IFC Invests Big Money in Key Companies, Sectors In Colombia

A big chunk of the almost $4Bn now of annual capital inflows to Colombia comes from the International Finance Corporation (IFC), the World Bank’s private sector lending arm.  

IFC is a very sophisticated financial party, with significant market expertise in Latin America and the rest of the world, and tremendous resources for performing diligence.  For these reasons, an IFC investment shines a light on firms and projects which meet its high standards.  IFC activity in Colombia has increased very rapidly since 2004, and not only in one local sector but across a wide variety of industries.  IFC’s intensive activity in Colombia shows strong confidence in the country’s economy.   And, when the IFC invests, it is often not alone — many of its credit facilities included participating lenders.

So who are these companies, and what kinds of projects have been sustained by IFC investment?  How active is the IFC?  Overall, just the top ten IFC transactions from 2004 to present total a whopping US$1,172,500,000.  More than half of that amount was committed in finance and insurance, with Banco Davivienda the single biggest recipient overall (and in the top ten) at $320M.  (A chart ranking all the deals from largest to smallest follows, and more details about the transactions are available in our first post on IFC activity in Colombia.)   Other sectors in the top ten are Transportation and Warehousing ($160M), Utilities ($157.5M), Chemical ($100M), and Oil, Gas & Mining ($85M). 

Of all 35 IFC financing transactions in Colombia from 2004 to present, the two biggest years by far were 2007 and 2008.  Six deals occurred in 2009, for a total of $80.25M, ten in 2008 worth $415.5M (not including the unspecified amount of the Giros y Finanzas micro-lending loan facility), eleven in 2007 worth $655M (not including “up to $75M” invested in Grupo Bolivar common shares of equity to recapitalize its insurance group), four in 2006 worth $365M, three in 2005 totaling $140M (not including the Promigas loan facility), and one in 2004 (Carvajal’s transaction of unspecified size for plant modernization).

The biggest IFC-backed project in Colombia is, however, not (yet) listed among the IFC’s projects on its website.  The  Ruta del Sol, which we covered in an earlier post, is an infrastructure mega-project to build highways, viaducts, and tunnels connecting Bogota, at almost 10,000 feet elevation, with the northern coast and port cities.  It is said to be the largest in Latin America after the Panama Canal expansion.  The IFC is the financial adviser to the Ruta del Sol, which was recently let out for bid in three separate geographic phases.  The amount and extent of financing has not yet been set, nor have any bids been accepted (the bidding closes later this summer), but the IFC role in the Ruta del Sol  project will be significant.

The largest deal already placed is also the most unusual.  Corporate or project financing is the norm for IFC, even in the financial sector, but in 2007, IFC agreed to finance “the purchase of a portfolio of Non-Performing Loans (NPLs) and other Non-Performing Assets (NPAs), a majority of which were accumulated by the government of Colombia post the financial crisis of 1999.”  The IFC called it a “unique opportunity to participate in the first NPA deal of this scale being placed to international bidders in Colombia.  It also marks a turning point for the authorities as after this sale the government would have no further obligations pertaining to its intervention post financial crisis.”  IFC is providing both debt and equity financing to a local Colombian entity, Compania de Gerenciamiento de Activos Ltda. (CISA), created by a consortium including affiliates of the Capital Recovery Group of AIG Global Investment Corp., Covinoc S.A. and CarVal Investors, LLC.  IFC says that AIG Capital Recovery Group, on behalf of various American International Group, Inc. subsidiaries, has invested over $1.296M in non-performing loans through structures similar to that being proposed in Colombia.”  The deal structure is briefly described in the chart below.

The second largest deal provided financing for Banco Davivienda’s 2006 acquisition of Granbanco S.A., with $75M in equity and $125M of subordinated debt, of which $65M is for IFC’s own account.  In 2005, IFC also financed Banco Davivienda “to support the expansion and consolidation of the Bank’s operations in Colombia… to expand its retail business while maintaining a strong presence in the mortgage industry.”  The all-debt facility was comprised of  a Colombian peso subordinated loan of up to $60 million (with a conversion option to be negotiated), and a “senior loan comprised of an IFCA loan of up to $20 million and a parallel loan of up to $40 million for the account of participant banks.”

The third largest project is a $278.2 million gas turbine construction by Termoflores S.A. E.S.P. in which the IFC approved loans in 2008 of $65 million in an A Loan for IFC’s own account and $92.5 million in a B loan from participants.  The project will add a fourth turbine in a “combined cycle facility” designed to generate 169MW of new energy without significant additional gas using waste heat from two of the other turbines.

The fifth transaction, approved in 2007, provided $100M overall lending through a $60M A loan and $40M B loan to Org. Terpel S.A., or Terpel, the widely-recognized (in Colombia) fuel distribution company for capital expansion and recapitalization project costing $280M.

The sixth place deal, approved in 2006, furnished $85M to Petrotesting S.A., an oil and gas exploration, distribution services company.  The transaction involved both equity and debt in a project to “strengthen the company’s financial through adoption of best practice corporate systems (such as those related to governance, environmental, social, community programs and accounting).”

The seventh largest transaction was the 2007 $75M paid for equity shares in Grupo Bolivar to recapitalize holdings in insurance companies Sociedades Bolivar S.A., Compañía de Seguros Bolivar S.A., Seguros Comerciales Bolivar S.A. and Capitalizadora Bolivar S.A..

The eighth largest transaction was approved in 2008 for a $60M A Loan for IFC’s own account to Terminal de Contenedores Cartagena SA (Contecar).  The IFC’s funds finance part of a $210M four year capital expansion program to develop Contecar into a world class container port terminal.  The project will increase the port’s container volume capacity almost six-fold.

The ninth largest transaction, approved in 2008, provided Avianca with $50M to help finance the Brazililan owners of the Colombian national air carrier in the acquisition of a new fleet of Boeing and Airbus aircraft, as part of a continuing modernization program after emerging from bankruptcy.

The top ten rounds out with a $50M loan approved in 2007 for the Bogota federal district to finance construction of sidewalks and bike paths.   Bogota is home to the renowned “cyclovia” or “bike-way,” a visionary series of projects involving closing roads on Sundays to permit easy bike and pedestrian recreation across much of the city.

After the top ten are 25 more transactions.  This table sorts all 35 IFC transactions listed on its projects website by the size of the IFC investment (where ascertainable.  Some of the IFC’s project materials do not specify the transaction amount, such as a 2005 Promigas loan facility to fund an unstated portion of gas transmission and distribution projects totaling $319M, and the 2008 financing of Giros y Finanzas Compania de Financiamiento Comercial SA, for micro-financing to low-income households.)

IFC Loans and Transactions, Ranked By Size of IFC Investment, 2004 to present

Source Information: IFC Project Descriptions (see Project Search Page)