Latin America: Bidding teams form for USD 6bn Argentina highway PPPs

09 February 2018 - 12:00 am UTC

Local and international companies are forming consortia to bid on USD 6bn of Argentine road PPPs, several sources following the process said.

It is understood that teams so far include:

  • Acciona (Spain) with Techint (Argentina/Italy)
  • Stoneway Capital (Canada) with Hyundai (Korea).
  • Benito Roggio (Argentina) and Chadiack (Argentina)
  • Astaldi (Italy) with a local developer

A further consortium is understood to comprise Helport, a subsidiary of Corporación América (CASA), and Panedile, a separate source familiar said.

Another source named Rovella Carranza as the local company joining Astaldi.

Other bidders include:

  • Abertis
  • MSU
  • Pampa Energía
  • José Cartellone Construcciones Civiles
  • TGLT

Abertis is only considering participating in the USD 975m Circuito Corredor Sur, a project that includes the Ricchieri and the Ezeiza Cañuelas highways.

Another eyeing the process but not yet part of a consortium is Salini Impregilo, a source said.

Two sources close to the government said further international companies are exploring the process.

“We are looking closely at the projects and believe the government did a good job structuring the projects, but we are still working towards presenting a bid,” a source at one of the companies said.

The government has set a bid deadline of 3 April, and plans to begin the concessions in May.

Companies are expected to finance the works with a mix of commercial bank debt and international secured bonds, said the first source.

Commercial debt is likely to finance the equity commitments, guarantees and VAT facilities. All the sources contacted said financing would most likely come from international bond issuances in a major market like New York.

If selected, the projects will receive revenue from two sources: availability payments for operations in Argentine pesos; and payments for reaching construction milestones through work certificates that can be securitized through an international bond issuance.

Deadlines draw attention
Some sources said they were worried about having to reach financial close within six months, extendable to one year. 

“The new contracts do address some of the issues that were raised in the previous draft but there remain some material uncertainties, namely the obligation to achieve financial close within a pre-defined time frame,” said Miguel Peña, head of Latin American project finance at BBVA.

However, other sources said the deadline is aligned with regional standards, and that the short timeframe may work to the advantage of sponsors.

“It is important for the companies to secure funding in the next six to seven months,” said a third source. By 2019, presidential elections in Argentina will be approaching, potentially making it more difficult to raise funds during the campaign, the source said.

The work certificates are effectively sovereign debt, said the first source. They are a promissory note from the Argentine state, issued under Argentine law, the source said. As such, in order to obtain funding in the global markets, companies must “repackage” them and use them as collateral for international bonds, the source said.

“It is safe to say all Argentine construction firms are interested in this process and are analyzing the tender documents,” said the first source. Some players are more advanced than others and have already formed consortia or secured funding for the future works, said the source.

Low equity requirements
The new equity requirements – lower that initially expected – improved the potential for local companies to bid, a source said. The equity requirements are 6% in total, with 1.5% committed at the contract signature, 1.5% six months after the contract signature, 1.5% a year afterwards, and 1.5% after 24 months.

Some local companies plan to use some of their EPC contract profits and reinvest it as equity, a source said.

Bond issuances are likely to be carried out through each project SPV, said the first source. There is a discussion between the potential developers and national authorities on whether the work certificates should pay variable interest — Libor plus a spread — or a fixed interest rate, said the first source. Companies prefer a fixed interest instrument because it is easier to repackage, said the source.

The projects will have a combined total capex of USD 6.04bn, ranging from USD 1.3bn (Corridor E) to USD 631m (Corridor C).

Pampa Energía, which recently acquired construction firm IECSA from President Mauricio Macri’s cousin Angelo Calcaterra, will present bids and has engaged Goldman Sachs and Citi to advise it on project financing, said the first and the second source.

If awarded a PPP contract, Pampa may fund the initial works with a bridge loan, subsequently issuing secured bonds once the government assigns it the first work certificates, said the first source.

Similarly, a consortium formed by Argentine construction firms Grupo Roggio — parent company of CLISA — and Chediack has hired Morgan Stanley and Santander to structure funding in case it wins a contract, said the second source. 

“The tender has been planned with the intention of enabling the participation of small and medium firms as well as large ones,” said the first source. Access to funding should not be a problem as everyone who wins a contract would be able to securitize the work certificates handed out by the government and issue secured debt, said the source. 

Additionally, developers with little or no experience as public work contractors have been allowed to accredit experience through an EPC manager, said the first source and a fourth source. As such, developer Stoneway Capital would present an offer alongside Hyundai working as its EPC, said the first source and a fifth source.  

The government will base economic bids on the lowest present value. Each company or consortium will be able to prioritize one or two projects and may offer discounts if awarded two concessions – the maximum allowed. Each project must have a separate SPV, even if the same consortium wins two projects. 

Some of the prospective bidders include companies currently operating infrastructure or energy assets. Abertis, for instance, is the controlling shareholder of Autopistas del Sol (Ausol) and Autopistas del Oeste. Pampa Energía, Stoneway Capital and MSU are owners of energy assets in the country.

None of the companies commented. Government officials did not comment.