Lima underground project issues record bond

In the largest securitisation in Peruvian history, Lima Metro Line 2 raised $1.15 billion from North American, European and local investors last month.

Lima Metro Line 2 Finance Limited, the project company behind Peru's first underground subway line and one of the largest infrastructure projects currently under development in the world, late last month issued $1.15 billion in senior secured notes. 

According to Thomson-Reuters service IFR, the Consorcio Nuevo Metro de Lima (New Lima Metro Consortium) bond placement came with a yield of 5.875 percent. The yield was originally set at 6 percent but was lowered to meet demand when the placement became 2.2-times oversubscribed, according to a release from Agencia EFE.

Companies to participate in the issuance included Citigroup, Morgan Stanley and Santander. The majority of orders were placed by North American investors, with local and European investors following respectively.

Ratings agencies Standard & Poor's and Moody's both rated the bonds at BBB, and Fitch Ratings assigned a grade of Baa1. Led by partners based in Chicago, Madrid, Milan and New York, DLA Piper advised on the bond financing after having advising the winning consortium on its bid for the design, financing and construction of the project and the operation and maintenance of the subway line.

The Line 2 project is just one leg of the plan to build out a six-line metro system to connect suburban areas with the central commercial districts of Lima and Callao in a region with roughly 8 million residents. Line 2 will consist of 27 stops crossing 13 districts from the Ate district to Callao on a 27-kilometre underground route bordering the capital and intersecting with the existing Line 1 at Miguel Grau, the system's central station.

Once completed, an eight-kilometre section of Line 4 comprising eight stops will link with Line 2 and connect the metro system with Jorge Chavez International Airport. Line 2 will also connect with the future Line 3 once it is constructed. 

It is estimated that the subway line will cut commuting time down to 45 minutes from 2 hours for commuters who travel from end to end. Developers anticipate around 500,000 daily riders to utilise the line once completed, according to ProInversion, Peru's public-private partnership procurement agency.

According to the feasibility study conducted prior to procurement, total social benefit of the project – a measurement that attempts to account for projected travel time savings, cost savings, vehicle operation cost reductions and accident mitigation as well as other savings and pollution reduction – will be valued at US$2.242 million in 2020, $2.944 million in 2030, and $3.383 million in 2040.

The bond raise, which is the largest such endeavour in Peruvian financial history, will complement $750 million in loans approved by the Inter-American Development Bank (BID) in December 2014, as well as a $150 million loan announced by the Corporacion Andina de Fomento (CAF) development bank in December to support development of Line 2 and the underground segment of Line 4, which follows $300 million in loans previously issued by CAF to support the development of Line 1.

The consortium to win the bid for the project, Metro de Lima Linea 2, is comprised of Salini Impregilo, Iridium Concesiones de Infraestructruras Vialia Sociedad Gestora de Concesiones, SLU, Ansaldo STS, AnsaldoBreda, and COSAPI.

AnsaldoBreda is also the company that designed the driverless trains that will be used for the Line 2 project.