Are Colombia's banks under pressure from the 4G highway program?

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Thursday, March 1, 2018

The significant financing needs of Colombia's 4G highways program have caused some concern among analysts for the pressure it may put on the country's banks.

Colombia's infrastructure agency ANI said recently that 27 out of 30 4G projects have reached financial closure, with 58% of financing coming from international lenders and 41% from local banks. The overall cost of the program reaches 43.9tn pesos (US$15bn) and, if the current trend continues, local banks would have to shoulder US$6.2bn.

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"Colombian banks' decision to fund the 4G projects, usually requiring large volumes of financing, represents a further increase in their borrower concentration risks," Moody's senior credit officer Alcir Freitas told BNamericas.

"The challenges to manage these concentration risks were evidenced by banks' ongoing efforts to manage the reduction of exposures to Concesionaria Ruta del Sol (CRDS)," he added, citing the concessionaire of the second stretch of Ruta del Sol highway, whose contract was cancelled last year amid the Odebrecht bribes scandal.

In January, ANI ordered the repayment of the first installment of money owed to the banks that loaned to CRDS. The 800bn pesos – about half paid to banks from the local Aval group – came from a 1.5bn-trust set up to pay the project's debts with banks and service providers. Freitas says this payment only represents a third of CRDS' debt.

While this contract isn't part of the 4G program, it did cause a dent in the confidence of lenders. When reporting its results for the second quarter of 2017, Aval said that, following the cancelation of the Ruta del Sol 2 contract, the local banking sector was "anxiously awaiting"  for a resolution, while financing for concessions was beginning to slow down.

SEEKING HELP ABROAD

With the Odebrecht probe widening to senators and figures linked to the 2014 presidential elections, Colombian authorities have focused their efforts on bringing new foreign lenders to the 4G program.

In May 2017, the finance ministry and financial development agency FDN launched a financing line in pesos to facilitate the entry of foreign lenders. In October a delegation led by the finance ministry and ANI went on a 4G roadshow to Europe and the US.

Three foreign fund managers are currently involved in the 4G program, including BlackRock. Meanwhile, the Inter-American Development Bank's (IDB) private sector arm, IDB Invest, joined the program in November through a US$200mn agreement with FDN.

 "The funding needs of the 4G projects are significant, and therefore, the presence of the foreign investors represent a very important source of capital, which ultimately complements the potential availability of financing that can be accessed at the local banks," Freitas said.

"The presence of foreign banks, coupled with the fact that the 4G projects are evolving slower than expected, are preventing the Colombian banks from further increasing its borrower concentration risks."

He added that the local banking system's exposure to the 4G program is still relatively low, as the loans provided to these projects account for less than 1% of total credit.