Year: 2021

Winner: Metro de Panamá $2 billion ECA-covered Notes Issuance Facility

Big construction projects in Panama are almost always associated with the eponymous canal, but the country’s expanding Metro system in Panama City, the capital, is on track to pass it.

Lines 1 and 2 of the system, which are already in operation, required a combined $3.3 billion to build. Line 3, at $2.8 billion, will bring the total above $6 billion and start to dwarf the Panama Canal’s $5.25 billion expansion during the previous decade. Two more lines are planned after Line 3.

Financing for the new line is not only bigger than the first two, but was also a carefully crafted operation involving syndicated financing with series of Korean companies that will build it, as well as ESG components. The operation won the Metro de Panamá the Structured Financing of the Year award.

“The most important things about the structured finance, in addition to the diversity of the financial institutions from different continents backing the project, are environmental and social impacts. It is a sustainable transportation project,” Héctor Ortega, CEO of Metro de Panamá, tells LatinFinance.

The HPH Consortium, formed by Korea’s Hyundai E&C, Posco Engineering and Construction, and Hyundai Engineering, won the construction concession for the 24.5-kilometer line in 2020. It took some time, but $2 billion in financing for the project closed last August.

The Export-Import Bank of Korea (KEXIM) and Korea Trade Insurance Corporation (KSure) were key players in the operation. KEXIM will contribute $760 million, with 10 other financial institutions, including the state-run Bank of Korea and the International Commercial Bank, participating in the project.

A key piece of the deal, which was used in previous bonds for the system, involved promissory notes, or Certificados de No Objecion (CDNO), which eliminate risk. CNDOs were also used in the process for extending Line 2, contributing to Fitch’s late January rating outlook to stable from negative.

“The sovereign guarantee effectively protects noteholders, taking into consideration the scope of the guarantee, the claim process and the timing required for the guarantor to disburse the funds to the issuer and pay principal on an annual basis within the 30-day cure period,” stated Fitch in its rating report.

Ortega stresses the social components and jobs. Line 3 is projected to cut 20,000 tons of carbon dioxide emissions annually, helping the Panamanian government and Korean companies involved meet environmental and green-financing goals.

“This is a project that will benefit more than 500,000 people in West Panama and that will strengthen the economy of the province, generating more than 5,000 direct and indirect jobs,” says Ortega.

Construction on the first of 14 stations along Line 3 began last October. The consortium had completed 44 pilings, which will support the above-ground rail, as of January 2022. The entire line will require 1,251 pilings. The project is expected to take close to five years to complete.

The project also puts Panama squarely on the map for rail technology. It will be the first system in Latin America to use Japanese high-speed train technology.

“Panama as a country is playing an important role in strengthening the international growth of rail transportation industry,” says Ortega. – LF