Summer 2017 Issue
Latin America (Corporación Andina de Fomento – CAF), to leverage the new legal framework and help set up the country’s first infrastructure debt fund – the Colombia Infrastructure Collective Debt Vehicle (Infra CDV) – to crowd in institutional investors. The fund has already raised $400m. “This approach results in a multiplying effect on infrastructure financing,” says FDN President Clemente del Valle: “We are creating something innovative that will increase Colombia’s economic competitiveness.” That something aims to capture a slice of the $61tn global pool of pension and insurance assets that need investing. According to the April 2016 edition of EM Compass, a periodic report on business in emerging markets (EMs) published by the IFC, less than 1% of global pension fund assets are invested in infrastructure. Conversely, EMs collectively need an estimated $1.5tn annually to bridge their infrastructure financing gap. Colombia, now home to one of Latin America’s best-performing economies, has moved decisively to address regulatory uncertainties, improve transparency, and mitigate risk in order to entice investors. FDN, now managed as an independent entity, no longer subject to the cumbersome procedures imposed on stateowned entities, is being transformed to play a key role in the upgrading and expansion of the country’s infrastructure. It is slated to advise market actors and establish benchmarks in addition to offering its expertise in project structuring, financing, and advisory services to both financial institutions and national and local governments. Thus, FDN is to act primarily as a facilitator and enabler of public-private partnerships.
follow and – more importantly – simplify land acquisition practises by shortening judicial arbitration and appeal processes. Both laws benefited from technical guidance provided by the World Bank.
Dovetailing its policies with the International Finance Corporation (IFC, part of the World Bank Group) – the Colombian government has asked the institution to help set up a National Development Finance (FDN – Financiera de Desarollo Nacional) agency to catalyse investment and address market failures that discourage private investors to partake. The IFC invested $70m in FDN, taking a 35% stake jointly with the Development Bank of CFI.co | Capital Finance International
Whilst a pilot project for much larger undertakings to follow, Pacifico 3 demonstrates that it is possible to mobilise private financing for major infrastructure projects in emerging markets. Aligned to the new IFC approach of actively crowding in private sector investments into large infrastructure works, will help boosting an initial commitment almost tenfold. i 37
Cover Story
The government has unveiled a $25bn plan to create a network of toll roads – part of the even more ambitious 4G Concessions Programme – that aims to add another 8,000km of asphalt to the national transport grid as well as 1,100km of railway track, 1,500km of navigable waterways, and two new airports. The 4G Concessions Programme represents about 3%
of Colombia’s GDP and is one of the largest PPP infrastructure agendas in the world.
The first results are already in with the Pacifico 3 road project – a 146km-long highway with 26 bridges and 6 tunnels – reaching it financial close early last year with help of US investment bank Goldman Sachs. FDN committed $66m in credit enhancements, effectively mobilising $648m in private funds of which 59% was raised on international capital markets. Critically, the bonds issued were awarded a BBB- investmentgrade rating, allowing pension funds and other institutional investors to allocate resources.