1. XXXXXX XXXXX
LatinLatin Infrastructure Quarterly 1
Infrastructure
Quarterly
The Project
Bond Evolution:
Port of Paita Case Study
Gianluca G. Bacchiocchi
The Canadian Way
Health PPPs Uruguay:
Pension Funds and
Infrastructure

2. 2 Latin Infrastructure Quarterly XXXXXX XXXXX

3. Latin Infrastructure Quarterly 3
Contributors
To Our Readers:
A
Azpiroz, Ignacio
Unión Capital
s always I am very excited with what you will find inside and I want to
make public how much I appreciate the support from the practitioners Bacchiocchi, Gianluca G.
that made this Issue possible. Given that large number of articles inside I DLA Piper
will not offer brief descriptions of each of them. What I do want to com-
Barrios, Adrián
ment on is that, keeping in line with the previous issues of LIQ, this Issue brings you PwC
coverage of: current matters such as project bonds; new and evolving ones such as
infrastructure investment funds; profiles of companies and projects such as Terminal Bentivegna, Enrico
Internacional del Sur (Peru), among other really interesting topics. Pinheiro Neto Advogados
LIQ has partnered with Latin Markets to provide relevant exposure to the up-
Celio, Jorge
coming “Peru Capital Projects & Infrastructure Summit” and has interviewed three IOS Partners
of the speakers that will be sharing their knowledge and experience at said Summit:
Michelle Haigh of Conduit Capital Partners; José Quiñones of the Oficina de Nor- da Rita, Paul
malización Previsional; and Erick Hein Dupont of Terminal Internacional del Sur. PwC
I am very happy with the outcome of these interviews and I hope you find them
Del Vento, Maximiliano
interesting. Partners Group
On a last note, please do not close this Issue without reading “Rawson Wind
Project: A landmark in the Argentine Renewable Energy Generation Market”. This Garver, Mathew
article should be the first of a series of articles covering infrastructure development Patton Boggs LLP
and finance in forgotten Argentina. As I write these paragraphs I am on a plane re-
Gutiérrez, Luis
turning from delivering a presentation titled “Unveiling the Successes and Critical EMBARQ Latin America
Considerations for LatAm Companies in the Brazilian Infrastructure Market” at the
Marcus Evans’ Brazilian Infrastructure and Property Development Summit that took Haigh, Michelle
place close to Salvador (Bahia). The context of delivering said presentation that ob- Conduit Capital Partners
viously touched on Corporación América and being on a plane made me think about
Hein Dupont, Erick
the highly successful tender of four Brazilian airports that showed the world how Terminal Internacional del Sur
interested investors and operators worldwide are in Brazilian infrastructure. After
connecting in São Paulo, I will arrive in Argentina, one of the most hostile jurisdic- Jauhari, Anadi
tions in Latin America for private capital and resources in the business of developing Emerging Energy and Environment Group
and financing infrastructure.
Llamosas, Cecilia
The difference between Brazil and Argentina when it comes to current infrastruc- Vouga & Olmedo Abogados
ture policy, investment and development is great. As an Argentine national and an
observer of how the region develops its economic and social infrastructure it deeply Motta, Carlos Eduardo
saddens me (but does not surprise me) when international and regional players talk Admiral, Lawyer and Engineer
to me about how they do not even consider Argentina as a possible market in which
Nascimento, João
to allocate their capital and resources. Hopefully this scenario will change in the Pinheiro Neto Advogados
future and the articles featured in LIQ will serve the purpose of introducing the Ar-
gentine infrastructure market to international players. Queiroz, Cesar
Please do not hesitate to contact me at patricio@liquarterly.com with feedback on International Consultant
this Issue, questions, issues you would like to read about, events you want to pro-
Quiñones, José
mote, and practitioners, companies or projects you would like see covered. Oficina de Normalización Previsional
(Perú)
Best regards,
Rodriguez, Victor Hugo
The Hedge Fund Association –
LatAm Chapter
Russo, Ricardo
Pinheiro Neto Advogados
Patricio Abal. Sawant, Rajeev
Assistant Professor at Baruch College
Vazquez Acuña, Martín
Marval, O’Farrell & Mairal
Vouga, Rodolfo
Vouga & Olmedo Abogados

4. 4 Latin Infrastructure Quarterly LatAm Chapter XXXXXX XXXXX
Connect | Unite | Inspire
Advancing Transparency and Trust in LatAm Alternative Investments
The Hedge Fund Association™ is a not-for-profit
international group of industry professionals with a mission
to provide a forum for thought leaders, innovators,
practitioners and investors who are shaping the way business
is conducted in the global hedge fund industry.
With the maturity and institutionalization of the global hedge
fund industry, the HFA advocates for the industry by giving
voice to the issues affecting the industry through the
education of investors, the media, regulators and legislators.
Members of the HFA also serve the community at large
through a commitment to philanthropy..
Latin American Chapter Director
Victor Hugo Rodriguez, LatAm Alternatives
New York-LatAm Chapter Director
Les Baquiran, Park Hill Group (a division of the
Blackstone Group)
Brazilian Chapter Co-Directors JOIN US AT HFA LatAm
Marcia Rothschild, Citibank Latin America MEMBER BENEFITS:
Otavio Vieira, Fides Asset Management
Chilean Chapter Director  Exclusive Opportunity to be interviewed at
Juan Luis Rivera, Moneda Asset Management Top Publications
 Unique Private Events with Asset
Colombian Chapter Director Allocators (Exclusive to Managers
Daniel Osorio, Andean Capital Management Members)
 Your Logo and Core Strategies
Argentinean and Uruguay Chapter Co – Directors Description on HFA Web Site
Michelle Furnari, LatAm Alternatives  Authorization to display HFA Logo in your
Martin Litwak, Litwak and Partners firm literature
 Private Invitations & Industry Conference
Peruvian Chapter Director
Discounts
Carlos Rojas, Andino Capital Management
 Access a network of leaders for
Panama Chapter Director expanding professional opportunities
Jose Abbo, SFC Investments  Introductory Annual Membership Pricing
The Hedge Fund Association™
(U.S.) 1-202-478-2000 | info@thehfa.org | theHFA.org

5. Contents 5
Contents
Local Pension Funds and Infrastructure Development in Uruguay......................6
The Project Bond Evolution: Port of Paita Case Study.......................................13
Brazilian Fostering of Private Financing of Infrastructure Projects...................18
Peru: Port of Matarani - Terminal Internacional del Sur....................................22
Peru’s National System of Pensions...................................................................27
The Canadian PPP Model and Its Applicability in Latin America.....................29
Health PPPs: Rationale & Drivers......................................................................32
Integrated Transit Systems and Bus Rapid Transit in Latin America................36
Infrastructure Investing – An Alternative Perspective.......................................40
Divergence in Foreign Direct Investment and Infrastructure Development in
Latin America....................................................................................................45
III Brazil Infrastructure Investments Forum......................................................49
The Peruvian Electricity Market.......................................................................51
Energisation of Paraguay’s Eastern Region.......................................................53
LatAm Infrastructure: Outlook for 2012 and the role of PPPs..........................55
Critical Steps for Implementing Successful Public-Private Partnerships in the
Brazilian Road Sector.........................................................................................58
Rawson Wind Project: A Landmark in the Argentine Renewable Energy Gen- Adrian Barrios
eration Market....................................................................................................63
Latin American Hedge Funds..............................................................................66
Paul da Rita

6. 6 Latin Infrastructure Quarterly Infrastructure Financing
Local Pension
Funds and
Infrastructure
Development in
Uruguay
LIQ talks to Ignacio Azpiroz of Union Capital and
Maxmiliano del Vento of Partners Group
I
gnacio Azpiroz: Last year a new With approximately EUR 24.8 billion in ture opportunities: brownfield (existing),
PPP law was approved unanimous- assets under management across private rehabilitative brownfield, and greenfield
ly and the recent steps towards its equity, private infrastructure, private real (development), across geographic re-
implementation represent an ap- estate, and private debt, the firm has re- gions and accessed through direct, sec-
propriate legal framework to promote mained as an independent company, al- ondary and primary investments. As a
the participation of local investing insti- lowing it to focus exclusively on private result, Partners Group began to establish
tutions in future projects. Access to the markets assets and minimizing potential the team, tools, systems and geographic
asset class had been quite limited until conflicts of interests. Partners Group has presence necessary to address this broad
now, but given the new regulation, I en- been an early player in the infrastructure set of opportunities. Since then, Partners
vision a substantial shift in the following sector, making its first investment in 2001 Group has built up its expertise, relation-
months. In Uruguay, there is consensus and its first private infrastructure fund ship and knowledge base in global infra-
among economists that, in order to main- investment in 2002. As the infrastructure structure markets, by investing over EUR
tain economic growth in the long run, the market matured, Partners Group devel- 1.3 billion and completing 52 transactions
investment/GDP ratio must increase. As oped significant infrastructure expertise in more than ten countries in the course of
long as the PPP projects are adequately through a number of investments in in- the past decade.
structured I am convinced that pension frastructure partnerships, direct and sec- How was the portfolio of the local pen-
funds will support these initiatives. ondary investments. These investments sion funds, AFAPs, made up before the
Maximiliano Del Vento: Partners have been broadly diversified across geo- recent changes to the legal framework?
Group was founded in Switzerland in graphic region and sector (e.g. transporta- Can you describe these changes in the
January of 1996 and has seen then steadi- tion, communication, utilities and social framework? And, how do you envision
ly increased its presence to a global or- infrastructure). Early on, Partners Group the portfolio to change in the near future?
ganization that includes over 550 profes- recognized the importance of making use Ignacio Azpiroz: Current portfolio op-
sionals in 15 offices around the world. of the full spectrum of private infrastruc- portunities are reduced, not because of lit-

7. Infrastructure Financing Latin Infrastructure Quarterly 7
“Montevideo’s International
tle interest from AFAP but because there
are few projects available in the market.
Considering both direct and indirect
investment in infrastructure, AFAP’s
participation today is about 5% of the Airport is now a new landmark
portfolio. Montevideo’s International
Airport is now a new landmark for the
country and we are proud to have partici-
for the country and we are
pated in this project. With regards to the
recent changes to the legal framework, proud to have participated in
this project.”
there are two main points from the lend-
ers point of view: the concession pledge
and the step in right implementation. In
addition the pension fund limits regard- Ignacio Azpiroz
ing PPP investments was increased from
25% to 50%. I envision 10% to 15% par- tion. In our experience, pension funds are GDP ratios of about 5% and high demand
ticipations in the asset class. The system increasingly looking at infrastructure to of sovereign debt endorse this statement.
currently holds 9 billion AUM which diversify their portfolios, due to the low I am sure that securities related to infra-
represents 17% of GDP and, if we take correlation to traditional asset classes. In structure investments will have also high
into account that it is still in the accumu- summary, the asset-class is attractive for demand if investors can custody them at
lation phase, these are big numbers for pension funds because infrastructure as- an external clearinghouse.
the size of the country. sets typically: i- show low correlation to Maximiliano Del Vento: The OECD
broader economic cycles, providing a key report on Infrastructure to 2030 (volumes
Why do infrastructure investments diversification benefit to pension fund 1 and 2) published in 2006/2007, esti-
make sense for local pension funds? portfolios heavily exposed to equities and mated global infrastructure requirements
bonds; ii- provide a stable predictable to 2030 to be USD 50 trillion. Such
Ignacio Azpiroz: I believe that this type return with strong downside protection; levels of investment cannot be financed
of assets is intrinsically related to the iii- generate a running cash yield provid- by traditional sources of public finance
portfolio’s objectives. These are long- ing capacity to fund pension obligations; alone. The result has been a significant
run investments with a very attractive iv- trade at compelling risk premiums infrastructure gap and the need of r new
risk/return relation. In addition, there are over government bonds; and v- provide sources of finance. Public budgets fed by
several other positive aspects, including: inflation protection due to inflation-linked taxes will not suffice to bridge the infra-
a) diversify our portfolio; b) cash flows (or at least inflation correlated) payment structure gap. What is required is greater
are indexed to inflation; c) improves the structures. private capital participation, together with
quality of life of our affiliates. It is im- greater diversification of public sector rev-
portant to point out that this kind of in- When it comes to infrastructure invest- enue sources. Institutional investors will
vestments in infrastructure are also part ments, do AFAPs invest/work together? play a relevant role in bridging this gap,
of other pension fund portfolios of the financing long-term, productive activi-
region, such as in Chile, Perú, Colombia Ignacio Azpiroz: This is an important is- ties that support sustainable GDP growth
and México. sue. At Union Capital we believe that any and increased national competitiveness.
Maximiliano Del Vento: The continu- improvements regarding the development Partners Group believes that emerging
ing volatile macro-economic backdrop of the final security will benefit all inter- markets exposure can be an important re-
and record low real yields for safe assets ested parties. All key actors (developers, turn driver when incorporated into glob-
have resulted in growing interest by in- sponsors, funders and government agen- ally diversified infrastructure portfolios.
stitutional investors in an asset classes cies) should look for synergies in order to As a result, all of Partners Group’s infra-
that can generate stable performance achieve goals, gain experience and move structure programs have an allocation to
whilst still producing desirable yields. forward in a synchronize way. emerging markets infrastructure assets
Infrastructure investments are attractive Are there opportunities for internation- (typically 5% - 20%). In addition Part-
to institutional investors such as pension al institutional investors? Has there been ners Group manages a separate account
funds as they can assist with liability interest shown by big international play- for a European pension funds focused
driven investments and provide dura- ers in the Uruguayan market? solely on emerging markets infrastruc-
tion hedging. Infrastructure projects are Ignacio Azpiroz: Yes, I believe new ture investments. Despite a recent slow-
long term investments that could match conditions clearly favor the participa- down in the growth trajectory of several
the long duration of pension liabilities. tion of international investors. It is clear key economies, many emerging market
In addition infrastructure assets linked the Uruguayan prestige abroad based in countries still exhibit strong growth fun-
to inflation could hedge pension funds a market friendly legal framework and damentals, are in a healthy fiscal position,
liability sensibility to increasing infla- a strong macroeconomic outlook. FDI/ and have a high need for infrastructure

8. 8 Latin Infrastructure Quarterly Infrastructure Financing
build-out as well as the ability to invest
in infrastructure assets. Emerging market “In our experience, pension funds are
governments have increasingly adopted
stable regulatory frameworks, a prerequi- increasingly looking at infrastructure to
diversify their portfolios, due to the low
site for attracting long-term capital. Con-
sequently, country and regulatory risks in
correlation to traditional asset classes.”
many jurisdictions have declined, thereby
increasing the set of investment opportu-
nities in emerging markets. For instance,
this can be seen in Thailand, where the Maximiliano Del Vento
first independent power producer regu-
lation was established in 1992. Today, the renewables space but have sensibly the asset class is important due to the
a 15- year plan is driving investments structured such subsidies to make them independent and significantly uncorre-
in the renewable energy sector. Partners fiscally acceptable longer-term (thereby lated nature of the risks to which private
Group recently completed an investment reducing the risk of retrospective changes infrastructure assets are exposed (e.g.
in Wind Energy Holdings, the company as we have seen in Europe). Outside the political risk, regulatory risk, project
constructing Thailand’s first utility-scale renewables sector we also believe that risk and potentially some demand risk).
wind projects. These projects benefit transportation and energy infrastructure Pension funds should also appreciate
from a highly attractive ten-year adder assets remain attractive in the emerging that there is not a “one size fits all” ap-
tariff and considerable downside protec- markets, particularly in Asia. proach to how best to access this oppor-
tion through conservative underwriting tunity. Partners Group approaches the
assumptions. Partners Group continues to How should pension funds access the infrastructure investment opportunity
believe that the most compelling opportu- infrastructure investment opportu- through an integrated approach of in-
nities in emerging markets involve asset- nity? vesting in infrastructure funds (on both
creation strategies (i.e. greenfield) rather a primary and a secondary basis) as well
than buying existing assets (i.e. brown- Maximiliano Del Vento: Pension funds as directly into infrastructure projects/
field), which tend to be priced at a premi- that wish to access the investment op- assets. Investing in this manner allows
um. We are seeing particularly attractive portunity should prioritize building a the firm to take maximum advantage of
deal-flow in the renewable energy sec- diversified portfolio of quality infra- market opportunities for the benefit of
tor in Asia (in particular Thailand, India structure assets. Partners Group be- its clients. In this way Partners Group
and Malaysia), Latin America, Eastern lieves it is important to diversify private also can construct portfolios that more
Europe and South Africa. Many of these infrastructure investments by region, effectively mitigate the J-curve, pro-
geographies have established attractive sector, and maturity stage (greenfield/ vide earlier distributions and enhanced
feed-in tariffs to promote development in brownfield). Such diversification within liquidity.

9. Infrastructure Financing Latin Infrastructure Quarterly 9

10. 10 Latin Infrastructure Quarterly Deals
Partners Group strategically allocates
capital to the segments of the private in- Ignacio Azpiroz, Chief Invest-
frastructure market that the firm believes ment officer, Union Capital AFAP
will offer superior value “relative” to (Pension Fund – Uruguay)
other segments at a given point in time
within strategic asset allocation ranges. Ignacio Azpiroz is the Chief Invest-
Partners Group considers this integrated, ment officer of Unión Capital AFAP,
relative value approach to be the founda- one of the four pension funds in Uru-
tion for superior long-term investment guay with USD 1.450 million of asset
performance. under management as of September,
2011. He has more than 15 years of
What have been major works financed experience in the market. He has also
in the past by AFAP? And, what are the advised Boston Fondos mutual funds
projects in the pipeline? from 1999 to 2001. He is an econo-
mist from the Udelar University, and
Ignacio Azpiroz: I have already men- holds a Finance Diploma from ORT
tioned the construction of Montevideo’s University. Besides he is a CFA char-
International Airport that involved a total terholder since 2007.
investment of over $ 200 million. Some
other major projects funded by AFAP in
the past include the improvement of na- Maximiliano Del Vento, Investment Solutions, Partners Group
tional highways, energy production proj-
ects and the development of sanitation Maximiliano Del Vento is a member of
systems. These projects were developed the investment solutions team in the
by national and local governments. Re- New York office. His responsibilities
garding the pipeline, the first two projects include investment origination and cli-
are a Greenfield of a correctional institu- ent relations in Latin America. Prior to
tion and a Brownfield of roads. We also joining Partners Group, he worked at
foresee some other investments in rail- Merrill Lynch in New York, covering pri-
roads, ports development, and wind ener- vate clients and middle market institu-
gy which will demand investments close tions in Latin America. Previously, he
to $ 5 billion in the next 5 years. was an associate at Bank of America
Merrill Lynch global investment bank in
What is the role of the Uruguayan Cen- New York, covering financial sponsors
tral Bank in AFAP investments? in North America. He holds a Master’s
degree in corporate finance from the
Ignacio Azpiroz: The Uruguayan Central University of Barcelona in Spain, an
Bank (UCB) regulates the entire system. LL.M. in Law and Economics from the
The availability of this type of invest- University of Torcuato Di Tella in Argen-
ment projects is based on three minimum tina, a juris doctor degree (J.D. equiva-
requirements: 1) the UCB must approve lent with honors) from the University of
the investment; 2) the instruments must Belgrano, Argentina and earned a Financial Risk Management Certificate
be listed on an exchange; and 3) obtain from New York University.
a local rating of at least BBB-. The main
challenge now is to obtain a good rating
during the pre-operational phase with
some credit enhancement that can ensure
the participation of pension funds from investment, both locally and internation- are adapting their regulations to address
the start. One important issue is that the ally. PPP projects are not only a great op- infrastructure needs, putting local pension
AFAP cannot bear construction risk. I portunity for portfolio diversification but funds and other institutional investors in
think that a mechanism to minimize this will also help improved competitiveness a leadership position to champion the de-
risk must be developed. as well as quality of life for our affiliates. velopment of asset class. Failure to make
Ignacio Azpiroz: In sum, I am con- Maximiliano Del Vento: The suc- significant progress towards bridging the
vinced that the economic environment cessful expansion of pension funds into infrastructure gap could prove costly in
as well as the adequate legal framework infrastructures depends to a large extent terms of slower economic growth and
will promote the success of PPP projects. on regulatory changes to pension fund re- loss of international competitiveness.
I expect a high interest in this type of gimes. Several countries around the world

11. Latin Infrastructure Quarterly 11

12. 12 Latin Infrastructure Quarterly Deals
Infrastructure financing in Latin America has developed
rapidly over the last 6 years. What was generally limited
to syndicated bank and multi- and bilateral lending, gov-
ernment funding and insured project bonds, infrastruc-
ture financing has evolved to rely on the capital markets
The Project Bond
like never before, even without the support of traditional
credit enhancers. In the past, especially before the 2008
market meltdown, when the capital markets were accessed
to finance Greenfield and Brownfield projects, interna-
tionally placed bonds were either wrapped by credit en-
Port of Paita
hancers, or involved the securitization of payments com-
Evolution: Case Study
ing from a central government that were not tied to the
completion of the project or operating risk. Only once the
project was completed could a project bond that relied on
the cash flows of the particular project be issued without
credit enhancement in the capital markets. In the latter
case, the original debt that was incurred for the construc-
tion of the project was refinanced with bonds that a pro-
vided longer tenor with fixed interest rates (if US dollar
based) and perhaps even lower interest rates.
J
ust recently, however, on April 18, coastal port in the northern region of Peru
2012, the first Rule 144A/Reg S in terms of container volume. Its opera-
project bond was issued for a Latin tions are carried out pursuant to a 30‑year
American Brownfield project be- design, build, finance, operate and transfer
fore construction and without credit en- concession granted by the Government
hancement. This landmark project bond of Peru (the “Concession”) in September
was issued by Terminales Portuarios Eu- 2009. The Issuer derives its revenues from
roandinos Paita S.A. (the “Issuer”) for tariffs charged for the provision of cer-
the expansion of the Paita Terminal Port tain standard services to users of the Port
in the region of Piura, Peru (the “Port”). which are required under the Concession,
The notes (the “Notes”), which are due in including, among others, the loading and
2037, raised $110,025,000, carry a fixed unloading of cargo, cargo movement and
interest rate of 8.125%, and were rated weighing, and from fees charged for the
by Gianluca G. Bacchiocchi, Esq.
“BB-” by Fitch and “BB” by Standard & provision of any special services to users
Poor’s. This article provides an overview of the Port not required under the Conces-
of the transaction, and explores some of sion, including, among others, stevedor-
the key structuring issues that had to be ing, reefers, shiftings and late arrivals.
overcome in order to complete the first The Issuer is 50% owned by Cosmos
successful Rule 144A/Reg S project bond Agencia Marítima S.A.C. (“Cosmos”), a
with full demand, operating and construc- subsidiary of Andino Investment Hold-
tion risk for a Latin American project. ing S.A. (“AIH”), 40% owned by Tertir
– Terminais de Portugal S.A. (“Tertir”),
The Issuer a subsidiary of Mota-Engil, SPGS, S.A.
(“Mota-Engil”), and 10% owned by Mo-
The Issuer operates, maintains and devel- ta-Engil Peru S.A., a subsidiary of Mota-
ops the Port, which is the second largest Engil and formerly known as Translei
coastal port in Peru based on twenty-foot S.A. (“Mota-Engil Peru” and together
equivalent units (“TEUs”), and the largest with Cosmos and Tertir, the “Sponsors”).

13. Deals Latin Infrastructure Quarterly 13
The Port to cover the debt service on the notes ac- proximately $123,000,000 (“Stage 4”) is
cording to their model, and because the at the Issuer’s discretion for the operation
The Port was built in 1966 and reno- bulk of the IMAG was only available for of the Port, but must be completed ac-
vated in 1999. The Port was managed a period of 15 years, beginning one year cording to the following schedule: by the
by Empresa Nacional de Puertos, S.A. after the completion of Stage 1 (described 5th year of the Concession $5,000,000 of
(“ENAPU”), an entity owned and con- below), whereas the Notes would be out- Works are to be completed, by the 10th
trolled by the Government of Peru, from standing for approximately 7 additional year an additional $10,000,000 of Works
its construction until October 7, 2009, years. One final consideration regarding are to be completed, by the 15th year an
when the Issuer took over operations in the IMAG for this transaction was rele- additional $10,000,000 of Works are to
accordance with the Concession. The vant: it is paid 12 to 13 months after the be completed and by the 20th year the re-
Port’s operations are focused on exports, fiscal year in which a shortfall determina- mainder of the additional Works are to be
which represented approximately 71% of tion has been made, and not on a month- completed. The Concession requires the
its total activity in 2011, 99% of which by-month basis, meaning that it does not Issuer to set aside and transfer to a special
consisted of container shipments. The cover demand volatility during a year, but trust (the “Additional Investments Trust”)
main exports shipped through the Port rather such volatility had to be mitigated each year, for the first 20 years of the
are fish, fishmeal, fish oil, mangos, coffee by a debt service reserve. Concession, amounts required to com-
and bananas. The main imports shipped The Concession may be terminated plete the Stage 4 Works according to a
through the Port are solid bulk products, prior to its original expiration date for the schedule that ensures that adequate funds
such as fertilizers and grains, and liquids, following reasons, among others: (a) mu- will be available to complete these Works
such as soy oil. tual agreement of the parties, (b) unilater- in accordance with the above timing.
ally by the Grantor for reasons related to As compensation for the Concession,
The Concession public interest, (c) by the non-breaching the Issuer is required to pay two fees on
party upon a breach of the other party’s a monthly basis. The first fee is paid to
Pursuant to the Concession, the Issuer material obligations, or (d) at the Issuer’s the Grantor, and is equal to 2% of the net
has the right to operate and maintain the option in case of force majeure or acts of monthly income of the Issuer from pro-
Port’s existing facilities and is required to God that affect the completion of the Is- viding standard and special services at
design, construct, operate and maintain suer’s contractual obligations under the the Port. The second fee is paid to the
a new container pier and, depending on Concession for a period of 6 months and regulator of the Port, the Peruvian Pub-
the level of utilization of the Port, make produce losses of over 60% of the Port’s lic Transport Infrastructure Regulatory
certain other improvements, including the operational capacity. Agency (Organismo Supervisor de la In-
installation of additional port equipment The Issuer is required to invest ap- versión en Infraestructura del Transporte
and reinforcement of the existing jetty proximately $293 million in the Port (the de Uso Público) (the “Regulator”), which
pier. The Issuer is also required to pro- “Works”) in four stages, so long as cer- is currently equal to 1% of net annual in-
vide the standard services, but is entitled tain demand levels are reached at the Port. come received from standard and special
to collect fees for any other services that Stage 1 of the Works, with an estimated services at the Port. In addition, the Is-
are provided to users of the Port. total cost of $130 million, is required to suer must make a contribution every year
Pursuant to the Concession, the Min- begin immediately and consists of the to the Port of Paita Social Fund in the
istry of Transport and Communications construction of a new terminal, which amount of U.S.$195,858, which funds are
of the Republic of Peru (Ministerio de will have a 300 meter berth and 13 me- intended to promote sustainable develop-
Transportes y Comunicaciones de la ter depth and a container yard of 12 hect- ment in the Paita Province.
República del Perú) (the “Grantor”) pro- ares, and the installation of three gantry
vides the Issuer with a minimum annual cranes at the Port (“Stage 1”). Stage 2 Construction and Equipment
income guarantee (“IMAG”) pursuant to of the Works is required to be completed Works
which the Grantor will pay the Issuer the within 18 months of the Port achieving
shortfall between the revenues collected container volume of 180,000 TEUs per All the construction Works that are in-
by the Issuer for a particular calendar year, and involves the purchase of addi- tended to be completed with the pro-
year and the minimum annual guaran- tional port equipment with an estimated ceeds of the financing (the “Construc-
teed income for that year (which amount cost of approximately $19.3 million tion Works”) include the construction
increases each year that it is available). (“Stage 2”). Stage 3 of the Works is re- for the Stage 1 Works and certain Stage
An IMAG can be an important consid- quired to be completed within 18 months 4 Works. These Construction Works are
eration for a financing, especially if it is of the Port achieving container volume of to be completed by Mota-Engil Peru,
sized to cover debt service during the life 300,000 TEUs per year, and involves the with the support of Mota-Engil, Engen-
of the debt service and is paid quickly reinforcement of the existing jetty pier, its haria e Construção S.A. (collectively, the
once a shortfall determination has been support area and the purchase of addition- “Contractors”), pursuant to a fixed price
made. However, in this transaction it al port equipment, with an estimated cost engineering, procurement and construc-
was not given any consideration by the of approximately $19.8 million (“Stage tion services contract (the “EPC Con-
rating agencies because it was not sized 3”). The remaining investment of ap- tract”). The Contractors, pursuant to the

14. 14 Latin Infrastructure Quarterly Deals
EPC Contract, are required to provide a In addition, the Issuer entered into tors, holding the bonds without getting
performance guaranty in an amount equal a contract (the “Independent Engineer involved in decision-making, unless fac-
to 10% of the total compensation to be Agreement”) with R. Rios J. Ingenieros ing a significant change or an event of de-
paid under the EPC Contract and a qual- (the “Independent Engineer”), which is fault. In this transaction, not all approval
ity guarantee in an amount equal to 1.5% acting as the independent engineer on rights were given to the Independent
of the total compensation to be paid un- behalf of the bondholders, and with Ci- Engineer, which is normal for a project
der the EPC Contract. Other than these tibank, N.A., as bondholder trustee (the bond. In those situations where the Inde-
guarantees provided by the Contractors, “Indenture Trustee”), pursuant to which pendent Engineer was not given approval
no other guarantees are provided to the the Independent Engineer provides, for rights and the bondholders are required
Issuer for the Construction Works. the benefit of the Indenture Trustee on to approve certain actions (other than an
The equipment Works that are to be behalf of the bondholders, all services event of default scenario), the bondhold-
completed with the proceeds of the fi- contemplated to be performed by the ers will be deemed to have approved such
nancing (the “Equipment Works”) include Independent Engineer under the various actions unless a certain percentage (usu-
all of the cranes required for the Stage 1 transaction documents. These services ally a majority) of the bondholders have
Works and two additional mobile cranes include, among others, reviewing and au- responded within a set amount of time
that qualify as Stage 4 Works. The Equip- thorizing payments for the Construction after receiving the applicable approval
ment Works will be completed under two Works and Equipment Works and moni- request notice, disapproving of the ac-
separate sale and installation contracts. toring the progress of construction under tion. This deemed approval approach
The Stage 1 Equipment Works will be the EPC Contract, and the installation and prevents bondholders who fail to respond
completed by Liebherr Container Cranes assembly of the cranes. In addition, the to an approval request from keeping the
Ltd. and the Stage 4 Equipment Works will Independent Engineer was requested to Issuer from going forward with necessary
be completed by Liebherr Werk Nenzing prepare an independent engineer’s report, changes, even though these bondholders
GMBH. Both supply contracts require the that was attached to the offering circular would have agreed with the request if
suppliers to provide the Issuer with letters for the Notes. they had responded. The assumption is
of credit to support the completion of their Because the financing is pursuant to a that only bondholders that disagree with
obligations under the supply contracts and project bond, rather than a traditional loan a certain action will be motivated enough
to support the advance payments required transaction, the Independent Engineer to respond to an approval request. In an
to be made by the Issuer under them. will also be required to re-test the Issuer’s event of default scenario, the bondholders
debt service coverage ratio upon the oc- will be required to give actual instructions
Supervision of the Works currence of certain events and provide to the Indenture Trustee.
approvals or disapprovals with respect
The Issuer entered into a construction to certain actions of the Issuer under the The Notes
and equipment installation supervision transaction documents, such as changes
contract (the “Construction Supervision to budgets, the Issuer’s three-year capi- The Notes, which are senior secured obli-
Contract”) with Bureau Veritas del Peru tal plan and the implementation of any gations of the Issuer, were issued pursuant
S.A. (the “Supervisor”) to supervise the major Works. These additional actions to a New York law-governed indenture
construction of the Construction Works are significant in a project bond, since and indenture supplement (collectively,
and the installation of the cranes, and to the Issuer will not know the identity of the “Indenture”). The Notes carry a fixed
coordinate these Works to ensure timely the bondholders to discuss these actions interest rate of 8.125% throughout the life
completion of the Issuer’s obligations un- with them, and bondholders, unlike lend- of the Notes and fully amortize over a pe-
der the Concession Agreement. ing institutions, tend to be passive inves- riod of 25 years; however, during the first
5 years only interest is paid on the Notes.
“The Notes carry a fixed
The long tenor and fixed interest rate are
probably the biggest advantages the Is-
suer achieved by issuing a project bond,
interest rate of 8.125%
rather than entering into a traditional loan.
Even though the Notes were rated “BB-”
by Fitch and “BB” by Standard & Poor’s,
which classifies the Notes as high yield
throughout the life of the bonds, the Issuer was still able to obtain
an attractive long term fixed interest rate
Notes and fully amortize over due to the structure, low interest rate en-
vironment, stable country risk (Peru cur-
rently has a foreign debt rating of “BBB”
a period of 25 years” by both Fitch and S&P) and the demand
for long-term fixed income.

15. Deals Latin Infrastructure Quarterly 15
For those that are not familiar with rights are already contemplated in the half of the Indenture Trustee with respect
project bonds, the Indenture contains all payment and guarantee trust agreement to all Peruvian collateral. In addition, the
of the various covenants and representa- (discussed below), the Indenture and any Notes also have the benefit of a debt ser-
tions and warranties of the Issuer and the future indenture supplements for all po- vice reserve account equal to 6 months of
events of default, similar to a loan agree- tential series of notes issued by the Issuer debt service.
ment. Most of the covenants, representa- pursuant to the Indenture.
tions and warranties and events of default Although the Notes are expected to Payment and Guarantee Trust
are similar to what would have been ne- remain outstanding for 25 years, they
gotiated in a traditional loan agreement; are subject to the following redemption The Payment and Guarantee Trust Agree-
however, there are some key differences. events: (a) optional redemption with a ment is the key security agreement for
As mentioned above, the approval rights make-whole premium for the life of the the transaction. All of the cash flows of
have been modified to reflect the different Notes, (b) withholding tax redemption, the Issuer from the Concession, including
protocols for approving various actions, (c) change of control of the Issuer and (d) all revenues from services and insurance
which includes giving greater rights to the mandatory redemption upon the occur- proceeds, are deposited in a revenue ac-
Independent Engineer and using deemed rence of certain events of default. count and flow through the accounts es-
approvals when bondholders are required tablished by the Payment and Guarantee
to weigh in. In addition, greater flexibil- Security Trust Agreement pursuant to a waterfall
ity was given to the Issuer before approv- that terminates with the excess cash flow
als are required. This was accomplished The Notes are secured equally by first account. In addition, all payments to the
by giving more materiality carve-outs priority liens and ratably on a pari passu Issuer for operations and maintenance
and increasing certain dollar thresholds. basis by (a) a pledge of all of the capital costs (including setting aside monies
Another significant difference from a tra- stock of the Issuer held directly or indi- in a reserve account for operations and
ditional project finance loan transaction rectly by AIH and Mota-Engil pursuant maintenance) and Construction Works
is that the Issuer is not required to abide to a shareholder pledge agreement, (b) a are made by the Peruvian Trustee, as well
by the Equator Principles. This is not mortgage over the Concession, (c) a per- as payments required to be made to the
the case in all project bonds, especially fected beneficial and/or security interest Grantor, the Regulator and the Port of
if the arrangers and initial purchasers of in substantially all of the Issuer’s assets, Paita Social Fund under the Concession.
the bonds are also Equator Principles Fi- granted pursuant to a Peruvian payment The Peruvian Trustee is also required to
nancial Institutions (“EPFIs”). Two key and guarantee trust agreement (the “Pay- set aside the debt service required for the
factors that are generally discussed when ment and Guarantee Trust Agreement”) Notes and any future series of notes, as
determining whether an issuer of a proj- entered into between the Issuer and Ci- well as any amounts required to top up
ect bond must comply with the Equator tibank del Perú S.A., as Peruvian trustee the debt service reserve account, both
Principles are, first, whether the potential (the “Peruvian Trustee”), and (d) an un- of which are transferred to the Indenture
investors require compliance and, second, conditional and irrevocable pledge, as- Trustee for application pursuant to the In-
if the initial purchaser is an EPFI, whether signment and transfer to the Indenture denture.
its internal policy requires compliance for Trustee pursuant to the Indenture, for the With respect to future Works, the Pe-
a project bond. benefit of the bondholders and all other ruvian Trustee is required to begin setting
In order to give the Issuer maximum secured parties, of a security interest in all aside monies required for Stage 2 Works
flexibility to finance future Works within of the Issuer’s rights, title and interest in, in a separate trust account (the “Stage 2
the same structure, the Indenture for this to and under any other assets. Since most Trust Account”) once container volume
transaction allows for future series of pari of the security is subject to Peruvian law, at the Port reaches 160,000 TEUs per
passu notes to be issued to finance such Citibank del Perú S.A. was appointed by year. The schedule of the amounts to
Works. Even though the Issuer is required the Indenture Trustee and the Issuer as be set aside each month, which is based
pursuant to the transaction documents to sub-collateral agent pursuant to a sub- on the financial model’s projections for
set aside monies for future investments at collateral agency agreement to act on be- the Port at closing, is expected to ensure
the Port, the ability to anticipate Works
before the money has been set aside, so
long as certain conditions precedent are
met, such as debt service coverage ratios,
“Another significant difference from
allows the Issuer to choose when it makes a traditional project finance loan
the most economic sense to complete ad-
ditional Works. In addition to providing
flexibility, the ability to issue additional
transaction, is that the Issuer is not
series of pari passu notes under the same
indenture also alleviates the need to enter
required to abide by the Equator
into intercreditor agreements, since all of
the waterfalls, voting rights and collateral Principles”

16. 16 Latin Infrastructure Quarterly Deals
that sufficient monies will be set aside to proceeds account. The Sponsors were droughts, plagues and natural disasters.
complete the Stage 2 Works once the Port required to make equity contributions In addition, demand can be affected by
has achieved container volume equal to on or prior to the issuance of the Notes macroeconomic factors and competi-
180,000 TEUs per year. to pay for their contribution with respect tion. An independent traffic consultant,
Similarly, with respect to the Stage 3, to (a) the costs for Equipment Works, (b) APOYO Consultoría S.A.C., provided a
the Peruvian Trustee is required to begin up-front payments for the Construction traffic study of the Port that incorporated
setting aside monies required for Stage Works, (c) the required balance of the weather and macroeconomic factors to
3 Works in a separate trust account (the operations and maintenance reserve ac- predict potential demand volatility at the
“Stage 3 Trust Account”) once container count, (d) the required balance of the debt Port. This traffic study was a very impor-
volume at the Port reaches 260,000 TEUs service reserve account, (e) an up-front tant component for the rating process and
per year. The schedule of the amounts to amount to be set aside for the Additional for creating the financial model.
be set aside each month, which is based Investments Trust and (f) and other costs Because of the long tenor of the Notes,
on the financial model’s projections for being funded and pre-funded on the issu- it was important to consider structural
the Port at closing, is expected to ensure ance date of the Notes. elements that could provide liquidity if
that sufficient monies will be set aside to After the issuance date of the Notes, the demand is negatively impacted at the
complete the Stage 3 Works once the Port Sponsors are required to make periodic Port over the life of the Notes. A debt
has achieved a container volume equal to equity contributions to pay for Construc- service reserve is a typical enhance-
300,000 TEUs per year. tion Works and any other costs required to ment for moderate demand volatility.
With respect to the Stage 4 Works, the be paid for by equity contributions, such However, in order to address significant
Peruvian Trustee is required to set aside as certain Equipment Works and certain demand volatility, the Issuer was given
monies immediately according to a sched- operating and maintenance costs. the following additional liquidity: if de-
ule set forth in the Concession agreement mand decreases and either (a) container
that ensures that sufficient monies are volume drops below 160,000 TEUs per
set aside to complete the Stage 4 Works “One of the most year before 18 months have passed af-
when required, as described above. The ter it reaches 180,000 TEUs per year
Peruvian Trustee transfers these monies significant aspects of (i.e., when the Stage 2 Works must be
to the trustee of the Additional Invest- completed) or drops below 260,000
this project bond is
ments Trust on a yearly basis, or earlier TEUs per year before 18 months have
if required to complete such Works. The that the construction passed after it reaches 300,000 TUEs
requirement of the Issuer to both (a) make per year (i.e., when the Stage 3 Works
significant additional investments at the risk was not fully must be completed), as applicable, or
Port pursuant to the Concession and (b) (b) the Issuer reasonably believes that
reserve for future Works according to a mitigated, which is it will not achieve container volume
schedule mandated by the Concession, of 160,000 TEUs per year or 260,000
with respect to Stage 4, and the schedules the first time this has TEUs per year, as applicable, within 1
set forth in the Payment and Guarantee year of the date predicted for achiev-
been accomplished
Trust Agreement, with respect to Stage 2 ing such volume levels in the financial
and Stage 3, added complexity and lever-
age to the structure, but it also provided
for a Latin American model on the closing date (collectively,
“Demand Events”), the Issuer is al-
assurance to investors that the structure Rule 144A/Reg S lowed to tap into the Stage 2 Trust Ac-
accommodates all future investment ob- count or the Stage 3 Trust Account, as
ligations of the Issuer under the Conces- project bond.” applicable, for debt service and also to
sion. suspend deposits into the applicable ac-
All equity contributions required to be count until a new date agreed upon with
made by the Sponsors pursuant to a spon- the Independent Engineer. The Issuer
sor support agreement are deposited, after Demand Risk must first demonstrate to the satisfac-
passing through a separate escrow account tion of the Independent Engineer that a
set up for tax purposes, into an equity pro- As with any project with demand risk, Demand Event has occurred before the
ceeds account maintained by the Peruvian there is always a possibility that de- Issuer will be given these rights. Since
Trustee. The Notes raised approximately mand may decrease and result in lower the Stage 2 Works and Stage 3 Works
68% of the amounts needed for the Con- revenues at the Port than originally an- only need to be performed once the re-
struction Works, Equipment Works and to ticipated. Since the Port is mostly export quired volume levels are reached, this
fund various transaction accounts. The oriented, the main drivers for demand additional liquidity benefits both the
Sponsors’ equity contributions cover the are agricultural and oceanic output in bondholders and the Issuer without
balance and are supported by letters of the Port’s area of influence, which can compromising the Issuer’s obligations
credit that can be drawn upon by the Peru- be affected by, among other things, cli- under the Concession.
vian Trustee and deposited into the equity mate change, including El Niño, floods,

17. Deals Latin Infrastructure Quarterly 17
Operating Risk erated was a very important consider-
ation for bondholders. Gianluca G. Bacchiocchi is a partner
The Issuer enjoys the benefit of the global at DLA Piper and focuses his practice
and local experience of its joint venture Negative Carry on representing sponsors, issuers and
partners in operating ports and providing underwriters in cross-border capi-
related logistical services. In addition, Probably one of the most challenging as- tal markets transactions with Latin
before the bond offering, the Issuer was pects of a non-refinancing project bond America, including project bond fi-
able to operate the port for 2 and 1/2 years is how to address negative carry, which nancings, public and private issuanc-
to create a positive track record that could is the interest paid on bond proceeds that es of asset-backed securities, private
be analyzed by both the rating agencies cannot be fully deployed since the con- issuances of future-flow backed secu-
and the bondholders. These factors, along struction will occur over a period of time. rities and high-yield debt issuances.
with a reserve account for operating and In a number of project bonds, this issue Mr. Bacchiocchi also assists sponsors,
maintenance, were able to significantly has been addressed by issuing variable borrowers and lenders with project
mitigate the operating risk to the satisfac- funding notes. In this transaction, it was and infrastructure financings, public-
tion of the rating agencies and the bond- decided that for obtaining the best execu- private partnership transactions, gen-
holders. tion, only one series of regular upfront eral secured and unsecured lending
funded notes would be issued. However, arrangements and international debt
Construction Risk since the negative carry incurred by the restructurings. He has been named
Issuer will be amortized over 25 years, a leading capital markets and bank-
Based on the report provided by the In- its impact will be minimized. Since is- ing and finance lawyer by Chambers
dependent Engineer, the Construction suers tend to focus on the all-in costs of Latin America. Transactions handled
Works and Equipment Works are not the transaction, the all-in costs will not be by Mr. Bacchiocchi have received a
complex and can be completed within significantly impacted by negative carry number of awards from IFLR, Project
the timetable established by the Issuer. so long as the bonds they issue are ex- Finance and Latin Finance, includ-
Also, the EPC contractor, which agreed pected to have a long tenor. ing most recently the Latin American
to do the Construction Works pursuant to Water Infrastructure Deal of the Year
the EPC Contract that includes a perfor- Conclusion 2010 Award from Project Finance and
mance guarantee and quality guarantee, the 2011 Americas Project Finance
has significant construction experience in As project bonds have evolved, espe- Deal of the Year Award from IFLR.
Peru. In addition, the supply contracts for cially over the last 6 years, sponsors now Mr. Bacchiocchi is fluent in Italian,
the Equipment Works are with reputable have more options available to them, Portuguese and Spanish.
suppliers of cranes who agreed to pro- even if some traditional lending op-
vide performance guarantees pursuant to tions are less accessible due to the cur-
the supply contracts. These factors, along rent banking crisis in Europe. Although
with the involvement of the Supervisor the capital markets may be unfamiliar
and the Independent Engineer, helped to territory for some sponsors, the advan-
considerably reduce the construction risk tages that project bonds provide spon-
of the project, although construction risk sors, namely long term financing at fixed
was still a factor. rates (if US dollar based) and potentially
One of the most significant aspects of lower interest rates, can significantly
this project bond is that the construction outweigh the disadvantages, namely ob-
risk was not fully mitigated, which is taining consents from bondholders, dif-
the first time this has been accomplished ficulty analyzing construction risk and
for a Latin American Rule 144A/Reg S negative carry, which as the Paita Port
project bond. The key reason the proj- project bond demonstrates, can be read-
ect bond was able to proceed with con- ily addressed. If this was a Greenfield
struction risk is that, as a Brownfield project, it is unlikely that the construc-
project, the Port has been generating tion risk would have been left complete-
revenues for years, including the most ly unmitigated for a project bond, but as
recent 2 and 1/2 years pursuant to the bond investors and rating agencies be-
Concession, which allows bondholders come better at analyzing infrastructure
to be paid, whether or not construction projects and governments get better at
is completed on time. There still is the structuring concessions, project bonds
risk of a default under the Concession will continue to evolve in Latin America
due to the construction, but not having and perhaps Greenfield project bonds
to rely on the construction of a project with construction risk may someday be-
to be completed for revenues to be gen- come a reality.

18. 18 Latin Infrastructure Quarterly Infrastructure Financing
A Brazilian
fter more than a decade of
economic stability and timid
(when compared to other
emerging countries) although
resilient growth, it is time for Brazil to
Fostering
tackle its most critical deficiency: the
country’s infrastructure.
With most of the investments in in-
frastructure deployed back in the 1970’s
and mid 1980´s, Brazil now faces a grim
scenario: recurring power blackouts
of Private
(apagões), especially during draught
seasons, overwhelmed airports, roads re-
quiring immediate maintenance, incipi-
ent railway network and insufficient port
services. According to the latest “Global
Financing of
Competitiveness Report 2011-12”, Bra-
zil, currently the 6th largest economy in
the world, occupies the 53rd position in
general competitiveness and only 104th
in quality of overall infrastructure.
This scenario is a consequence of,
among several other macroeconomic fac-
tors, a low rate of investments in infra-
structure. It is estimated that Brazil has
invested, in average, approximately 2% of
Infrastructure
its GDP in infrastructure since 1985. The
Projects
main reason for this decline in infrastruc-
ture investments is the general deteriora-
tion of the macroeconomic environment
verified in Brazil in the mid-1980’s, when
the country was suffering with a soaring
inflation and an upsurge in its public in-
debtedness. Ricardo Simões Russo (Partner),
There is consensus among all sectors
of the Brazilian society that if the govern-
ment does not act energetically in order
Enrico Bentivegna (Partner) and
to create a favorable environment for in-
vestments in infrastructure the country’s João Fernando A. Nascimento
development may enter stagnation in the
next years. (Senior Associate) of Pinheiro
The Growth Acceleration
Programmes (“PACs”) and Neto Advogados
BNDES
infrastructure alone reached 3.2% of the According to its own reports, BNDES
As an attempt to remedy the shortfalls country’s GDP in 2010. is likely to disburse up to R$ 150 billion
concerning public and private invest- Both PAC and PAC II program and (US$77 billion) in 2012, which represents
ments in infrastructure, Brazilian federal the investments deriving therefrom rely a slight increase over last year’s R$140
government has put in place two large heavily in public financing. As the main billion (US$ 71 billion). This increase,
infrastructure programs, the first one financing agent for infrastructure proj- although not very significant, evidences
in 2007 (“Programa de Aceleração do ects in Brazil, the Brazilian National So- that Brazil is not ready yet to reduce the
Crescimento” or “PAC” - Growth Ac- cial and Economic Development Bank role of BNDES in the economy, so as to
celeration Program), and the second one (“BNDES”) plays an essential role in the foster the participation of the private sec-
in 2010 (also known as “PAC II”). As a Brazil’s equation to sustain economic tor in the financing of infrastructure proj-
result, the share of public investments in growth, competitiveness and innovation. ects.

19. Infrastructure Financing Latin Infrastructure Quarterly 19
In addition, according to research re-
ports published by the BNDES, there is
a need in Brazil for investments in the
amount of R$ 1,324.00 billion during the
“Both PAC and PAC
period of 2010 to 2013. Further, pres-
ently, approximately 90% of long term
financings in Brazil were granted by state
owned banks, BNDES and federal finan-
II program and the
cial institutions.
In order to accomplish the above men-
tioned endeavor, the Brazilian govern-
ment must improve the tools available in
investments deriving
the Brazilian market, in order to promote
the participation of the private sector in
long term financings required for the im-
plementation of infrastructure projects.
therefrom rely heavily
In this regard, recent rules and regula-
tions were enacted in order to promote the
creation of a long term financing private
market. Such rules have as their main pur-
in public financing.”
pose not only foster the participation of
private entities on long term credit trans-
actions but also aim to promote in Brazil Requirements
the development of the local debt securi- Brazilian Reference Rate (TR);
ties market. The main requirements in connection 7. interest payments cannot be made in
with the issuance of Infrastructure Bonds intervals shorter than one hundred and
Infrastructure Bonds – Re- can be summarized as follows: eight days;
quirements and Benefits 8. the Infrastructure Bond must be regis-
1. such debt securities must be issued by tered for trading in a regulated securi-
Through the enactment of Law No. 12,431, a special purpose company organized ties market; and
of June 24, 2011 (“Law 12,431/11”), for the specific infrastructure project; 9. they must contain a simplified proce-
which was further regulated by Decree- 2. the project to which they are linked dure to demonstrate the purpose of al-
Law No. 7.603, of November 9, 2011 must be approved by the applicable locating the proceeds in investment
(“Decree-Law 7,603/11”), the Brazilian ministry overseeing the industry in projects, including the ones related to
government created certain mechanisms which the project is inserted; the intensive economic production con-
to promote the use by local companies 3. offering must have a minimum nected with research, development and
of the capital markets for the purposes of weighed tenor of four years; innovation.
their long term financing. Among these 4. securities cannot be called upon or re-
mechanisms the so-called “Debêntures deemed within the first two years of For the purposes of the ministry approval
de Infraestrutura” (Infrastructure Bonds) their issuance; mentioned in item (2) above the respec-
were created, the first type of securities in 5. the buyer cannot have a commitment tive projects must: (1) be addressed to in-
Brazil designed specifically to raise long- to resell the securities to the issuer; vestments in infrastructure or to intensive
term private funds to be applied in infra- 6. securities must have a fixed interest economic production connected with re-
structure projects. rate, linked to a price index or to the search, development and innovation, and
“The Brazilian National Social and Economic
Development Bank (“BNDES”) plays an essential
role in the Brazil’s equation to sustain economic
growth, competitiveness and innovation.”

20. 20 Latin Infrastructure Quarterly Deals
(2) aim at the establishment, expansion, In addition, foreign investors that No. 3,836, of February 25, 2010. In June
maintenance, repair, adaptation or mod- make the acquisition of Infrastructure 11, 2010, MP 472/09 was converted into
ernization, among others, of one of the Bonds are subject to the Brazilian so- Law No. 12,249 (“Law 12,249”), which
following areas: (a) logistics and trans- called “IOF exchange” assessment (tax further defined the legal terms and condi-
portation; (b) urban mobility; (c) energy; assessed at the foreign exchange transac- tions applicable to the letras financeiras.
(d) telecommunications; (e) broadcasting; tion verified at the moment of the entry The main characteristics of the letras
(f) sanitation, and (g) irrigation. of the investment proceeds in Brazil) at financeiras are:
Infrastructure Bonds must be distrib- a 0% rate (as opposed to a rate that may
uted by means of public offerings pursu- reach up to 6% in other types of fixed in- 1. they are fixed income instruments is-
ant to the Normative Ruling No. 400, of come investments). sued by financial institutions;
December 29, 2003, issued by the Brazil- 2. they have a minimum maturity of
ian Securities and Exchange Commis- twenty-four (24) months; and
sion (Comissão de Valores Mobiliários “The so-called 3. their minimum nominal amount is R$
– CVM), or also by means of public of- 300,000.
ferings with restricted efforts (i.e., for a
limited number of investors and without
“Debêntures de The first letras financeiras issued with the
the need for registration with local secu-
rities commission), pursuant to the CVM Infraestrutura” abovementioned characteristics were reg-
istered with CETIP (Central Agency for
Normative Ruling No. 476, of January Custody and Financial Settlement of Se-
16, 2009. (Infrastructure curities) in April of 2010. One year later,
The offerings of Infrastructure Bonds the stock of such instruments had already
that are subject to the terms of Law
12,431/11 must be made prior to the
Bonds) were reached R$72.8 billion. At the end of
March, 2012, the stock of letras financei-
created, the first
deadline of December 31, 2015. ras reached R$175.6 billion.
Tax Aspects – Benefits of the A market for long term private
Infrastructure Bonds type of securities debt instruments
Law 12,431/11 not only created a specific
type of long-term investment, but also es-
in Brazil designed In order to increase the trading volumes
of all these private, long-term bonds, the
tablished additional measures to stimulate Brazilian government is structuring, to-
the market for Infrastructure Bonds, espe- specifically to raise gether with the private sector (under the
cially by means of the tax treatment appli- coordination of ANBIMA), the Liquid-
cable to the investors in such securities. long-term private ity Enhancement Fund (Fundo de Apoio à
Under Law 12,431/11, in general Liquidez – “FAL”), which main purpose is
terms, income earned by investors shall funds to be applied to function as a “market maker”, funded by
be subject to the Brazilian withholding BNDES and by mandatory deposits held
income tax, at the following rates: by banks with the Brazilian Central Bank
in infrastructure under mandatory reserve requirements.
1. 0% (zero percent) when ascertained The idea behind FAL is to provide a
by foreign investors (provided they projects.” safer environment for individuals and for-
are not resident or located in tax heav- eign investors interested in investing in
en jurisdictions); this new debt instruments, thus increasing
2. 0% (zero percent) when ascertained Other measures to stimulate trading volumes for corporate debt (espe-
by individuals that are tax residents in long-term private financing cially in the secondary market).
Brazil;
3. 15% (fifteen percent) when ascer- Brazilian federal government also estab- Conclusion
tained by Brazilian legal entities that lished additional measures to stimulate
are subject to taxation according to the market for long term financing, such As seen from the initiatives described above,
the “actual profit regime” (lucro real), as exempting the long-term bank bonds Brazilian Government has put in place sev-
“estimated profit regime” (lucro pre- called letras financeiras from mandatory eral measures to promote long term invest-
sumido) or “imposed profit regime” reserve requirements. ments in infrastructure. These measures en-
(lucro arbitrado); tax- exempted legal The letras financeiras were created tail the continuance of public investment and
entities; or legal entities subject to the by Provisional Measure No. 472, of De- financing related to infrastructure projects, as
Simplified Tax Payment System for cember 15, 2009 (“MP 472/09”), which well as the creation of a friendlier environ-
Small Businesses and Small Compa- was regulated in the following year by ment for the private sector to participate in
nies (Simples Nacional). Brazilian Monetary Council’s Resolution the long-term corporate debt market.

21. Deals Latin Infrastructure Quarterly 21
Enrico J. Bentivegna João Fernando A. Nascimento Ricardo Simões Russo
Telefone: +55 (11) 3247-8719 Telefone: +55 (11) 3247-8798 Telefone: +55 (11) 3247-8720
ebentivegna@pn.com.br jnascimento@pn.com.br rrusso@pn.com.br
São Paulo São Paulo São Paulo
Enrico J. Bentivegna has been a João Fernando A. Nascimento has Ricardo Simões Russo has been
member of the corporate area of been a member of the corporate a partner at Pinheiro Neto Advo-
Pinheiro Neto Advogados since area of Pinheiro Neto Advogados gados Corporate Area since 2009.
2000, and is based at the São since 2000, and is based at the He focuses his practice on financial
Paulo office. He practices in the São Paulo office. He practices in and banking law, foreign exchange,
areas of securitization of receiv- the areas of corporate finance, M&A and securities markets. Ri-
ables, investment funds, corpo- project finance, trade finance, debt cardo has a LL.B. degree from the
rate law, mergers and acquisitions, restructuring, regulation of finan- Catholic University of São Paulo
capital markets, and regulation cial institutions and banking prod- (1997). He also has a LL.M degree
of financial institutions, project fi- ucts, having graduated from the in Banking and Financial Law from
nance and PPPs (Public-Private Mackenzie University in 2002. He the Boston University School of
Partnerships). Having graduated worked as a foreign associate at Law (2002). Fluent in Portuguese,
from the University of São Paulo Hughes, Hubbard & Reed (Miami) English, Spanish and Italian, he
Law School (1996), he holds a in 2008-2009. He was admitted was a foreign associate of Cleary,
specialization course in Corpo- to the Brazilian Bar Association in Gottlieb, Steen & Hamilton in 2002
rate Law from the same University. 2002. and 2003. He was admitted to the
He worked as a foreign associate Brazilian Bar Association in 1998.
at Hunton & Williams (Miami) in
2004. He was admitted to the Bra-
zilian Bar Association in 1997.

22. 22 Latin Infrastructure Quarterly Companies
O
ur major customers are min-
ing companies that use the
terminal facilities to export
their different products, con-
sidering that the amount of cargo moved
through Matarani Port represents the 50%
Peru Port of Matarani
of their total cargo. Among them we can
name Sociedad Minera Cerro Verde Port
Free McMoran, Xstrata Copper, Compa-
nia de Minas Buenaventura, Glencore,
Ares and Suyamarca that belong to Ho-
schild group, and Minera Pampa de cobre
internacional
of Milpo Group. Copper concentrate, cop-
per cathodes and gold concentrate are the
main products which are shipped to ports
in Asia.
It is worth mentioning that Tisur is a
multi-purpose port due to the experience
at handling all types of cargo. The econo-
my of the region is growing significantly
and the road infrastructure is improving,
allowing the communication among other
towns and making new important projects
possible. Based on this, we can say Mata-
Terminal
rani is on its 25% capacity. As a result, a
very important growth will be seen in the
del sur following years, especially in container
cargo by decreasing the mining relative
weight in our operations.
In container cargo, our Customers are
Tecnológica de Alimentos S.A. – Tasa
and Pesquera Diamante which export
fishmeal to Asia. Consorcio Peru Murcia
and ALSUR S.A produce agro industrial
products that are shipped to The USA and
Spain, Inkabor S.AC distributes borate in
The USA and Europe.
How would you describe the state of
the economic infrastructure assets
bringing those products to the Port’s
facilities? (Roads, railroads, navigable
rivers (if any))
The Port of Matarani (the “Port”) is of great importance
Being a strategically multi-junction of
for the south region of Peru, who are the main clients of different roads and the southern rail road,
Terminal Internacional del Sur (“TISUR”), which are the among them the main road that connects
main products exported from its facilities and the main the country from south to north. Two
roads to the Peruvian highlands and con-
destinations of Peruvian production coming out of the necting with Bolivia and the central states
Port’s facilities? of the Brazilian amazon.
As regards air transport, Rodriguez
LIQ talks to Erick Hein Dupont,
Ballon International Airport in the city of
Arequipa is located 120 km from the port.
General Manager TISUR has held the concession since
1999, could you describe the invest-