May 7, 2009
Alan Gersten/Reuters
The head of the SCT told PFI that the government would finance 75% of Farac II, if necessary, with the winning concessionaire supplying the remaining 25% in equity. "We're willing to do it if no one else will," said Jose San Martin Romero, SCT's director general, in an interview between sessions of the 7th annual Latin American Leadership Forum in Houston.
Farac II, the oft-delayed toll road project, is so crucial that the government will take whatever measures necessary to complete the endeavour. That means that Banobras and Fonadin, two government entities, will supply 75% of the financing, if needed, to complete the project. Fonadin will supply 30% of that financing and Banobras 70%.
During the conference, Banobras's general director confirmed the government entity's commitment. Banobras will supply funding "to avoid derailing of infrastructure projects", said Alonso Garcia Tames.
Farac II was too big, Garcia said. Therefore, the government cut the concession in half and reduced the cost to US$711m from US$2bn. The SCT agreed and also cut Farac II in half. Now, it has become the North Pacific and South Pacific. The North Pacific, or Farac II, will have 200km of existing roads and 110km of new roads, including two brownfield roads and three greenfield ones. Bids are due by July 10 and the award is set for August 4.
In the new solicitation, the two existing highways are the Mazatlán–Culiacán and the San Jose del Cabo highway, in addition to the construction of three new highways: de Mazatlán, Culiacán y el Corredor and Turistico de Los Cabos. The projects left out of the new concession will be Guadalajara–Tepic, the construction of Sur de Guadalajara, the highway de Tepic, the highway de Puerto Vallarta and Jala–Compostela y el Compostela Puerto Vallarta.
The South Pacific will have 190km of three new roads and 168km of one existing road for a total cost of US$1.6bn. That was tendered on April 21, with interested companies making their proposals by December 16 and the award set for January 20 2010. Construction will start on May 31 2010 and take about two years.
"Our role is to maintain the life of the projects," Garcia said. For example, Farac II took years to prepare and remains too important to the government, so Banobras "will provide a solution" he said.
Previously, deals like this were 75%–25%, debt-to-equity, but now that has jumped to 50–50 "but less equity is available", Garcia said. Also, there are no syndications, only club deals with no risk as well as a sharp reduction in the value of projects. Therefore, Banobras must "think differently". The organisation must handle grants, equity, subordinated debt and guarantees. On the flip side, the organisation has suddenly become very popular with developers.
Fonadin and Banobras will make the debt financing because Farac II will supply badly needed employment as well as giving the country a psychological boost. Roads in Mexico, especially in the South, are congested, in need of repair and overall bad.
Some project finance bankers say that Carlos Slim, the Mexican billionaire, will win the Farac II bidding as a consolation prize because he lost out to ICA on Farac I two years ago. San Martin said Slim was guaranteed nothing, adding that the billionaire had lost out on 20 concession bids in Mexico. However, San Martin said that Slim would be a "strong bidder".
Slim's Ideal and ICA, Mexico's largest construction company, were the only two bidders for Farac II on February 27. But the SCT deemed both bids inadequate, cancelled the auction and rescheduled it.
"Eighteen months ago Farac I was a success," San Martin said. The toll roads raised US$4bn, more than twice what the SCT had expected. Now confident, the SCT launched Farac II.
"At that time, the bigger the better," San Martin said. So, the SCT developed Farac II as a "huge project". Then everything changed. The world's economy took a tumble, dragging Farac II down with it. There were no monolines, no syndications, no lending. "Small is beautiful," San Martin said.
For the February Farac II auction, Banco Nacional de Obras y Servicios Publicos (Banobras), the federal development bank, had pledged Ps15bn (US$1.02bn), and Fonadin, the sovereign fund for infrastructure, had pledged Ps5bn (US$340.2m). The government tried a staple financing, but none of that worked.
The SCT reviewed its package, going to Paris, Spain and New York to talk to the major players. "They told us: 'Look, at this time, you have to make smaller packages'," San Martin said. That's exactly what the government did.
Michael Quint/ Bloomberg
