COLOMBIA - Finance
President, Financiera de Desarrollo Nacional (FDN)
Since 2013, Clemente del Valle is the President of Financiera de Desarrollo Nacional. Before working for FDN, he was Director of the technical assistance program at the World Bank, previously he was the Superintendent at the former Superintendency of Securities, now known as the Financial Superintendency of Colombia. He graduated from the London School of Economics with a master’s degree in economics. He also holds bachelor’s and master’s degrees in economics from Universidad de Los Andes.
We are preparing the future pipeline of funds that will be needed over the next five to 10 years. In terms of the 4G program, we have started to achieve important milestones. In 2017, we handled a toll roads program comprising 31 projects and USD19.5 billion between debt and equity. Thus far, 30 projects have been awarded to sponsors and 23 of those have received financial certification, which demonstrates the strong interest from financial institutions in providing a significant part of the financing of the program. As well, eight of the projects have had financial closing; grades were assigned and bonds were issued. We are currently working on another package of six projects that we hope to close by the end of 2017. The most important part of the results of the first eight projects with financial closing was the mix of funding. We wanted to attract a variety of funding from local banks, international banks, and foreign investors. We are pleased that the sources for first eight projects are relatively diversified, allowing us to reduce our dependency on local banks. Originally, many expected local banks to solely finance the program. We were able to bring the amount sourced from local banks down to 49%, and of that 49% we were even able to expand to certain universal banks in the local markets. Typically, these are funded by two main groups: Grupo Bancolombia and Grupo AVAL, which represent more or less four banks. Here, we were able to expand it to seven banks, bringing on new partners such as Davivienda and other banks that were not active in infrastructure in the past. Davivienda in particular, which is the third-largest financial group and has historically been more focused on housing, came into infrastructures strongly. We participated as an investor also to become a market maker for infrastructure bonds and equity. That also helps the tightening of interest rates. Of the 21% that constitutes institutional investment, three-fourth came from bonds while one-fourth came from debt funds. The debt fund was an innovation promoted by FDN that uses the private equity regulation that allows institutional investors to invest as much as 5% of the portfolio. The funding from international sources was as a significant achievement; we were able to raise 22% from international sources comprising eight institutions, six national banks from Asia and Europe, and two multilaterals. Later, FDN came in with 8.6%, which was the beginning. In total, USD4.2 billion was raised for the first eight projects. Now, we have the next six projects. Here, we hope to go beyond the 49% sourced from local banks and bring that figure down even lower to 42% or 44%. There is significant appetite from international banks; however, the problem is that there is inadequate funding in dollars. Out of 31 projects, 20 are government sponsored and have government support on the revenue side. They are large infrastructure projects and are expensive because of geography; the government had to subsidize, averaging 50% of revenues for the roads, with the other half provided in dollars. That was important because it allowed us to bring in an international source. We were able to reach 22% from international banks.
We signed MoUs with them because they are important development banks in Asia. We seek to bring more Asian investors to 4G and hope the Chinese Development Bank will participate in the upcoming round in 2018. We want to strengthen that relationship and are in the process of that currently. This is all part of the same strategy to bring more players into the picture to ensure we have enough resources. We have been not only able to diversify, but also introduce innovations.
The remaining challenge for us is the equity side; we require more equity in the system. This project is being done as an availability payment, and our sponsors have to inject a great deal of equity upfront or have letters of credit to support their equity participation. It is all project finance, unlike traditional financing. In that sense, it requires more equity more than corporate finance. We are working on a strategy to create a large private equity fund for infrastructure that will hopefully be launched at the beginning of 2018 with both local and international partners, mobilizing close to USD1 billion for infrastructure in Colombia. There is a great deal more in terms of our role in putting together large, complex projects, such as Metro de Bogotá. We are doing a light rail metro for Medellín as well, in addition to the expansion of the current system. We are working on the first PPPs for schools and hospitals as well, which be launched at the end of 2017 and the beginning of 2018, respectively. We are also working on one of the most complex transactions for Electricaribe, one of the largest distribution companies for the whole coast. It is running into major problems resulting in the government intervening. The company was unsustainable and could not finance its operations and is now under our advisory arm. There is a great deal going on for projects in cities such as initiatives for roads and public transportations. After 4G, the next two to three years will see a wave of urban projects related to infrastructure. We support the construction of those projects and will go on to support them financially when they go to market.