On the right track

If you think your morning commute is ruining your life, perhaps you should take a look at what inhabitants of Lima have to face every day. If you were living in the eastern quarters of Peru’s capital and working in the west, for example, your journey would involve up to two hours and 20 minutes of jostling with fellow drivers in the city’s notorious traffic jams (and then there’s the return journey).

But Lima’s unlucky commuters are finally seeing light at the end of the tunnel. In April, Spanish developers ACS and FCC were awarded a $5.7 billion contract to design, finance, build, operate and maintain two new lines of the city’s metro. The upgraded network, which will serve around 2.4 million users, is expected to cut the east-west total journey time by 90 minutes.

The project is one of the most ambitious public-private partnerships (PPPs) the country has ever seen: it includes the construction of 35 new underground subway stations, joined by 35 kilometres of freshly dug tunnels. Line 2, the new east-west axis, will carry up to 600,000 people daily; Line 4 will connect the Peruvian capital with its main airport.

This is good news for Spanish developers, which are looking to increase exposure to Latin America amid sluggishness in their home markets. But it’s also a sign that Peru’s infrastructure pipeline is gaining traction. The metro deal comes after breakthroughs for two other major projects: Port of Paita, which became the first Latin American port to issue project bonds when it collected $110 million in 2012, and Eten’s thermal generation plant, which raised $133 million through secure notes last December.

There could be more to come. ProInversion, Peru’s private investment promotion agency, has identified a pipeline of projects worth $12 billion for 2014 to 2015 (almost half of which was accounted for by the metro upgrade). The organisation said in November that it would launch 37 projects as PPPs over the period, including nine road and rail projects, eight energy initiatives, as well as projects in the tourism, healthcare, and rehabilitation sectors.

Peru, Latin America’s sixth-largest economy, is seen by observers as one of the continent’s most promising PPP markets. “Peru has the strongest track record in the region in executing infrastructure investments in recent years,” says Fitch, the rating agency, in a study released in April. The reasons are clear: a strong legal framework, comprising a fairly comprehensive PPP law, has allowed projects to seek financing from banks and via capital market issuances.

The month of April saw the advent of another landmark financing deal, when Lima-based Abengoa Transmision Sur (ATS) issued a $432 million senior secured project bond for a power transmission line between the capital and south-western Peru. The instrument was the largest dollar-denominated project bond ever issued for a Peruvian project, as well as the first Latin American project bond to be issued with a 29-year tenure.

“Assuming the capital markets hold up, we think this is the start of many more, particularly from Latin America,” commented David Bakst of law firm Mayer Brown upon completion of the transaction.

Fitch cautions that not all slated projects are likely to be completed. Some initiatives will stall at the Request for Qualification stage because the cost-benefit analysis doesn’t stack up or interested parties can’t agree; others will be mothballed due to shifting government priorities. But the agency is confident the largest ones will be executed in a climate supported by “a strong pipeline of projects, Peru’s macroeconomic stability prospect and growing investor interest.”

Lima’s stranded commuters will clearly be hoping time proves the agency right.