Despite a weak start to 2018, project finance deals in Latin America showed a significant increase over the year compared with 2017 in volume and value. A majority of deals in 2018 were in the power sector, with oil and gas and transport not far behind. In a similar direction, the region’s market share has been increasing – in 2018, 19 per cent of the world’s project finance transactions were closed in Latin America.
Regional activity is expected to be sluggish for 2019 as a result of recent sovereign downgrades; eight countries in the region have negative outlooks and none have a positive outlook. Brazil and Colombia are expecting moderate growth, while Mexico, Peru and Chile expect decelerations. Political uncertainties will be a key theme in the region for 2019 with elections in important economies, including Brazil, Mexico, Colombia and Argentina likely to reshape the policy and economic outlook.
The first quarter of 2019 was marked by a decrease in volume and value of project finance deals. Analysts attribute some of this decrease to slowdowns in the large regional economies of Brazil and Mexico and lenders’ concerns over changes in policy across the region. Despite those initial weak numbers, the expectation for the energy sector in the region, which was the biggest driver of projects in 2018, is stable, strengthened by an increase in demand for electricity. Latin America's existing infrastructure gap across the energy, transportation, telecommunications and water/sanitation sectors throughout the region is widely recognised and continues to require financing resources that are beyond government budgets.
International commercial banks and investors are leading the infrastructure finance market in Latin America to participate in deals that in previous years were funded in a greater proportion by bonds and development financial institutions. The region is attracting capital seeking yield in riskier markets and is leveraging interest with many new North American, Asian and European players entering the market. Some of these investors who had initially set up shop in the US to focus on US projects have turned their attention to Latin America. As a result, analysts continue to expect heavy investment from abroad and an increase in alternative lending structures to address shortfalls arising from the public sector's inability to fund many of the ambitious increases in infrastructure spending announced throughout Latin America. As there is great demand from the governments of the region for investments of every type and as the number of international players increases, counsel in Latin America will continue to play a pivotal role for their clients in helping them navigate the complex legal landscapes across the region.
* The author would like to give credit to Costanza Garcia Laposse, who was a foreign associate from Galicia, for her help on this introduction. She is now on secondment at another firm in NY.
1] IJGlobal H1 2018 league table report, https://ijglobal.com/uploads/H1%202018%20League%20Tables%20-%20Project%20Finance.xlsx.