Latin Finance - September/October 2009 - 64

Caribbean caribbean infrastructure Multilaterals to the Rescue by Taina Rosa s the financial crunch continues, the Caribbean has come to rely mostly on multilaterals such as the IDB and the World Bank for infrastructure financing. This is especially true for nations rated sub-investment grade, but the region generally is struggling to fund its key tourism sector through international banks. “Unless you’re dealing in investment grade countries, your sources of financing are multilaterals such as the International Finance Corporation and the IDB,” says Scott Swensen, chairman of energy-focused private equity shop Conduit Capital. “Multilaterals take more time, but terms are more favorable. They offer longer terms and cheaper rates,” he adds. The World Bank in April approved a $27.5 million loan for the Dominican Republic to improve the potable water and sanitation supply in the tourist area of Puerto Plata. For the Bahamas, the IDB approved two technical cooperation grants totaling $1.45 million to strengthen the capacity of the environment ministry, which oversees the energy sector. The funds will also enable the Bahamas Electricity Company to explore energy efficiency and renewable energy alternatives. “There is an uptick in financing public works such as water systems, roads, and electricity, since they employ people immediately,” says Dora Currea, a manager in the Caribbean department at the IDB. Multilaterals are also important to private sector-led projects. For instance, the IFC, a member of the World Bank, is providing financing for E-Power, a 30-megawatt heavy fuel oil plant in Haiti. The IFC is providing a $16 million loan and syndicating $14 million through FMO, the development bank of the Netherlands, for the project. Two local banks, Sogebank and BNC, are providing $14 million in co-financing. E-Power is majority-owned by a consortium of local investors led by Daniel Rouzier, a Haitian businessman. Financing from international banks has not only become harder to get, but also more expensive, especially for noninvestment grade countries. “There is no bond market at the rates these countries wanted. It’s very expensive,” says Juan Francisco Toro, director at Astris Finance, a boutique investment banking and financial advisory firm based in Washington DC that has worked on financing for several infrastructure projects in the Dominican Republic. He adds that even though multilaterals take their time and the process is slow, they have the funds. Cost of funds varies by project. For Autopistas del Nordeste A As financing from commercial banks becomes increasingly expensive and hard to access, developers of Caribbean infrastructure turn to multilaterals. in the Dominican Republic in 2006, $162 million in financing with a 20-year tenor was priced at 9.39%, says Toro. He adds that in the July market, that could be as much as 500-600 basis points higher, especially for borrowers rated single B or lower. Sam Kamath, infrastructure analyst at Fitch, says that is not just the case in the Dominican Republic, but also for Jamaica, which Fitch rates B- with negative outlook. Caribbean countries with higher ratings, such as Aruba, might still be able to get financing at 8%-9% for a loan in the lower end of hundreds of millions of dollars with a tenor of about 20 years. Fitch has a BBB rating for Aruba with a stable outlook. In May, Fitch affirmed its BBB rating for the Aruba Airport Authority’s $82.3 million fixed-rate airport revenue bonds maturing in 2015, of which $44.7 million remains outstanding. The outlook is stable, though Fitch notes that traffic declines, significant reliance on tourism, and the high cost of the Aruban travel market relative to comparable leisure destinations as risks. Despite the challenges, some investors see long term potential. In mid-June, Conduit bought Jamaica Energy Partners for under $100 million. Conduit had previously owned the company and sold it to Texas-based Basic Energy in December 2007 for $92.5 million. The new deal includes rights to build a 60 megawatt expansion. Conduit is seeking about $100 million in financing to grow the company. Conduit is a relative newcomer to the Caribbean, as it has only invested in Jamaica. But the shop, says Swensen, is considering whether to do more there. It has acquired rights to build a plant in Haiti and is eyeing a potential investment in Nevis. Despite the slowdown in tourism and the financing crunch, there is not a trail of projects being scrapped. “The economy won’t grow as strongly as before and that reduces profit, but it won’t put projects in jeopardy,” Swensen says. Toro says that “we have seen, for example, road projects with four lanes, be cut to two lanes. Projects have been either reduced in size or done in phases instead of all at once so financing is easier to get.” Kamath says he has seen projects be divided in phases to make it easier to find financing. He also says that as a result of the slowdown the developers of the Boulevard Turístico del Atlántico decided to put off a bond issue. LF 64 LatinFinance Sept/October 2009

Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009