Financial close for Peruvian fibre-optic project

Red Dorsal, the first-ever national fibre-optic network to be built in the country, has raised $274m through an innovative financing structure.

Financial close has been reached for the Red Dorsal Nacional de Fibra Optica, a fibre optic network under construction that will span 13,400 kilometres connecting over 90 percent of Peru’s municipalities.

“This project was of particular importance to the current administration, because it is probably one of the only projects at the moment that benefits the entire country,” said Gianluca Bacchiocchi, finance partner at Clifford Chance who along with Jonathan Zonis, led the team advising BESI – Grupo Novo Banco and Credit Suisse on a $273.7 million financing for the project.

Broadband infrastructure in Peru was until now largely concentrated in Lima and the coastal region, with other parts of the country lacking access to high-speed data services. The project aims to make broadband more accessible to remote regions while locking in rates that are just 25 percent of current prices for telecoms providers for the next seven years. 

But it is also breaking grounds through its innovative financing structure, which was devised with two streams of payments in mind: RPMOs, which pay for the operation and maintenance of the project, and RPIs, which pay for the construction. The bond issued finances the RPIs.

Clifford Chance used a variable funding note structure, through which investors don’t fund 100 percent of the bond proceeds at closing. “They fund a part of it at closing but then they commit to fund the remainder over six additional advances which helps to reduce the negative carry,” Bacchiocchi explained.

While this is not the first time a variable funding note structure has been used for a transaction in Peru, it is the first US dollar-based one – which helped attract a “significant” number of US investors, Bacchiocchi said without disclosing what percentage of the overall pool of participating institutions they represented. 

Another innovative aspect of the transaction is that the project will be delivered in six distinct, independent stages. Therefore, if any one delivery is not made on time, a ‘mini-redemption’ can be made to bondholders to protect them from that particular delivery.

“Unlike some other transactions that are very binary – you either complete it or you don’t – having these independent deliveries allowed us to create a very unique structure that has never been done before using partial commitment termination events,” Bacchiocchi noted.

Peru awarded the 20-year concession to build and operate the fibre optic network to TV Azteca and Tendai, both owned by Mexican conglomerate Salinas Group, in December 2013. TV Azteca, which is one of the two largest producers of Spanish-language TV programming in the world, is also building a fibre optic network in Colombia, the largest in South America.