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CASE STUDY: Financing Lima’s First Underground Metro

At a total cost of over $5.6bn, the Lima Metro Line 2 is both Lima’s first underground metro line and the largest securitization to date in Peru's history of RPI-CAOs, the government’s payments rights mechanism.

Apr 1, 2016 // 11:25AM

Background

In April 2014 Peru’s Ministry of Transportation and Communications and the Metro de Lima consortium announced concessions were awarded to construct the Lima Metro Line 2, one of Latin America’s largest PPP projects to date.

The 35-year Lima Metro Line 2 PPP project involves the development of a 27 km east-west metro line with 27 stations and an 8 km airport branch with a further eight stations.

Once in operation, the system will allow passengers to cross the city from east to west in 45 minutes and carry over 660,000 people daily.

Transaction Breakdown

Financing of the Lima Metro Line 2 has been completed using a diversity of instruments.

In December 2014 the Inter-American Development Bank (IDB) provided a financial package composed of a US$300mn loan to the Ministry of Transportation and Communications, and guaranteed loans to Metro de Lima Línea 2 of up to US$450mn.

In June 2015 Metro de Lima Linea 2 S.A successfully placed a US$1.15bn RPI-CAO-backed Rule144/RegS bond maturing in 2034 and yielding 5.875%, which saw an oversubscription of nearly 2.5X and priced just 5bps above sovereigns.

And in October 2015 the consortium successfully secured an US$800mn off-balance sheet loan guaranteed by Italian ECA SACE and participated by Cassa Depositi e Prestiti (CDP), KfW-Ipex, Société Générale, Banco Santander, Instituto de Crédito Oficial (ICO).

The rest of the project’s cost was funded through direct payments from the Peruvian government.

Ignacio Montero Ezpondaburu, Corporate Finance Head of Public-Private Infrastructure Advisory at ‎Banco Santander, one of the deal’s key architects, said the structure of PPPs in Peru coupled with the participation of SACE helped the consortium diversify its funding mechanisms.

“The challenge with doing this as a straight project bond is that you have long construction and repayment tenors and the negative carry issue associated with traditional Rule144/RegS bonds,” he explained.

“Diversifying with the ECA-guaranteed component helped mitigate this significantly, while the structure of PPPs in Peru – with the sovereign-backed certificates and quarterly repayment scheme meaning investors and lenders are repaid unconditionally – means the construction risk is effectively gone.”

“This was the first project in Peru of this size, complexity, and tenor of construction – and it is an example of the possible, encouraging more ambitious projects in the region moving forward,” he added.

Americas Projects & Infrastructure Deals

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