Colombia’s Magdalena highway is one of the country’s most important, linking the country’s interior, including the capital, Bogotá, to the Caribbean coast. It has also been under construction for years.
While its two major segments had been put forward unsuccessfully for concession twice in the past, it wasn’t until Spain’s Grupo Ortiz and Colombia’s KMA Construcciones were selected in 2022 to develop the segments – now part of the fifth generation (5G) of infrastructure concessions – that they could move forward.
The financing for the highways, which wins both Local Currency Financing of the Year and Road Infrastructure Financing of the Year awards, was as innovative as it was complex.
“We carried out one of the largest transactions in the world in the first half of 2024,” says Javier de la Mata, Grupo Ortiz’s director of concessions for Latin America. The group raised the equivalent of $1.146 billion – “the largest amount in the history of Grupo Ortiz and one of the largest in recent history,” he says.
But size was only one aspect that set this transaction apart. The company opted to finance both segments – Troncal I and Troncal II – in one transaction. The financing was put together against the backdrop of a complex global macroeconomic situation with skyrocketing inflation and contractionary monetary policy on the one hand and regulatory uncertainty in Colombia following the government’s decision to freeze the rates for toll roads. Yet neither factor weighed on financing costs for the transaction.
The funding relied on a consortium of international and domestic lenders: Bancolombia, FDN, JP Morgan, MUFG, and SMBC. But there was another novelty: the transaction also brought together three multilateral development banks for the first time in Colombia – Development Bank of Latin America and the Caribbean (CAF), IDB Invest, the private sector arm of the Inter-American Development Bank (IDB), and the International Finance Corporation (IFC), the World Bank’s private sector arm.
“It is often difficult to get more than one multilateral involved and on the same, because they have different standards and criteria, but we had three,” says De la Mata. “This is something unprecedented in regional project financing.” He adds that the company had to be creative, because “conditions become exponentially more complicated for every additional $100 million in debt that is added.”
One of the most innovative features of the deal was a synthetic COP tranche introduced to address liquidity constrains in Colombian pesos. As a result of fiscal rules that limit US dollar payments under the 5G concessions program, options were limited for dual-currency financing. The problem was compounded by liquidity constraints in local currency, especially give the amount of debt – the COP-equivalent of roughly $1.1 billion –needed to fund both transactions. As a result, roughly a third of the financing was provided in US dollars through currency swaps, resulting in synthetic Colombian peso tranches.
The capital structure was also new for infrastructures projects in the country, with earlier projects, or fourth generation (4G) concessions, closed at 70/30 debt-to-equity ratios.
The financing for Troncal I closed with 80% debt and just 20% equity, whereas Troncal II required 77% debt and 23% equity.
The seven-year financing closed in April with the first disbursements expected in the final quarter of the year. Grupo Ortiz will then have 47 months to execute the work, which covers more than 500 km.
Troncal I includes constructing 146.5 km, improving 148 km and rehabilitating five km in a stretch between Puerto Salgar in the Cundinamarca department to Barrancabermeja in Santander. Trunk highway II includes constructing 192 km and improving 80 kilometers from Barrancabermeja to San Roque in Antioquia.
De la Mata says the project will have positive economic, environmental and social impacts for Colombia. “These two projects could be the trampoline for something much larger for us and Colombia,” he says.
Sponsors: Grupo Ortiz, KMA Construcciones
Mandated Lead Arrangers: Banco de Crédito del Perú, Credicorp Capital, ING
Senior Lenders, Co-Structurers: Bancolombia, CAF, FDN, IDB Invest, IFC, JP Morgan, MUFG, SMBC
Lenders’ Counsel: Clifford Chance, Holland & Knight
Sponsor’s Counsel: Cuatrecasas, Goncalves Pereira,Paul Hastings
Financial advisor: Credicorp Capital
All supporting financial institutions and law firms were transmitted to LatinFinance by the award category winners. For updates please email awards@latinfinance.com