Real Big Money

In January 2015 the final fourth generation concessionary (4G) project was signed in Yumbo, Valle de Cauca for the construction of the Mulaló- Loboguerrero, a megaproject that includes 31 bridges and viaducts, and nine tunnels. The capacity and viability of Colombian financial institutions to finance 4G and other infrastructural works has long been a bone of contention between multinationals with investment interests in Colombia, government institutions, and Colombia’s leading holding groups. This conundrum recently reared its head during President Santos’ ambitious social housing construction program in 2011, when it became clear that generating vast amounts of credit in such little time would not be easy. Starting in 2014, the government began to search in earnest for the $12 billion needed to finance the 4G projects.

By the end of 2013, construction companies, Colombia’s funds, and investment banks were all drawing up proposals for the concessionary programs (4G projects), but only Bancolombia and AVAL were forthcoming with pledges to finance the megaprojects. Initially it seemed the accounts would not add up, on the basis that interest rates and CPI forecasts over a period of 18 years were not economically viable. The element of risk that constructors and financial institutions would incur began to deter the concessionaries—who are required to present plans to finance 30% of the total cost required—from partaking.

Judging by the discourse of Colombia’s leading investment bankers and domestic and multinational construction firms that TBY talked to in 2015, the Colombian Agencia Nacional de Infrastructura (ANI) and Financiera de Desarollo Nacional (FDN) have pulled out all the stops to mitigate risk for domestic and multinational constructors, assisting with environmental licenses, and offering private consultancy on proposals and strategy. To these ends congress has also been working in unison with the national agencies concerned to ratify laws to facilitate the process. By January 2015 decrees were passed which enabled the Autoridad Nacional de Licencias Ambientales (ANLA) to accelerate license issuance, and allow eminent domain of 4G projects sites where time limits are tight, which is often the case. At the time of writing the national agencies in question, and congress had identified that other vital decrees were required to promote private consulting to local communities, who are the most important stakeholders of all. Communities are turning out to be the most important variable in ensuring that projects were completed on time.

The willingness and capacity of various financial agents is gradually becoming clearer as time passes, and the stakes and urgency for capital are on the rise. The FDN has effectively acted as a catalyst and intermediary body for financing the projects, and starting in 2014, it began to employ the strategy of broadening financing prospects as much as possible. By the end of the 2014, Davivienda, Colpatria (Scotiatbank), CorpBanca, and BBVA had all come forward, thanks to FDN’s average forecast CPI rates. Even Banco Agrario, which is now providing credit to thousands of smallholders and displaced rural populations as part of the government’s rural post-conflict strategy, has come forward.

Perhaps the most-game changing development was the arrival of pension funds and capital markets, who prescribed their debt funds which enabled them to be present from the outset of the concessionary projects. That said, regulations require that they contribute no more than 5% of their total portfolio to these projects. By March 2015 the firms lining up to offer their resources included Ashmore with the Latin American Development Bank (CAF), Sumatoria, Credicorp, BTG Pactual, and the investment bank Exponencial, under the condition that none of these pension funds can hold more than 40% of each debt fund. The idea is that these funds will extend credit and act in the same capacity as conventional banks.

Regardless of how many financial agents come to the table, the final outcome remains uncertain. Although 2014 was a good year for finance, with low rates and high liquidity, the expectation that the US Federal Reserve will raise interest rates has created the threat of darker scenarios. But with the oil slump set to extend into 2016 at minimum, the importace of the construction projects to generate employment and growth in Colombia is greater than ever.