|
Colombian Private
Equity Funds Hunt Profits In Public Works
By Inti Landauro
Bogota (Dow Jones)--A number of top Colombian
technocrats have set up private equity funds that
aim to reap profits from infrastructure works being
pushed by the government to ease the economic
crisis.
At least three funds are competing to raise money
from Colombian institutional investors - mainly
pension funds - and wealthy families to acquire
stakes in companies bidding to build and operate
infrastructure projects.
"It's not by pure luck that we have appeared at the
same time," said Jorge Castellanos, the former chief
executive of state-owned Bancafe and now a partner
of private equity fund Fintra. "There is a lot of
liquidity available and there are projects with huge
needs of cash."
Castellanos and his partners raised $300 million
from various parties: U.S. private equity fund Darby
Overseas Investments; local investment fund
Colpatria, owned by the Pacheco family; Colombian
institutional investors; pension funds and wealthy
individuals.
Fintra mainly plans to acquire equity in
transportation projects in Colombia.
Julio Torres, a former public credit director at the
Finance Ministry, founded an equity fund called
Nexus, while the former chief executive of holding
company Corficolombiana (CORFICOL.BO), Pedro Nel
Ospina, is a partner in an equity fund created by
local investment bank Inverlink and Ashmore Group
PLC (ASHM.LN).
They expect to pocket about 20% annual returns in
dollar terms. The construction and engineering firms
that build infrastructure projects usually raise a
lot of the capital they need through borrowing from
banks or selling bonds. Torres said it is common for
companies to finance as much as 80% of the projects,
while equity is a cheaper option and means sharing
risk.
Together the three funds have $900 million
available.
The lack of modern infrastructure - roads, bridges,
tunnels, railways, ports and airports - as well as
deficient electricity systems and water and sewage
networks are choking Colombia's ability to grow.
Poor roads linking cities mean trucks move at less
than 50 kilometers per hour, and mudslides can block
crucial routes for days, making it expensive to ship
goods within the country.
Colombia would need to spend the equivalent of 5% of
its $237 billion economy for infrastructure projects
over 25 years to reach the same level as that of a
country like South Korea, said Peter Grossich, who
manages the Nexus fund with Torres.
Since President Alvaro Uribe took power in 2002, the
government has insisted it wants to close the
infrastructure gap.
The government estimates that investment in
transportation infrastructure will reach 5.5
trillion Colombian pesos ($2.73 billion) this year,
or the equivalent of 1.2% of gross domestic product.
Concessions to upgrade or build new roads will
attract COP3.4 trillion in 2009 in 40 projects.
While there is a political will, at least verbally,
to promote infrastructure development, all those
projects have been very slow to move forward, said
German Verdugo, a market analyst with local
brokerage Correval SA.
"The bureaucracy was awfully slow, and vested
interests have pushed some projects that weren't
that important instead of the crucial ones, such as
the roads between Bogota and the country's main
ports," he added.
The projects are getting closer to start-up mainly
because of inertia, as they've just spent several
years in the pipeline, Verdugo said.
The majority, whether related to water and sewage,
roads, ports or airports, will be taken over by
private companies, who will then charge fees for the
service. In some cases, the government will transfer
some subsidy to the private operator to make sure
the venture is profitable.
Castellanos said the presence of equity funds in
infrastructure projects will improve corporate
governance, benefiting both the government and the
final user.
Often in such projects, bidders lower their margins
in order to win contracts, and then pressure the
government to change the conditions with the threat
of paralyzing the works.
The presence of institutional investors reduces that
risk, since they are interested in clean profits and
not in lawsuits or lobbying efforts, a partner at
one of the newly created firms said.
To avoid problems of mismanagement, the funds want
to hold significant, if not controlling stakes,
Castellanos said.
The new funds will focus on small- and mid-sized
transportation infrastructure rather than, say, a
big hydroelectric dam.
Nexus fund's Grossich said that in power generation,
for example, top world players such as Endesa SA (ELE.MC)
are directly interested in building and operations,
using their own cash and taking lower profits. He
said his fund is looking at projects of oil-related
infrastructure, however, such as pipelines.
Other market players have also smelled good business
prospects in infrastructure.
Holding firm Corficolombiana SA, controlled by
Colombian billionaire Luis Carlos Sarmiento, is
investing its own capital directly in road projects
in the country, while Medellin-based holding company
Colinversiones SA (COLINVERS.BO) has invested in
power plants.
|
|
