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Costa Rica: Revitalising project finance

Maria Jose Cole
The Costa Rican Securities Regulator (Superintendencia General de Valores or Sugeval), through the National Council for Supervision of the Financial System (Consejo Nacional de Supervisión del Sistema Financiero or Conassif), recently adopted amendments to the rules governing project finance and securitisation in Costa Rica.

The amendments make structural and operational reforms to address the concerns market participants have reiterated regarding limitations set out in the previous regulations, on topics such as asset collateral, related party financing and government approvals.

The new rules seek to address the various concerns, while preserving the benefits of these financial structures and creating a regulatory framework that provides clear rules for all participants involved, including the final investor. The rules also aim to create a more robust framework for the development of project finance structures and securitisation in the local market. Additionally, the new regulation includes several amendments to the rules governing the public offering of securities, risk management and mutual funds.

Project finance refers, primarily, to long-term financing of infrastructure and industrial projects. The financial structure is based on the projected cash flows of the project rather than the assets of its sponsors. The new rules make several reforms to address a more suitable regulation for infrastructure projects financed by public offerings and structured through special purpose vehicles, such as trusts or special purpose companies.

Securitisation is the financial practice of pooling various types of contractual debt and selling such debt as bonds or asset-backed securities to various investors. The rules set out the general conditions that must be met for securitisation processes financed by public offerings in the Costa Rican securities markets. The rules also include provisions governing the vehicles through which securitisation may be implemented, risk allocation and management, and special requirements for public offerings of securitised debt instruments.

By simplifying the regulations and creating general standards for project finance and securitisation processes, infrastructure projects may soon be looking for new financing alternatives in the Costa Rican financial and securities markets.

In an industry eager for simplification, the new approach may well serve to revitalise a portfolio of initiatives that have already been identified and are seeking over $6 billion in financing. Project finance has proven to promote innovative financial schemes that have been extremely successful, both at an international and regional level.

Maria Jose Cole

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