The political risk insurance and credit enhancement arm of the World Bank Group is providing support for an extended transportation project in the State of São Paulo that has a $300 million financing gap, according to a statement.
The São Paulo Sustainable Transport project, which started last year, was bid out to commercial banks after it was expanded, with the Multilateral Investment Guarantee Agency (MIGA) providing a credit enhancement instrument to Banco Santander on a $300 million loan, covering the risk of non-honoring of sovereign financial obligations for a term of 12 years, it said.
This approach resulted in a more efficient use of funds for São Paulo, as MIGA’s involvement resulted in a longer tenor and more competitive pricing for the commercial loan than otherwise would have been available, according to the statement.
The MIGA-backed and World Bank loans will finance the rehabilitation and upgrading of 650 kilometres of roads and the reconstruction of two bridges for inland waterway transport on the Tiete River. These improvements will reduce logistics costs to benefit local and regional industry. The state also expects the project to increase employment and wages across a wider geographic area.
The backing is in line with MIGA and the World Bank’s previous funding for this “milestone” project – last year, the World Bank and the State of São Paulo committed $300 million and $129 million to the project.
“This project shows the incredible potential of collaboration between the public and private sector to address the infrastructure gap that so many countries are facing around the world,” said Keiko Honda, MIGA’s executive vice president and chief executive officer. “I see this approach as ground-breaking and replicable in other states or countries with similar borrowing constraints and limited resources.”
“Santander is proud to participate in this project, together with World Bank and MIGA’s support, that will contribute to improving the State of Sao Paulo's transport and logistics efficiency, safety, and disaster risk management,” said Octaviano Couttolenc Mestre, global head of export & agency finance for Banco Santander.
“By leveraging the individual balance sheets of different institutions of the World Bank Group, we mobilized the resources to finance the entire project,” said Madelyn Antoncic, vice-president and treasurer of the World Bank.
“Our combined financial strength, technical expertise, and relationships with the private sector allow us to support projects of this magnitude and importance for the development of Brazil,” she added.