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Best Multilateral: Inter-American Development Bank

Nov 1, 2012

Typically, multilateral lenders come to the fore in moments of crisis and retreat from the spotlight once better times return.

But this past year, a kind of limbo has descended. No one can argue that all is well: on any day the wrong European headline can freeze up financial markets across the whole of Latin America. But at the same time, many financial institutions have become inured to global uncertainties and, armed with a belief in the region¹s inherent stability, have pressed on regardless.

This is the backdrop for multilateral lenders operating in Latin America: they must be ready to intervene in case of crisis, but also continue to find ways to facilitate the flow of capital ­ even in markets where prospects appear more favorable.

Over the period from the second half of 2011 to the first half this year, the Inter-American Development Bank (IADB) has done both. The bank, led since 2005 by Luis Alberto Moreno, had approved $4.46 billion in the year to August 30, and has disbursed $3.67 billion in that period.

Unsurprisingly, the IADB sees infrastructure as a key growth area, especially as lending capabilities at many of the region¹s commercial banks languishes at low levels.

And it has been taking the initative in financing projects: The bank led a $430 million A/B loan for the Empresa Brasileira de Terminais Portuários (Embraport) in Brazil in November 2011, after more than a year of structuring.

The $100 million 15-year ŒA¹ loan came directly from the development bank.

The $330 million 12-year ŒB¹ loan portion pays Libor plus 300bp and counted WestLB, Santander, Caixa Geral, and HSBC as participants. A 633 million reais BNDES loan and $255 million in equity from sponsors Odebrecht Transport, Dubai Port World, and Coimex completed the funding. The new container terminal at Brazil¹s Santos port facility can handle 1 million teu.

The deal is a rare project financing for Brazil and the port sector where, in both instances, more balance sheet-oriented financings are the general rule. Embraport is the first major greenfield port transaction in Brazil with full market risk and the deal is notable for having closed during the depths of the European debt crisis.

Also that month, the IDB agreed to lend Sao Paulo¹s state government $1.15 billion to support construction of the northern segment of the Rodoanel Mario Covas, also known as the São Paulo ring road. The loan features a five-year grace period and adds to $980 million coming from Brazil¹s federal government and $890 million from the state government.

³Infrastructure is more cyclical ­ the projects take time to develop and it depends on the political cycle to push the projects forward,² says Jean-Marc Aboussouan, head of the bank¹s infrastructure division.

He expects a wave of opportunities on the back of legislative advances to public-private partnerships (PPPs) in countries such as Mexico, Uruguay and Colombia. This should begin to materialize in the middle of 2013.

Brazil¹s recently announced infrastructure spending also offers a number possibilities. However, it is a trickier environment for multilaterals, despite successes such as Embraport and the Rodoanel. Aboussouan says the bank must work to find its place alongside massive lending from BNDES and other Brazilian government institutions.

The IADB is also keen to promote renewable energy; Aboussouan says the bank has financed nearly 800MW of the 2,000MW of power generation installed in the region.

The bank provided a $76 million equivalent peso-denominated loan for the Macquarie Infrastructure Fund¹s Mareña wind project in Oaxaca, Mexico, part of a $950 million total project cost. The IADB is also identifying opportunities ­ particularly in solar and hydroelectric generation ­ in other countries, including Uruguay and Peru.

The bank has also sought to aid the development of local markets by supporting financial institutions. In May it partnered Banamex with a $150 million partial credit guarantee facility to back issuance of Mexican local debt securities. This followed a similar facility for corporate issuance by Leasing Operations de Mexico, in a framework agreement with Ixe Casa de Bolsa.

Chile¹s Banco BICE and Brazil¹s BicBanco became the first financial institutions in the region to tap an IADB credit facility to boost lending to health and education. The banks were lent $50 million each directly, in addition to a syndicated portion for BicBanco.
Looking to the future, bank officials talk about the need to get better access to different pools of liquidity.

In March, the IADB and Export-Import Bank of China announced plans to start a $1 billion fund to invest in Latin America. The fund is on the verge of starting operations, with $150 million contributions initially to be made by each party.

³The trend will have to be finding ways to work with institutional investors, beyond just working with financial institutions,² says Jozef Henriquez, the bank¹s head of syndications. ³That¹s where the liquidity resides right now.² Henriquez points to the recent Oaxaca II and IV wind project bonds and the bond financing for SBM Offshore¹s floating production, storage and offloading vessel (FPSO) as positive developments. He says there should be a role for bank lending alongside institutional investors and to use the IADB¹s guarantee products to provide enhancements.

³With Basel III coming up, all of the multilaterals active in Latin America will have to find a way to work beyond with just the banks,² Henriquez says.

³You have to find different pockets of liquidity.² LF


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