In the midst of the most ambitious concession programme in Colombian history (4G), the country is suffering a backlash from the most profound corruption scandal in the region.
Odebrecht officials have confessed before US and Colombian authorities that they bribed government officials in order to be awarded one of the largest of the country's toll road projects: Ruta del Sol, Sector II. This would render the relevant concession agreement null and void, and poses huge challenges to the country´s project financing landscape, because: (i) there is no termination payment formula in concession agreements for these situations; (ii) local banks are highly exposed to this project; (iii) the other project´s sponsors are heavyweight infrastructure developers in Colombia; and, (iv) every 4G programme stakeholder is closely monitoring how this matter will be resolved.
Considering what was at stake, various Colombian government institutions and the other sponsors reacted swiftly and smartly. The Attorney General's office commenced a criminal prosecution against the individuals involved. The Inspector General's office filed an action for the protection of the affected collective rights. The administrative tribunal ordered certain precautionary measures, and the Superintendence of Industries and Commerce, based on the disruption of the free market, ordered the government to immediately terminate the concession agreement. Consequently, parties recently executed an agreement by means of which they (i) terminated the concession agreement; (ii) established a procedure to repay outstanding debt; and, (iii) defined a tailor-made formula, that would result in a termination payment of around $1 billion.
Regarding the procedure, the plan is to use the monies already deposited in the project trust ($500 million) to pay labour and general providers ($30 million) and make a partial pre-payment as an advance to the project lenders ($470 million). The balance of the loans ($300 million) will be paid by the government in several annual installments, once budgetary allocations are made. The remaining amount ($200 million) will be held in escrow to secure the payment of potential damages caused to the government.
Although the foregoing is good news and sends a solid message to the market of protecting lenders' rights in the most extreme situations, there are some questions that remain unanswered. Who will approve the agreed formula and when will it happen? Who will assume the difference between the interest rates on loans and the consumer price index as regards the termination payment? What are the potential implications of a judicial declaration of nullity of the concession agreement to the debt service future payments? Is new legislation necessary to provide a formula applicable to nullity? Should the lenders request further adjustments to loan documentation?
Time will tell how this will play out; for now, market players are on top of the daily evolution of the matter.
|Carlos Fradique-Méndez and César Rodríguez|
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