Vinci eyes deeper LatAm equity investments
September 27, 2017 |
The French constructor turns to emerging market opportunities in a bid to satisfy hunger for yield
France's Vinci Concessions is banking on Latin American equity investments for growth as the construction unit turns to emerging markets for higher yields.
Speaking recently at LatinFinance's Project & Infrastructure Finance Summit in New York, Pablo Aramburo said some of the company's European assets were generating cash, but warned that this avenue would soon run out.
"Our assets in Europe are maturing and we need to recycle our assets," Aramburo, the head of LatAm project finance at Vinci Concessions said.
He said the company viewed LatAm as "core" for its emerging market endeavors, but stressed the importance of economic stability driving further infrastructure investment.
will want to think about other countries in the future but we need to have stable
economies that also conform to standards when it comes to investing in
infrastructure”, Aramburo added.
Jurisdictions and institutions, for example, that do not necessarily invite long-term financial support made it harder for the likes of Vinci to bet subsequent refinancing risk.
“We would be able to provide better economics for the project if we could tap into long-term loans," he said. "We can use all equity but at the end of the day it is always better to use some leverage."
One instance where this is seemingly panning out is in Brazil. The company was the sole bidder on a 30-year operating contract for the Salvador International Airport. Vinci Concessions snapped up the deal after bidding BRL1.59bn ($502m), a 113% premium.
Brazil's national development bank BNDES is likely to fund up to 40% of the investments for the airport and provide guarantees to any debenture issues from Vinci. The bank may even lend 10-year loans at market rates for another 40% of the investments after the first year of the contract.
At the other end of the spectrum, Vinci found room to print cross-border bonds for investments in the Dominican Republic, but Amburo laments that not everywhere was conducive to such a financing package. In Colombia, for example, bank lending posed as the only realistic way of raising low-cost capital.
“Banks facing Basel III and IV will soon start shortening tenors even more”, Aramburo added. He also hinted that institutional investors' pools of liquidity needed to deepen in order to make project investments more viable.
Vinci Concessions' first investment in the region, the Santiago Airport, created a sweet spot for greenfield opportunities. Since then, the company has injected equity into six airport concessions, all in the Dominican Republic.
The company has also turned to “yellow” assets, or projects midway through construction as a means of equity investment.
In Peru, Vinci Concessions grabbed the Linea Amarilla toll road concession from
Brazil's Invepar for €1.5bn ($1.77bn) and is eyeing assets in Colombia. Last year, it bought into Colombian construction firm Conconcreto’s 50% stake
in the Bogota-Girardot highway widening project.