Winner: Rutas 2 & 7 – Government of Paraguay
SPONSOR: Ministry of Public Works and Communications; Sacyr Concesiones S.L. and Ocho A S.A
FINANCING TYPE AND SIZE: $457.6 million zero coupon notes; $200 million loan via IDB Invest.
BANKS: Citibank, Goldman Sachs, IDB Invest, Itaú BBA
LAW FIRMS: Berkemeyer Attorneys & Counselors, Clifford Chance, Dentons, Gross Brown, Hughes Hubbard, White & Case, Vouga Abogados
Building a new road in Paraguay broke ground on many levels, not just in the earth.
The financing for the Rutas 2 & 7 project was not only a significant advancement for transportation but it was the largest single private investment in the land-locked nation’s history. It also the first public private partnership (PPP) contract signed under the legal framework outlining such transactions that was first enacted in 2013.
“The route 2 and 7 project was the first PPP project awarded in Paraguay. Its implementation took time, since being the first project both the private sector and the government have taken their precautions,” said Jorge Vergara, director of the Strategic Projects Directorate within the Paraguayan government’s Ministry of Public Works and Communications.
“The difficulties of the projects gave way to innovations, mainly regarding the financial structuring of projects. This has left many lessons learned that will facilitate the following PPP project tendering processes,” he added in a phone interview with LatinFinance.
The 171.8 km highway will connect the capital Asunción and Ciudad del Este, the two largest cities in the country. The expectation is that the road will have roughly 26,000 daily users but reduce travel times by 40% when it is completed.
Sponsored by the Paraguay Ministry of Public Works and Communication, the government sold $457.6 million worth of 17-year zero coupon notes with a 5% yield. The Inter-American Development Bank participated with an additional $200 million loan, which allowed the securitization of the Pagos Diferidos por Inversión, or deferred payments for investment (PDI). Once vested, the securitizations are a direct, unconditional, irrevocable payment obligation of the Paraguayan government and not conditioned on the completion or operational performance of the roadway.
“This road is not going to just fix a question of time to drive 200 miles in 6 hours. That is crazy. Now we are putting money into security and services surrounding the cities and improving conditions to do the trip in 4 hours. Secondly, we are getting world class roadway and security. Third is the money from the private sector, which saves not just money from the national budget but gives confidence to do things elsewhere in the country. This is a breakthrough project for us,” Vergara said.
According to Goldman Sachs the bond achieved the lowest yield for a structured bond out of Paraguay and was one of only four non-sovereign issuances the country has had in the last five years.
The bookrunners said there was a significant oversubscription that allowed the government to tighten the prices by 25 basis points from the initial price talk when the deal closed in October 2019. Order books were reported to be $1.2 billion at the time.
Including the letter of credit facility by the IDB was significant because it was the first time that the multilateral and its private investment arm, IDB Invest have provided such support for a project finance transaction, legal advisors White & Case said.
“The structure achieves the double purpose of eliminating construction risk from the perspective of bondholders, while reducing negative carry by eliminating the need for a separate working capital facility,” the firm said.
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