Article by Mario Andrés Estupiñán Alvarado, CEO of Fiduoccidente
With a population close to 50 million, Colombia is Latin America’s fourth largest economy after Brazil, Mexico and Argentina. It has a GDP that has been growing steadily over the last decade, performing above the region’s average. Colombia’s infrastructure sector has an enormous potential thanks to the government’s ambitious plan to invest more than $100tn in schools, hospitals, roads, railways, aqueducts, maritime ports and airports through to 2035.
It is also the world’s second most biodiverse country and one of the few with both a Pacific and Atlantic coast, as well as a diverse and multicultural society.
The infrastructure sector in Colombia
Over the past five years, Colombia has taken huge steps in the development of its infrastructure. Excluding 2019, the country’s average GDP investment in the sector was 1.93%. In legal terms, few countries are as mature as Colombia. Our regulatory framework (Law 1882 of 2018 or “The Infrastructure Law”) among other things, defines the liability of developers, advisors and inspectors. It also standardises the conditions for state procurement through the incorporation of standard specifications, defines penalties for contractors and the voiding of contracts as a result of corruption, as well as the conditions to prepare the land required for infrastructure projects. Thanks to a mature public private partnership (PPP) model, Colombia is ranked top of the 2018 Infrascope Index, a tool that assesses the capacity of countries to carry out sustainable PPPs in infrastructure. Colombia is also well known for the strength of its institutions. For example, the National Infrastructure Agency is in charge of planning, coordinating, contracting, executing, managing, and assessing concession projects under the PPP model for the design, construction, maintenance, and operation of transport infrastructure. One of the key actors in these projects are the trust companies, who have a very big role to play, not only in the transport infrastructure sector, but in the country’s development as a whole.
At the end of September 2019, the fiduciary sector managed $153bn in trusts through 23,872 transactions, and $24bn in private equity funds and collective investment funds. These entities are becoming increasingly important in the management of funds in Colombia by offering a range of investment and management vehicles tailored to the needs of individuals and companies. Trusts have also become the reliable partners of state and private bodies in the execution of development national projects, such as fourth-generation highways. Trusts can play different roles in the infrastructure sector in particular:
- Asset management – Trust companies are responsible for constituting the stand-alone trust funds that will manage the project’s resources and the debt service. They keep control of the sources of funding contributed to the project (grantor, equity, loans etc.). They open the accounts and subaccounts defined in the concession agreement and in other contracts signed with the sponsors and the creditors. Trust companies ensure that the funds in every account and subaccount are used according to the concession and credit agreements, and they provide the project’s financial information and records to all interested parties (control agencies, supervisors, tax auditors, administrative and security agents).
- Project funding – Trusts are responsible for processing loans and acting as project account bank and collateral agent.
- Manager of private equity funds investing in infrastructure projects – In addition to playing an active role in the design, structuring and constitution of this kind of fund, trust companies manage resources efficiently and responsibly according to the manager’s instructions.
Fiduoccidente: experienced in infrastructure projects
With more than 28 years in the infrastructure field, international recognition and more than $10tn in managed assets in collective investment funds and trust businesses, Fiduoccidente has become a key player in Colombia’s infrastructure sector. The company has extensive experience in the management of funds for this kind of business, which reached around $1.8bn in September 2019. In addition, Fiduoccidente offers trust schemes to its clients which are specifically tailored to their needs, this includes: management of funds for highway, port and airport concessions; providing financial leveraging for infrastructure projects or construction contracts; management of self-financed or project finance projects; management and payment of liabilities (audit payments, management of advance payments, etc.) and the management of resources contributed by private equity funds investing in infrastructure projects.
Its proven track record has allowed Fiduoccidente to manage the funds for the construction of more than 1,500km of roads and highways, such as the street network of the Department of Meta, the BogotЗ-Girardot highway, the NiquТa-Hatovial highway and many of the major works executed in the municipality of Cali.
Similarly, it has considerable experience in securing finance from the stock market. Just recently, Fiduoccidente played a key role as management agent in securing $126m to finance the purchase of 440 new buses for Transmilenio, one of Colombia’s mass transport systems, which represented the largest issuance and placement of securities in the history of the country’s mass transport. The company is also well known for its technical, legal, operational and financial expertise in the management of concession assets.
Colombia’s stable economy, demand for infrastructure, robust legal environment and mature fiduciary market are all part of a highly favourable environment. And with the experience and knowhow that Fiduoccidente brings to the table, investors and developers can rest assured that the project management is in the best hands.