Panama finalises $2.3bn Canal expansion financing

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Panama has calmed fears over the effects the global financial crisis will have on the expansion plans for the Panama Canal by tying in five major multilateral agencies from Europe, Asia and Latin America to handle the $2.3bn needed for the next stage of expansion.

Panamanian President Martín Torrijos announced the final financing structure which comes after months of extensive negotiations.

Under the terms of the $2.3 billion financing package, which will cover a portion of the $5.25 billion total cost of the project, the European Investment Bank (EIB) will offer $500m; the Japan Bank for International Cooperation (JBIC) $800m; the Inter-American Development Bank (IDB) $400m; while the International Finance Corporation (IFC) and the Corporación Andina de Fomento (CAF) will each put forward $300m.

The negotiated financing structure includes favourable provisions for the ACP including a 20-year amortizing period with a 10-year grace period.

Panamanian President Martín Torrijos said: “The history of the Canal has been marked by different milestones. We, as Panamanians, thought that expanding the Canal was imperative. Today, this is a reality. The ACP has approved the financing for the Expansion Program and it has the resources it needs. The Canal is again a matter of pride for all of us, it is the object of immense satisfaction for the entire nation – that in the midst of global uncertainty, multilateral agencies have reinforced their confidence in Panama. This is the voice of the international community expressing solid support for a Panamanian project that will serve world commerce and international trade.”
ACP Administrator and CEO Alberto Alemán Zubieta, added: “We, at the Canal, have thoroughly analysed all our options and are confident that this package will provide the financial backing the ACP needs for the Expansion Programme.”

The remaining amount needed for the project will be financed through Canal-generated cash flow.

Since July 2007, the ACP has been approaching financial institutions to determine the most viable financing for the waterway’s Expansion Programme. The process began in Panama and continued with presentations to a number of financial institutions in New York, Washington, Hong Kong and London.

Recently, the ACP received its first-ever prospective investment grade rating. Moody’s Investors Services, one of the world’s top credit rating agencies, gave the ACP an A1 as a government-related issuer, and a prospective A2 investment grade for the possible $2.3 billion financing for the expansion project.

Since the handover of the Canal from the US to Panama on December 31, 1999, the ACP has shifted its operations from a not-for-profit utility to a market-oriented business model – one that is focused on customer service and reliability. Under ACP management, there has been a significant reduction in the time it takes to transit the Canal, an increase in tonnage transiting the waterway and a spike in transits of Panamax-size vessels.