Going private
Private financing is key to the success of Mexico’s massive infrastructure push. Private backers are set to fund a majority (58%) of the cost of all projects except for the energy sector.
Mexico’s government has set up three schemes for funding its ambitious infrastructure push and luring institutional investors and infrastructure funds: concessions, long-term service contracts and reprivatizations.
Thirty-year concessions are offered by bid, and the winning firm operates the highway and collects the tolls. Under the service contract mode, the highway is built and financed by a private company, and the government pays an annual rent to the builder based on the tolls collected. The approach, reprivatization under the so-called Farac scheme, will see construction firms buy concessions with syndicated financing. All bids are decided based on “a combination of lowering tariffs and the best contender”, says Federico Patino, newly appointed head of the National Infrastructure Fund.
The Farac programme includes 45 toll roads and four toll bridges, and will take place in tranches. Bidding has been let on the second Farac package, a total of 370 existing roadways plus a requirement to build 380 kilometres of new routes, and a winner will be announced by September.
Construction firms are not averse to the schemes. “The concessions are a good legal scheme, with a clear regulatory framework over the long term, with minimal capitalization requirements,” Jaime Chico Pardo, board chairman of Ideal, the construction subsidiary of the Carlos Slim empire, tells Emerging Markets.
On the road
Federico Patino took the newest package of highway concessions to New York in early March to sell it to investors. “There is liquidity; Mexico is seen as a good market, and there are few assets on world markets with these characteristics,” Patino tells Emerging Markets. Over the long term, the Mexican highways offer an internal rate of return of 8–10%, he says.
It remains to be seen whether investors this year pile in in the way they did with last year’s package of four toll roads in central Mexico totalling 550 kilometres. That first Farac concession package drew 14 interested parties, and was won by Goldman Sachs Infrastructure Partners and Mexican builder ICA, taking 80% and 20% stakes, respectively. Farac 1 was backed by a $400 million partial credit guarantee funded by the Inter-American Development Bank to enhance bonds with terms longer than 25 years and attract institutional investors.
Banco Santander designed the structure for financing the concession and syndicated the debt with another eight banks. “We are happy to say that the transaction was very successful and at some point will be taken into the market in the form of securities,” Gerardo Rodriguez, under-secretary for public debt at the finance ministry, tells Emerging Markets.Mexico’s domestic financial market promises to be a strong source of funding. The bankers’ association is approaching the fund to learn about projects, and the enormous pension fund portfolios are expected to participate, especially because infrastructure projects have not been available for nearly 15 years.
Private-sector enthusiasm for the programme harks back to Mexico’s bonanza days of the 1950s and 1960s when growth consistently averaged 6% or more per annum, largely because of state-led investment. “To the extent there are attractive and profitable projects, the (financing) requirements will be met; the private sector has always reacted that way,” says Chico Pardo of Ideal, a prominent bidder on many of the projects.
The Big one
The biggest single project in the bulging portfolio – a $4–8 billion multimodal terminal plus a city at Punta Colonet on the Baja California coast – is slated for bidding sometime between late March and the third quarter, according to sources tracking the programme. An entirely greenfield project, Punta Colonet aims to draw business from the clogged terminals of Los Angeles-Long Beach, a major gateway for the China trade to the US land bridge transport network.
Situated on a natural harbour about 200 kilometres south of California, the village of Punta Colonet would become the hub for a huge container terminal, a railroad and highway to the US border and, planners say, a city that would eventually be home to 250,000. —L.C.