Panama Canal Agency Settles With Sacyr Group on Expansion

The Panama Canal Authority agreed with a group of builders led by Sacyr SA on a deal to end a two-month dispute over expansion of the waterway, as the Spanish company took a charge for projected losses that may emerge.

The canal authority and the GUPC group of companies reached a “conceptual” agreement, both parties said in separate statements. The accord will help “jump start” expansion work and will be signed March 6, Jorge Quijano, the waterway’s chief administrator, said today in a conference call with reporters.

Presenting 2013 earnings today, Sacyr said it took a “conservative” provision connected to the project, which reduced earnings before interest, taxes, depreciation and amortization by 182 million euros ($251 million). Its shares fell 3.9 percent in Madrid.

Sacyr and its partners had been in talks since the start of the year over the project to build a new set of locks, which would allow the canal to accommodate larger ships and help reduce transport costs for commodities such as liquefied natural gas. As part of the agreement, the locks must be completed by December 2015, a year later than the initial target. The original date was originally set to coincide with the centennial of the waterway, which links the Atlantic and Pacific Oceans.

Under the agreement, which still needs to be signed, the canal authority and GUPC will each provide $100 million to enable work to resume at its normal pace. The canal won’t pay the companies’ claims for cost overruns, while it may extend a moratorium for the repayment of advances until 2018.

Two Sides

The two sides reached an outline deal on Feb. 12 to end the dispute over $1.6 billion of extra costs, even as the canal authority said it continued to explore alternatives to getting expansion work finished. Madrid-based Sacyr had threatened to suspend the project if the group’s demands weren’t met.

A set of lock gates that’s now in Italy must be delivered to Panama by December, the authority said in the statement. A $400 million bond may be released to insurer Zurich North America to obtain financing to complete the work, the authority said, without giving more details.

Sacyr reported a net loss of 496 million euros for 2013, compared with a 120.5 million-euro average profit in six analyst estimates compiled by Bloomberg. The expected provision for the Panama project could be reduced depending on the outcome of the arbitration of the cost overrun, company officials said on today’s conference call.

Pablo Ortiz de Juan, an analyst at Interdin Research in Madrid, attributed the share decline in part to investors being surprised by the charge. “The provision was greater than the market expected,” he wrote in an e-mail.

Indebted Spanish builders are increasingly reliant on foreign projects amid public-works spending cuts and a real-estate market struggling to absorb surplus homes. More than half of Sacyr’s revenue came from foreign markets in 2013.

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