Best Practices in PPP Financing Latin America - e-Institute - World ...

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Best practices in Public-Private Partnerships financing in Latin America Chart N.2 Infrastructure Investment Fund (FINFRA) Highways PPP Trust (FARAC) number of investors participating in bids and greater offer of projects. Infrastructure National Fund Before 2009, projects entailed more access to financing and therefore, there were fewer capital requirements. These conditions reverted after the crisis, and it is now Disincorporation of assets necessary to combine the instruments of the Bank and those of the Fund in order to improve the projects’ financing profile. This translates into FONADIN sharing risks with the bank. However, it also shares the project’s profits when the project exceeds its financial condition. With respect to this subject, FONADIN established mechanisms by which the company received subsidies and has the obligation to repay them once a certain TIR (internal rate of return) level is exceeded. Nevertheless, the implementation of this methodology was complicated and thus it was decided to take the project’s gross income. Projects Financing Source: BANOBRAS. Nowadays, FONADIN has a pipeline of 91 projects. The total value of included projects is US$18 billion. The total support that these projects would require from FONADIN is estimated at around US$7 billion. This entity is analyzing 9 investment funds specialized in infrastructure with an accumulated objective value of US$3.5 billion. The estimate is that FONADIN participation in these investment funds may reach 650 million dollars. FONADIN is financed by the Government with the collection of tolls from different roads managed by the Federal Government. Therefore, it is a fund with significant liquidity levels. This Fund - 52 -
Day 1 - FOURTH SESSION brings capital and subordinated debt to finance PPP projects. The guarantees offered by this fund include: i. First Loss: FONADIN will assume the first loss and carry out the first expenditure from this guarantee to cover the debt service payment, before spending any other guarantee. ii. Pari Passu (at the same time and in the same degree):. FONADIN would use the guarantee proportionally to the insufficiency of funds, as agreed with other lenders or guarantors. iii. Final Payment: FONADIN will be the last party to disburse from this guarantee, upon insufficiency of project funds, after honoring other guarantees. iv. Mixture: a combination of first loss and “Pari Passu”. FONADIN offers guarantees that cover management and political risks. The guarantee covering the management risk guarantees part of the project’s construction risk, up to 15% of the budget. Likewise, some guarantees also cover the initial project operation stages, until inflow reaches 40% of projected incomes. The main difference between guarantees offered by BANOBRAS and the FONADIN, is that BANOBRAS guarantees investments that achieve “investment grade”, while FONADIN focuses on projects that do not attain this grade. In this manner, BANOBRAS guarantees that payments are carried out on time and that FONADIN executes the payments when a company is not able to comply with its creditors. Possible reasons for which FONADIN does not have many placed guarantees are: • Lack of knowledge of the product and organizational procedures for its management. FONADIN does not have - 53 -
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Best Practices in PPP Financing Latin America - e-Institute - World ...

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