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Line 2 may use project bonds

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PFI Issue 500 – March 13, 2013

Financing for the US$5.2bn Line 2, an underground line going through metropolitan Lima, may include project bonds and pension funds as part of its US$5.3bn funding, said Conrad Falco, director of the economic commercial office of Peru in New York. The winning concessionaire could float project bonds that local pension funds, which have large amounts of money, could buy. But these funds could only control 20%–30% of the project, Falco told PFI on the sidelines of the CG/LA Global Infrastructure Leadership Forum in New York.

The government doesn’t want the pension funds to have a bigger stake than that. Instead, the project could get the rest of the funding from commercial banks, multilaterals and the government. The specifics will be worked out with the winning bidder.

Peruvian pension funds have vast holdings because “if you get a job in Peru, you can contribute to the private system”, Falco said. If someone starts at a job in Lima at 35 and invests in the pension fund, “you could put money in for 30 years”, he said.

These pension funds can get great returns, perhaps 40% over a three-year period, which makes them very popular. The pension funds are looking for long-term investments such as the train line in Lima.

ProInversión, the private investment promotion agency, is trying to develop the financing for Line 2. The costs for Line 2 will involve US$2.9bn for infrastructure and US$871m for rolling stock, with the remaining US$1.57bn to handle construction, expropriation and other necessities.
Alan Gersten
Latin America Reporter
Project Finance International
http://www.pfie.com
Reuters Professional Publishing
Thomson Reuters

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