 1,350/14 constitute the legal framework for PPPs in the country. • Approx. USD 1.5 bn through public initiatives, including the Assumption airport and close to USD 0.5 bn of private initiatives under study.
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Macro Conditions and Regulatory Environment Set the context for the development of Capital Market Financing • Defined-contribution accounts schemes in major Latin American countries in the 80s (Chile) and 90s (Mexico, Colombia and Peru); • Steady improvement of the sovereigns’ creditworthiness; • The establishment of inflation-linked currencies in a number of countries; • Dollarized (Panama) or partially dollarized (Peru) economies; • Fiscally constrained sovereigns -capital markets to increase its role in infrastructure financing; • Pronounced decrease in real interest rates in Brazil until not long ago; • BNDES stepping back due to fiscal constrains in Brazil; • The passing of PPP Laws in a significant number of countries; • Mixed PPP Grantor framework; • Tax exempt infrastructure bonds in Brazil; • Regulatory rating requirements for institutional investors. www.fitchratings.com
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Q&A
Financing Sources Annual private financing of infrastructure in Latin America, the Caribbean and the world, by type of instrument
• The region needs financing in local currency.
2014-2014
• Foreign currency hedging alternatives nonexistent or at prohibitive cost.
Composition of debt financing for infrastructure in Latin America and the Caribbean 2014-2014
Source: IDB
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Source: IDB
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Investors’ Profile A Market dominated by local institutional investors • Local investors are risk adverse; • Increasing number of private debt funds; • Growing number of EM investors.
General aversion to Completion Risk
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Addressing Investors’ Concerns • Volume risk assumed by grantor in greenfield projects; • Revenues total or partially linked to foreign currency as to mitigate FX risk and tap cross border markets; • Strong Framework with respect to PPP Grantor Counterparty Obligations in Peru and Colombia – Completion Risk mitigated: • Government Backed Securities (GBS) in Peru and Colombia;
• Strong Grantor Obligation Framework and Traffic Top Up Payments: • Colombian 4G Program
• Flexible Structures.
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Typical Transactions • Brownfield projects: • bank debt take-outs; • dividend cash outs;
• Greenfield projects in Peru and Colombia : • milestone based payments;
• Flexible debt structures - indicative or targeted amortization to address project ramp up, zero flow; • Brazil: security package shared with BNDES, according to its lending standards.
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Q&A
Market Characteristics and Dynamics • Mexico – Local market for toll roads and availability based projects and potential for cross border issuance in the energy sector. • Brazil – 100% a local market. • Peru – where the bulk of cross border financings come from. The government/grantors have been willing to take on FX risk in respect to grant and availability payments. • Colombia – mostly a local market with some room for cross border financing in cases government/grantor/off takers take FX risk. • Panama – a natural market for cross border financing given its dollarized economy. • Chile – mostly local, with the potential for cross border in the energy sector.
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What to expect? Main issues, concerns, deal flow … • Mexico • Banobras and Fonadin to step in; • Energy reform seems to be finally moving on; • Deal flow: Natural gas pipelines, likely through cross-border debt in USD; • More toll roads, with short operational history - in UDIs or MXN at fixed rates; • Some energy and transmission line projects likely in the future - depending on how fast the energy reform is completely implemented.
• Brazil • Macroeconomic prospects – how volumes for transportation assets will be affected; • New President following impeachment – how that can affect the projects’ pipeline; • Deal flow – wind projects and transmission lines. www.fitchratings.com
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What to expect? Main issues, concerns, deal flow …. • Chile: • Energy, mostly renewables;
• Argentina: • Ambitious programs following new administration; • Funding is a challenge; • Macro policy will determine int’l market confidence.
• Paraguay: • Bid for expansion of the int’l airport, likely financed in USD;
• Uruguay: • Transportation assets in the pipeline, particularly toll roads and potentially a railway; • Liquid market locally. www.fitchratings.com
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Fitch Research – Relevant Criteria & Recent Research
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Fitch Research – Relevant Criteria Suite Airports (February 2016)
Toll Roads, Bridges & Tunnels
Leveraging Federal Transportation Grants
(September 2015)
(December 2015)
Availability-Based Infrastructure Projects
Wind Projects (March 2016)
Master Criteria Infrastructure & Project Finance Thermal Power Projects
(September 2015)
(June 2015)
(October 2015)
UK Whole Business Securitisations (August 2015)
Solar Power Projects
U.S. Sports Facilities
Ports
(March 2016)
(August 2012)
(October 2015)
Source: Fitch
Rating Public-Sector Counterparty Obligations in PPP Transactions – Jan, 2016 Country Ceilings – Aug, 2015 Rating Non-Financial Corporates Above the Country Ceiling – Feb, 2015 National Scale Ratings Criteria – Oct, 2013
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Fitch Research – Latin American Focused FX in Infrastructure Project Finance: Where Are The Risks? (Latin America Focus on Foreign Exchange Risk) – March, 2016 2016 Outlook: Latin America Infrastructure (Stable, Yet with Increasingly Divergent Performances) – Dec, 2015 Brazilian Toll Road Concessionaires (2015 Peer Review) – Dec, 2015 Brazilian Solar PPA Structure (Risks and Mitigants to Revenue Predictability) – Nov, 2015 On the Road: Toll Road Performance in Brazil (Operating Profiles and Leverage) – Jun, 2015 Brazilian Wind Projects: Achieving P50 (2014 Performance Fact Sheet) - April, 2015 Demystifying Brazilian Wind PPAs: LER vs. LEN (Risks and Mitigants Across Wind PPA Structures) – Dec, 2014 Mexican Toll Road Forecasts (A Historical Analysis of Performance) – Dec, 2014 Understanding Government-Backed Securities in Latin America – Sep, 2014 Zero Flow Debt Structures in Latin America (Increased Liquidity Decreased Default Risk) – Jul, 2014 Colombia´s Infrastructure: Connecting the Dots – Sep, 2012
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Key Contacts
Global Infrastructure & Project Finance Gláucia Calp. Managing Director – Regional Group Head – LatAm
+57 1 484 6778 +1 312 606 2398
[email protected]
Astra Castillo, Senior Director – Mex, Col, Chl and Pan
+52 55 5955 1611
[email protected]
Bernardo Costa, Senior Director – Bra, Ury, Arg and Pry
+55 11 4504 2601
[email protected]
Greg Kabance, Managing Director – Regional Group Head – LatAm
+1 312 368 2052
[email protected]
Maria Moreno, Senior Director - Bogota
+57 1 326 9999
[email protected]
Structured Finance (for GBS transactions)
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Fitch Sector Coverage Summary
• 14 analytical professionals • Over 80 credits covered • Analytical expertise across the spectrum
Sector Distribution
Country Distribution
National Ratings Distribution
Sector Distribution by Country
National ratings are shown in respective local scales. Coverage does not include GBS transactions. Graphics exclude monitored Credit Opinions.
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Fitch International Ratings - Coverage Summary
International Ratings Abengoa Transmision Sur S.A. ACI Airport SudAmerica, S.A. Aeropuerto Internacional de Tocumen, S.A. Autopistas del Nordeste (Cayman) Limited Autoridad del Canal de Panama Autoridad del Canal de Panama (IDR) CE Oaxaca Cuatro, S. de R.L. de C.V. (Oaxaca IV) CE Oaxaca Dos, S. de R.L. de C.V. (Oaxaca II) Concesionaria Mexiquense, S.A. De C.V. ENA Este, S.A. ENA Norte Trust ENA Sur Trust Energia Eolica, S.A. Fermaca Enterprises, S. de R.L. de C.V. Fideicomiso P.A. Pacifico Tres Lima Airport Partners S.R.L.(LAP) Planta de Reserva Fria de Generacion de Eten S.A. Red de Carreteras de Occidente, S.A.B. de C.V. Terminales Portuarios Euroandinos Paita
Country Peru Uruguay Panama Cayman Islands Panama Panama Mexico Mexico Mexico Panama Panama Panama Peru Mexico Colombia Peru Peru Mexico Peru
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Sector Availability Projects Airports Airports Toll Roads Other Other Energy Energy Toll Roads Toll Roads Toll Roads Toll Roads Energy Availability Projects Toll Roads Airports Energy Toll Roads Seaports
Rating BBBBB+ BBB B+ A A BBBBBBBBB BBBBBB BBB BBBBBBBBBBBB+ BBBBBB BB-
Outlook/Watch ROS ROS RON ROS ROS ROS ROP ROP ROS ROS ROS ROS ROS ROS ROS ROS ROS ROS ROS
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Fitch GBS Coverage Summary
Transaction Name Asset Class Red Dorsal Finance LLC Telecom Lima Metro Line 2 Finance Limited Transporta1on IIRSA Norte Finance Limited Toll Road Interoceanica V >inance Ltd. (IIRSA Sur Toll Road Tramo V) Peru Enhanced Pass – Through Finance Toll Road Limited (IIRSA Sur) Interoceanica IV Finance Limited (InterSur) Toll Road Taboada Finance Limited Water/Wastewater Peru Payroll Deduction Finance Limited Healthcare Reventazon Finance Trust Energy Transmilenio S.A Transporta1on
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Country Peru Peru Peru Peru
Rating BBB BBB A- BBB+
Peru
BBB+
Peru Peru Peru Costa Rica Colombia
BBB+ BBB+ BBB BBB- AAA (col)
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Q&A
Disclaimer Fitch Ratings’ credit ratings rely on factual information received from issuers and other sources. Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. The information in this presentation is provided “as is” without any representation or warranty. A Fitch Ratings credit rating is an opinion as to the creditworthiness of a security and does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. A Fitch Ratings report is not a substitute for information provided to investors by the issuer and its agents in connection with a sale of securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch Ratings. The agency does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT WWW.FITCHRATINGS.COM.
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