Proximo Weekly: In Latin infrastructure funds we trust
Politics, credit markets, and evolving technology are all creating challenges for the New York bankers active in Latin America. But the best cause for optimism is the continued faith of financial sponsors in the region.
No region has been immune to the consequences of recent swings in credit market conditions, but the interplay of macroeconomic and market conditions in Latin America is more complex than elsewhere. Which meant there was plenty to talk about at Proximo’s Latin America 2022 Private Capital Forum in New York. But there are a lot of risk factors to juggle.
Politics are also playing out in unpredictable ways. Not perhaps in as entertaining fashion as the UK’s now world famous basket case, but with potentially better outcomes for project finance bankers.
For example, Mexico’s president Andrés Manuel López Obrador has made life miserable for Mexico’s independent renewables generators and their lenders while he creates a power base for state utility CFE. But bankers cautiously following the country report some opportunities in midstream oil and gas, and even some opportunities for PPPs in transport and social infrastructure, many of them led at the state, rather than the federal level.
Chile, despite recent unrest and an inability to pass a new constitution, continues to create plentiful opportunities for solar developers. This in turn has propped up bank and private placement volumes even as some other promising jurisdictions, Peru and Colombia chief among them, continue to disappoint.
Source: Proximo Playbook
There are some worrying signs of a slowdown. The last 144A issue out of the region was the refinancing of the Rumichaca-Pasto 4G concession in Colombia in February, and while the cross-border bond markets are still just about open, pricing is wider and successful placements are dependent on a smaller number of choosier accounts.
Banks are for now viewing this as an opportunity, though some bankers are convinced that their margins are just taking longer to reset to the new normal. Though as one banker at the forum noted, Latin America’s sponsors and lenders are much more accustomed to sudden lurches in credit market conditions than their counterparts in the US.
There does not, however, look like a great deal of potential for financings to shift back from the New York-based international commercial banks to local lenders and investors. Pricing has if anything blown out even further for them than lenders who price off SOFR. And local markets still struggle with longer tenors and complex credits.
And credit work is getting more complex. Bus electrification is taking off with a vengeance in Chile and Colombia, with lenders, perhaps perversely, preferring Colombia’s generous concession regime to Chile’s firmer line. Three large hydrogen deals are thought to be near market, most prominently TotalEren’s multi-billion dollar H2 Magallanes plant in Patagonia, with a second plant nearby under development by HIF, which has recruited some project finance banking talent to help bring its deal to market.
What is a little reassuring is the continued faith of financial sponsors in the market. There is a debate over whether this is a result of Latin America making it easy for them to fulfil their ESG mandates with a respectable yield, strong reserves of dry powder, or a feeling that investors continue to over-price political risk in the region. But financial sponsors’ ability to keep debt costs under control and muster credible lending groups is probably what the market needs in late 2022.
By the time Proximo gathers the Latin infrastructure finance market in Miami in March 2023, banks should have a chance to learn whether that support was enough
Source: Proximo Playbook, 2022 volumes represent data captured to date
Selected news articles from Proximo last week
JSW Steel USA secures SACE-backed financing for plate mill project
JSW Steel USA has secured long-term ECA-backed financing from two Italian lenders to modernise its $260 million plate mill in Baytown, Texas.
Orsted and CIP plan 4 Danish offshore projects
Orsted and Copenhagen Infrastructure Partners (CIP) are partnering to develop four offshore wind projects under Denmark’s open door initiative.
PLN and ACWA sign MoU for two floating solar projects
PLN Indonesia Power and ACWA Power have signed a MoU for the development of two floating solar plants in Indonesia with a combined investment of $104 million.
Preferred bidder named for Lagos airport
The Federal Airports Authority of Nigeria (FAAN) has selected a TAV-led consortium as preferred bidder for a concession to run Lagos International Airport.
SOUTH AMERICA
Entel sells fibre network in Chile for $358m
Telefonica and KKR subsidiary OnNet Fibra has acquired Entel's fibre-to-the-home (FTTH) network in Chile for $358 million.
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