1. What kinds of strategic initiatives are in place at ISA for 2017, and how will they impact the company’s funding requirements?
Within the strategic initiatives of ISA, we highlight the strengthening of our participation in businesses and countries where we are present, through public auctions for developing new projects, and by means of the acquisition of existing assets.
In relation to projects under execution, we also emphasize the new transmission lines that are being constructed in Chile and Peru. The financing of these projects is already closed, with the participation of international and local banks in each of these countries.
With regard to financing of new projects as a result of the strategy, it will be executed through a mix of own resources and financing by means of banking and capital market, mainly in markets where investment is made, taking advantage of the liquidity of these markets, and looking for a natural hedge with the revenue currency.
2. ISA is active in a range of countries within Latin America. Within the Andean region specifically, are we seeing a shift in the health of the funding environment? Have we also seen any big changes in the credit drivers in those markets?
The Latin American market, in particular countries where we are present, is still a very attractive market with a great liquidity. However, the long term debt in US dollars for relevant amounts could have some limitations in banks (Basel) and create a greater framework for action for institutional investors. On the other hand, as a result of changes in the FED policy, an increase of US interest rates is expected, which probably will be reflected in the financing cost of assets in emerging markets.
In relation to the region, a high demand of resources for infrastructure projects, such as roads, ports, power generation, and strengthening of transmission networks, among others, can be observed. In the case of Colombia, infrastructure projects will particularly consume a lot of local liquidity, creating an essential framework for action for institutional investors. In addition, an impact pushing up prices could exist due to the high liquidity required in the 4G plan.
3. Traditionally, ISA seems to prefer raising money in the market where those funds will be deployed. What are some of the benefits of going about it this way, rather than raising money centrally and disbursing the funds to subsidiaries?
Within the main benefits identified of taking the debt on behalf of the operational vehicles, we can highlight:
• To take advantage of liquidity in local markets.
• To position the group's companies in each of their markets.
• To access financing in the same revenue currency, thus obtaining a natural hedge.
• To take advantage of the subsidiary's balance and have all funds available without recourse to the shareholder, by improving the allocation of risks.
• To provide a better leverage to projects during construction periods.
• To offer highly-competitive financial conditions in the absence of subordination, and to maintain the debt in the vehicle generating revenues.
4. What are some of the primary challenges associated with financing new initiatives outside the company’s home country? What advice would you give other CFOs looking to expand beyond their borders and who are looking to finance such initiatives?
One of the challenges to be an investor in a new country is to position the Business Company name and gain the confidence of local investors. One of the strategies to be an investor in a new country is to have the support of regional banks that already know the company and have experience in that country. This will facilitate the company to obtain initial resources, to quickly understand the local market, and to generate more confidence to local banks and investors in order to increase a subsequent entry to the local capital market. Likewise, we have also found support from international banking for financing this type of regional initiatives, through financing structures such as Project Finance.
5. What do you think will be the single most important challenge for the Andean economies in 2017?
To maintain a stable growth of economies in the middle of relevant changes in terms of the FED's monetary policy and foreign trade policies of each of the main commercial partners in the region such as the United States. Another challenge will be the role of foreign institutional investors that will invest in the region to compensate the reduction liquidity (in terms) of international banks by means of the implementation of Basel rules in USD transactions, especially for large investment projects. In particular, Colombia faces a very important challenge related to the peace process and its effect in public finance and growth in the country.
