While Mexico’s federal government has cut its budget, state development bank Banobras is looking for ways to increase the participation of commercial banks and institutional investors in financing infrastructure projects.
Abraham Zamora, named chief executive officer of Banobras in January 2015, says the country’s energy reform has piqued investor interest. The bank, which does not receive any funding from the national treasury, has been seeking ways to reduce the risks for commercial lenders and investors in infrastructure projects, he says.
The following is an edited transcript of Zamora’s recent conversation with LatinFinance.
LatinFinance: Which infrastructure sectors are getting attention from investors right now?
Abraham Zamora: The main sector that is receiving a lot of attention and resources is the energy sector. This is the first year for us at Banobras where we have more projects in the energy sector than in highways, which is the main sector where Banobras participates in funding projects. We have several projects including wind farms, gas pipelines and electricity generation. It’s been different than previous years where we focused mainly on highways.
LF: What other renewable projects do you have in the pipeline? And what are the prospects for these kinds of projects in a country where oil is such an important part of the energy matrix?
AZ: We have renewable energy projects in Tamaulipas, Potosí, Monterrey and Oaxaca. In Oaxaca, we are participating in a wind farm. Our participation in these projects is mainly with commercial banks. The projects are being funded with 80% debt and 20% equity. In these kinds of projects, we are responsible for more or less 40% or 45% of debt. The rest comes from the commercial banks.
LF: Would these projects not get financing without Banobras participation?
AZ: Not at the moment. That’s one of the reasons why, as a development bank, we want to be a part of these projects. We want to see investors coming with us, mainly in the new sectors that have opened after the energy reforms. We want investors to see that the development banks in Mexico, not only Banobras but also Bancomext and Nacional Financiera, are active. We want international investors to see that development banks are investing with them.
LF: Why is Banobras getting involved in natural gas pipelines? Are they not getting financing from commercial banks?
AZ: We have only been participating in a few projects. With these projects, we don’t take the 40% to 45%, we take 20% or less. But mainly we have got involved because of the timeline of the projects. The sponsors wanted to have the financing assured. Sometimes we participate because the sponsors have a short amount of time to make the investment.
LF: Mexican contractor ICA has said it will return some toll roads to the government. Because you helped to provide the financing, will you inherit an equity stake in these projects? And if so, what will you do with it?
AZ: ICA is returning just one of its toll roads, which is the road that runs from Oaxaca to Puerto Escondido. The other toll roads have partners. But in the case in which we are the sole other partner, ICA does plan to give the toll road back to the government. We are analyzing and evaluating with ICA and also with the Communications and Transportation Ministry to see what the options are. We are not thinking that Banobras can put equity into the toll road projects. But maybe there is another mechanism, where the Fondo Nacional de Infraestructura [Fonadin] can participate with equity and we complete the financing for the project.
LF: So the government would assume ownership through Fonadin not Banobras?
AZ: Yes, at least on a temporary basis, because we want to ensure the toll road gets built in the short term.
LF: The bank has been developing some new financial mechanisms with the Mexican Banking Association to increase the participation of commercial banks and institutional investors in infrastructure projects. Could you tell us more about the mechanisms?
AZ: We see the participation of Banobras as mainly trying to support a broader participation of commercial banks in infrastructure. We don’t want to compete with them. We want to complement them in participating in projects. That’s why we have determined that we can use guarantees as a mechanism to participate more actively in the projects.
We have partial guarantees. That means we participate in a project with no more than 50% of the guarantee. What we are designing with the Mexican Banking Association is to have specific guarantees. We are working on a guarantee for the construction period if the concessionaire or the company cannot complete construction. We are working on financing small- and middle-sized banks that need longer-term capital.
We are also working on a guarantee that if a project doesn’t have enough income, like a toll road for example, we can ensure it receives some income. We are also working with the World Bank and the Inter-American Development Bank on an insurance coverage to protect infrastructure and energy projects affected by social conflicts.
LF: How might the insurance coverage work?
AZ: We’re exploring a model from the World Bank. If there is a social conflict that impedes the construction of a project, the insurance would cover expenses during the time when the project cannot be built.
LF: Banobras has been exploring public-private partnerships in energy and telecom projects. Are there any new developments on that front?
AZ: With the opportunities that have been created by the energy reform, we are working with Pemex and the Federal Electricity Commission [CFE] to get involved in some PPPs. We have also sought with the other development banks to participate in a project to provide public wi-fi networks.
LF: Does Banobras have any plans to go to the cross-border bond market this year or sell debt on the local market?
AZ: We have plans to go to the local market this year. It’s possible that we would consider tapping international markets next year. But this year we are financing our operations in the local market. LF
This article was updated on September 22 to clarify that Zamora took up the new post in January 2015, not January 2016.