The Colombia’s Fourth Generation Road Concession Program will mark its tenth anniversary in 2024.
Known as 4G, the massive program was launched by the government to add 7,000km of roads to increase connectivity in areas with complicated geography. The original program envisioned $14 billion in investment.
Nothing exemplifies the program like Via 40 Express – a 30-year concession awarded to France’s Vinci Highways and Colombia’s Constructora Conconcreto – that seeks to add a third lane to the 145km Bogota-Giradot Highway and boost its capacity amid growing demand for a road that is used by an average of 15 million vehicles each year.
“This is one of the biggest 4G toll projects and like many projects in Colombia it involves technical difficulties and we needed to apply nearly all the methodologies known the world to stabilize steep inclines,” says Laurent Cavrois, executive director, Latin America VINCI Highways and CEO of Via 40 Express.
The first sections of the new lane are expected to open by the end of 2023, while the entire project should be completed by 2026. The third line is set to be 65km long for the road linking the capital, Bogotá, to Buenaventura on the Pacific coast. Aside from the operation and maintenance of the highway, the concession also involves the construction of an additional 65km of road and three tunnels.
Equally complicated was the nearly $600 million financing for the project, which involved financial structures new not only for Colombia but for road projects of this magnitude in the region.
“It was a complex and novel structure that involved a pool of banks for short- and long-term financing,” says Cavrois.
The multi-source financing includes a combination of debt dominated in Colombian pesos and unidad de valor real (UVR) units, a measurement that indexes finances against recent inflation rates to reflect the current purchasing power of local currency.
The debt was issued in four portions. The first two tranches included an issuance worth 225 billion pesos (US$50 million) and a 500 billion pesos (US$112 million) notes offering. Those were followed up by a 1.05 trillion pesos (US$235 million) UVR series. The three series have maturities of 12, 15 and 20 years, respectively.
The final two series are recovery and resilience facilities (RRFs), an instrument created by the European Commission to mitigate the social impact of the Covid-19 pandemic on certain economies and to help meet green and sustainable targets.
The first RRF issuance was issued for 125 billion pesos (US$28 million), whilst the second was a synthetic issuance worth US$170 million. Synthetic financings work by issuing debt in one currency but making the notes payable in a second currency. This represents the first ever synthetic Colombian peso financing structured under a project finance framework in the country.
The peso-indexed revolving facility was structured in US dollars and euros with an internal multi-currency swap built into the facility to mitigate the currency risk. The facility’s synthetic format allows the project to receive and repay funds in pesos at a fixed rate.
Synthetic peso facilities are becoming a very useful tool for offshore lenders without access to local currency in Colombia, unlocking more sources of financing for sponsors developing peso revenue projects in the region. As the Colombian government reduces the dollar component in revenue structures in its PPPs, the expectation is that more foreign lenders will seek this type of structure to access the market.
Cavrois says: “This was the first facility of its kind in the Latin America market and opens the way for other projects.”
Long-term tranches were provided by BBVA, Colombia’s National Financial Agency (FDN), and debt funds, including Blackrock and Unión para al Infraestructura (UPLI) which provides funds for projects in Colombia and Peru.
The transaction, for which Astris Finance acted as financial advisor, had to overcome multiple challenges during its execution, including a two-year suspension due to an investigation by the SIC, Colombia’s anti-trust watchdog, on the award process which eventually required a complete renegotiation of both the EPC contract and the concession contract with national infrastructure agency ANI.
Meanwhile, just as the Covid-19 pandemic wreaked havoc on traffic revenues, sponsor Conconcreto declared voluntary bankruptcy in late 2021 owing to challenges from an unrelated power project, Hidroituango.
All this took place against the backdrop of political turbulence in Colombia – which led to the election of the first leftist government in Colombia’s history in June 2022 – and market volatility amid sharply rising global inflation and interest rates. Then, in January, just weeks before the toll road deal was set to close, the government declared a freeze on tolls.
Yet despite the formidable obstacles, the deal reached financial close in late February.
Via 40 is going the extra mile with its ESG commitment, including reforestation of municipalities along the highway, improving air quality and fostering improvements in quality of life, including assistance to local coffee farmers.
Cavrois the project’s environmental and social dimensions resonated with the lenders. “We are applying world-class ESG standards,” he says.
Sponsors: VINCI Highways S.A.S.; Constructora Conconcreto S.A.
Banks: Blackrock, JP Morgan, VINCI Highways, FDN, BBVA, UPI
Law Firms: Clifford Chance, Cuatrecasas, PPU
Financial Advisor: Astris Finance
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