IFC approves US$300mn for Panama Canal expansion

- Thursday, November 13, 2008

IFC approves US$300mn for Panama Canal expansion

The Word Bank's (WB) International Finance Corporation (IFC) has approved a US$300mn loan to the Panama Canal Authority (ACP) to support its US$5.25bn expansion project, IFC reported in a release.

The 20-year loan is part of a new business line developed jointly by IFC and WB to provide financing without sovereign guarantees to well-run local governments and public companies for essential infrastructure investments, the release said.

On October 15, Panamanian President Martín Torrijos officially announced the final financing structure for the expansion project.

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The funding strategy aims to raise US$2.3bn from five major multilateral agencies: the European Investment Bank (US$500mn), the Japan Bank for International Cooperation (US$800mn), IDB (US$400mn), IFC (US$300mn) and the Andean Development Corporation (CAF) (US$300mn).

The main advantage of this strategy is that it provides access to financing at levels currently unavailable from private sector sources.

This is because multilateral agencies offer better conditions in terms of the length of the grace period, interest rates and funding with fixed terms.

FINANCIAL CRISIS

As a result of this financing structure, ACP does not expect the global credit crisis to have any impact on the cost of financing for the project.

The entity was offered US$2.9bn in loans, from which it chose US$2.3bn based on the combination that provided the best rates.

ACP's stable position was corroborated by the A2 rating it received from credit ratings agency Moody's on September 10.

This positively impacts the cost of funding for ACP, although IFC said any negative impact from the global financial crisis on the financing strategy will only become clear with time.

The crisis could affect ACP if the cost of funding is higher than what it anticipates, but this impact should be offset by the fact that Latin America is navigating the current scenario better than the US, Europe and other economies.

RECORD REVENUES

Meanwhile, ACP reported record revenues this year despite the global financial crisis, exceeding the US$2bn mark for the first time in its history.

Additionally, the US economic slowdown, depreciation of the US dollar and the high price of oil, among other factors, have not affected operations.

The entity attributes the results to the policy implemented in 2006 to gradually raise tolls charged at the Panama Canal, which has allowed clients to better absorb the cost of using the waterway.

THE PANAMA CANAL

The Panama Canal is an important element of the global marine transportation industry, handling 5% of all maritime trade between all major economies in the world.

In addition to connecting Central and South America to the US, Asia and Europe, its 2007 revenues accounted for 12% of the government's budget that year.

THE EXPANSION PROJECT

ACP's US$5.25bn expansion project aims to double the waterway's capacity to more than 600mn Panama Canal/Universal Measurement System (PC/UMS) tons and allow it to handle the larger container ships that have become the new industry standard.

The expansion includes construction of a new set of locks with water-saving basins and improvements to navigational channels.

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