LatinFinance - September/October 2017 - 73

are thinking of doing mini-perms. On one
side, mini-perms bring new banks, international and even local banks. We have
a couple of local banks that are affiliated
with foreign banks, one Spanish and one
Canadian, and they apply very strong Basel
III limitations, so they don't do anything
beyond eight or nine years. They have
local-currency funding but they did not participate [in the first round of 4G projects]
because of the maturity.
The first eight projects closed with tenors
of around 18 years. But with mini-perms,
other banks will be able to participate.
There is also a hedging market for sevenor eight-year mini-perms. We'll see how
many of those we can hedge, but the idea is
at least two. That will allow us to bring international money in local currency through a
hedging mechanism, which we couldn't do
with the long-term loans.
LF: Are there other ways to deal with
currency risk?
CV: We are developing a local peso credit
line for international banks, including multilaterals. We are currently in conversations
with seven international banks, including
two multilaterals, to provide them with
local funding. It's not a huge line. It's $500
million, but we may be able to increase it to
$700 million or $800 million, which could
allow maybe five or six tickets for international banks.
We expect the debt funds will be very
active. We hope to have at least one miniperm in the next nine projects. We hope to
have a nice mix.
LF: What about after the second
round of projects?
CV: This is more of a thought for the
future, but hopefully we'll start securitizing some loans next year in order to create
new space for banks, especially local banks,
which are the most exposed.
Usually securitizations are done once a
project has finished construction. You buy
the loans, securitize them and sell them in
the local and international capital markets.
We'll see if we can advance the plans next
year with projects that have shorter construction periods.
LF: Will you buy mostly the longterm loans from the first two waves of
4G roads, or will you buy mini-perms in
the future?
CV: It's more for the long-term loans. We
assume that the mini-perms will be refi-

CLEMENTE DEL VALLE, FDN

"HOPEFULLY WE'LL
START SECURITIZING
SOME LOANS NEXT
YEAR IN ORDER
TO CREATE NEW
SPACE FOR BANKS,
ESPECIALLY LOCAL
BANKS, WHICH ARE
THE MOST EXPOSED"
nanced with another loan or in the capital
markets. Around two years ago, we got a rating for an infrastructure bond that we had
developed to refinance 4G loans. We used
the example of a project and we got Fitch
to rate the bond that had a credit enhancement from the FDN. We got a very good
rating for that bond. The idea was to show
banks that there is interest in refinancing
the loans, so they should be less concerned
with the refinancing risk.
The idea is to wait at least two years after
construction before refinancing. In some
cases, there may be some credit enhancement to mitigate that future risk, but we'll
see how it works. It has happened in many
markets. As banks see that refinancing is
happening relatively easily, that risk is seen
as small.
Local banks have less appetite for that,
and we see mini-perms coming more from
international banks than local banks. In the
end, we're trying to get at least one or two
local banks to come with peso-denominated
mini-perms as well. The local banks that are
more resistant to mini-perms, mainly because they don't have Basel III pushing them
at this point. The regulations in Colombia
are less stringent than Basell III, so local
banks haven't felt the pressure like banks in
Europe, Asia or the US to do mini-perms.
LF: Local banks have offered long
tenors for 4G loans, but so have some
foreign banks, including one of the
FDN's shareholders, Japanese lender
SMBC. What can the FDN do to convince
lenders to shorten the tenors?
CV: If the banks want to lend long term,
we are more than happy to get all the money
we can long term. The issue is that some
banks are already starting to say that they
may not be able to do a lot more long-term

loans, even the international banks, because
they are feeling increasing pressure to go
shorter. The mini-perms are actually a solution to attracting new banks and retaining the
banks that are still interested but are concerned about lending long term. Some of the
banks that went long in the first wave are not
willing to go long in the second wave. That's
why they need to consider alternative structures, and mini-perms are starting to become
more attractive.
The strength of the debt funds, for example, is that they can go long term because
their funding is long term. They don't have
the same problems that the banks have. They
don't have Basel III-type regulations. It's
different for the local banks and the international banks. They have a mix of funding. It
tends to be much shorter, which is why the
regulators put additional costs on those that
want to go long term.
LF: A few years from now, when sponsors start refinancing 4G loans, will
Colombia's debt capital markets be able
to absorb it all? Will the FDN have to step
in and offer to buy a portion of each bond
issue?
CV: The local market is large but unbalanced. There are two huge pension funds
and then there are relatively smaller players.
Our challenge is to provide more depth to
the local market and to provide more credit
appetite from institutional investors. We
need to work with institutional investors. We
need to provide more depth for institutional
investors.
We are working with the finance ministry,
which is responsible for $18 billion in assets through government pensions. [Those
assets have] historically been managed as
completely local, short-term money. We
have always advocated that this is long-term
money and that it should be managed much
like private pension funds. The government
is starting to modify the framework. Hopefully, a new framework will be introduced
next year. This could be important because it
could create three or four new players.
We are also trying to see how much progress we can make in the annuity market
because the annuity market doesn't exist
in Colombia. In Chile and Peru, it's a huge
market. A large part of bond buyers in Chile
and Peru is from the annuity market. In
Colombia, there have been some design issues and some legal issues that still have to be
addressed. We hope it gets corrected and we
can start a new annuity market. That could
also bring new players. LF
September/October 2017 - L ATINFINA NCE.COM 73
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