WASHINGTON, D.C. – Darby Overseas Investments recently invested in two Latin American infrastructure projects – one in Mexico, the other in Columbia – through its Darby Latin American Mezzanine Fund (DLAMF).
The first of these two is a water concessionaire project. The firm committed a total of $60 million to Tratamiento de Agua de Puebla SA (TAPSA) for the construction and operation of four water treatment plants in the Mexican city of Pueblo de Mexico. Construction already has begun on the project. As part of the North American Free Trade Agreement, the Mexican government has agreed to provide potable water for all municipalities of more than 50,000 people.
Darby provided $10 million in mezzanine financing, said Robert Graffam, Darby’s managing partner with lead responsibility for the DLAMF. Banobras, Mexico’s infrastructure bank, provided the senior debt, and Degremont, a wholly-owned subsidiary of French company Suez Lyonnaise des Eaux Group, provided the equity. Other sponsors were FINFRA, a Mexican government funded trust designed to support infrastructure projects at the municipal level, and Tribasa, a major Mexican construction company.
“Banobras is providing the liquidity facility,” he said, meaning lenders can draw upon [Banobras] if TAPSA does not honor the conditions of the contract.
“This is a big breakthrough,” he added, in terms of private equity investing in Latin America. “It reduces the risk of investing. Municipalities run large deficits with no track records of credit-worthiness [in Latin America]. Normally there’s very little credit-worthiness at the sub-sovereign level. This reduces exposure.”
Puebla will be among the first developed under a new financing plan that is likely to be extended to other cities, Graffam said. TAPSA has entered into a 20-year agreement with Puebla’s water utility company, Sistema Operador de los Servicios de Agua Potable y Alcantarillado.
In the second deal, signed in late December, Darby committed $15 million to Avantel, a wireless cellular operator in Bogota, Columbia, which has a nationwide operating license. The principle stockholders of Avantel are Motorola and El Tempo Group, a local news organization.
Graffam said there are three other potential investors, but added that it was too soon to identify them.
Avantel, he added, is raising money to expand within Columbia. “The company has only been operating for two years, but already has an established track record. Despite Columbia’s [current economic problems], and the country’s obvious political problems, the company has experienced good growth. This means there’s an appeal for the product despite the adverse environment,” he said.
Graffam concluded that both of these investments adhere to DLAMF’s stated strategy of investing in infrastructure throughout Latin America in four key areas: water, telecommunications, transportation and power.
Darby created DLAMF last spring as a response to the need for innovative financing in the face of increased regional competition, as well as to the emerging markets crisis that has unfolded over the last two years. The fund provides long-term subordinated loans with maturities as long as 12 years. The firm has raised $225 million of its $500 million target in a first closing last June.
Darby signed its first mezzanine deal in October in conjunction with the International Finance Corp. for the Argentine toll road operator and construction company Concesiones y Contrucciones de Infraestructurax SA.