Perseverance succeeds in Colombia 

In September 2008, Empresas Públicas De Medellín, a Colombian public utility services provider owned by the municipality of Medellin, secured funding to finance equipment supplies for a new hydroelectric power plant project.

The total cost of the project is US$1bn. It is being financed by equity, a US$200mn loan from the Inter-American Development Bank (IADB) and a US$200mn commercial loan backed by the Japan Bank for International Cooperation (JBIC) arranged by joint lead arrangers BBVA and Bank of Tokyo-Mitsubishi UFJ (BTMU).

Shinji Higashihara, head of global trade finance, Tokyo, at BBVA, comments on the structure of the commercial loan: “After receiving the initial contact from Empresas Públicas de Medellín, BBVA and BTMU formed a club to seek this opportunity.

“This idea came from BBVA’s strong relationship within the region through BBVA Colombia and BTMU’s extensive experience in Japanese ECA transactions. Originally we discussed the possibility of syndicating the transaction, however, as the facility for the Japanese ECA tranche was set at US$200mn, we finally decided to close the deal within the two banks.”

The transaction created a number of challenges during the structuring process, which began in 2006.

Since then, the arranging banks have had to deal with changes in Japanese economic policy that directly affected JBIC’s scope of activity and could have potentially threatened the success of the transaction.

The commercial banks had to go through a long process of negotiations to convince JBIC and other policy makers that this project fell within JBIC’s new boundaries. Having finally won approval, the deal marks the first JBIC transaction closed in Colombia for approximately a decade.

The structure of the deal is relatively unique as it involves the commercial banks taking on the first three years of Colombian risk, and then JBIC’s guarantee covering 100% of the transaction for the remaining years of the deal. Usually JBIC would offer a 97.5% guarantee for the entire life of a transaction.

Higashihara remarks that the success of the deal rests fundamentally on the banks’ local network in Colombia. “As we have steady assistance from BTMU’s Colombian representative office and from our regional management team at BBVA Colombia, we have been able to successfully co-ordinate the negotiation and documentation process. Again we believe the local presence was the key to driving the transaction.”

The Porce III hydroelectric power plant is being built in the Porce River, located northeast of Medellin in the department of Antioquia in the northwest part of Colombia.

The financing facility is funding civil works and the procurement of related equipment needed for the construction of the plant.

The project is expected to provide a stable supply of electric power to Colombia as well as contribute to power exports to neighbouring countries.

Commenting on the precedents set by this deal for similar transactions in the future, BBVA’s Higashihara concludes: “Considering the fact that Japanese exports of heavy electrical machinery to Colombia have finally reopened since the 1980s, we believe opportunities lie in the future.”

Deal Information

Borrower: Empresas Públicas de Medellín
Amount: US$200mn (total project cost US$1bn)
Mandated lead arrangers: BBVA; Bank of Tokyo-Mitsubishi UFJ
Law firm: Allen & Overy
Tenor: 15 years
Date signed: September 2008