CAF Readies $500M Infrastructure Fund for Uruguay

Development bank Corporacion Andina de Fomento is preparing a $500 million infrastructure investment fund in Uruguay following talks with the government and local pension companies, according to bank executives.

“We expect to have the fund structured with all of the necessary documentation by the middle of year,” Gladis Genua, the bank’s country manager for Uruguay, said in an interview Monday.

The fund will be structured as an investment trust, and could raise its first tranche of financing on the local capital market as early as this year through the sale of debt denominated in the local inflation-indexed currency unit, the UI, Genua said. The debt may carry tenures of as much as 25 years.

Its eventual market debut hinges on identifying eligible projects, she said.

The fund won’t bid directly for public works projects, rather it will finance investors that win government contracts, Genua said.

President Tabare Vazquez has pledged to invest more in public works amid a slowdown in growth. The International Monetary Fund expects the economy to expand 2.8 percent this year, after growing an average of 5.5 percent a year between 2010 and 2014.

Finance Minister Danilo Astori said Apr. 13 the administration will lean on private investment to complement the state’s limited resources. Astori has hinted in recent weeks that the government’s next five-year budget will address a fiscal deficit that stood at 3.3 percent of gross domestic product in January.

Pension Funds

That means Uruguay’s largest institutional investors -- four pension funds known as AFAPs -- will play a major role in financing upgrades to highways, railroads and ports. The AFAPs manage together about 245 billion pesos ($9.5 billion).

CAF, as the Caracas-based bank is known, wants to make it easier for the AFAPs to finance infrastructure by outsourcing project due diligence to the fund, which will hire the bank to identify and vet projects, said Omar Gonzalez, a senior executive at CAF’s office in Montevideo.

CAF also plans to lend as much as $50 million of its own money to the same projects that the fund invests in, he said.

“We’ve spoken with the AFAPs,” Gonzalez said in a telephone interview Monday. “We’ve shown them the idea. They seem interested.”

AFAPs will probably invest in the CAF-sponsored fund, Martin Rodriguez, who manages UYU23.2 billion at Integracion Afap, said in a telephone interview Friday.

’Funnel Financing’

“The idea is to funnel financing to infrastructure projects that the country needs to improve its competitiveness,” Juan Montero, who oversees UYU45.1 billion at Sura Afap, said in a telephone interview Friday from his office in Montevideo.

The lack of investment in transportation infrastructure could hinder the country’s ability to attract foreign investment in the medium term, the International Monetary Fund warned in a Mar. 26 report. In roads alone, Uruguay needs to invest about $2.5 billion to correct a spending backlog since 2000, according to a study published last November by local research group CEEIC.

The Vazquez administration is seeking bids from private-sector investors to refurbish a railroad line and two major highways under a public-private partnership law.

“What the government needs to do is provide a pipeline of projects to finance,” Ignacio Azpiroz, who oversees UYU40.5 billion in assets at Union Capital Afap, said in a telephone interview Friday.

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