FERRERE (Uruguay) has helped Uruguayan engineer Grinor sign an agreement with Canelones municipality for road reconstruction works; requiring the parties to develop a financing model to reduce investor risk in the project.
The value of the deal was kept confidential. Canelones municipal government relied on in-house counsel for the deal.
FERRERE designed a method of financing Grinor’s work through the capital markets in a manner that means investors financing the Saceem subsidiary by acquiring debt and participation certificates are guaranteed a full return on their investment. “In order to be able to get funding from pension funds, we needed to create a structure where the investors were not taking on construction risk,” explains FERRERE partner Diego Rodríguez. Under the construction agreement, Grinor will invoice the municipality each month for works completed for a 20-year period. In turn, Canelones will pay for the works by issuing receivables to Grinor. The structure is designed to persuade cautious pension funds to invest in the project and is the first time such a model has been used in public works construction projects. “No matter what happens to the project, investors can be certain that they will receive repayment in 20 years,” explains Rodríguez, who predicts the arrangement will be used to fund future infrastructure public private partnerships.