News Center

There still isn't money for the bullet train
La Nacion
July 07, 2008

They haven't yet resolved the finance contracts between the State and the French bank, Natixis

The high-speed train, the government's biggest public works project and perhaps the most controversial, has not moved forward in the past few months. It so happens that it still hasn't closed the finance scheme that is brining the necessary funding to the project.

Various sources close to the project, one of them official, admitted that still everything is waiting on the writing up of the contracts between the State and the French bank, Natixis. "There is nothing to this," an official that knows about the financial questions around the project said to LA NACION.

Beyond the concise explanation by the official, other private sources that are very close to the project were deluded with the possibility that the funding for the project would be worked out in a few days. "We believe that it's very close to contracts being signed on financing and emitting the bond. We are anxiously awaiting that it be so, because it's like having a Formula 1 car revving and not being able to speed off," one of the businessmen graphically said.

The financial question is a little less than essential for the project to formally begin to come together, as all of the adjudication contracts have been signed and announced in which the concession was given to the consortium formed by Alstom of France, Isolux of Spain and the local firms Iecsa and Emepa they have a suspended and contingent condition: waiting on the signing of the financing plan.

Said another way: none of this is in effect while there is nothing agreed on financing the project. The plan calls for the emission of a state bond that would have a sole subscriber: the Natixis bank.

Thinking of the bondholders

"The bank will buy all of the bonds, which in this first stage are for an amoung of 400 million. Then they would sell them to interested private investors. It's to say there would not be a public offering of these papers," said one of the professionals that have close knowledge of the operation.

The reason there will be no public offering is very simple: if that occurs, the bondholders that are still in default could appropriate them to collect on their unpaid debts.

The doubts in respect to the short letter of the bond continue to persist. Neither the government nor the private players have declared the final terms. "There are things that are deservedly confidential with this type of negotiation. What we can say is that there will be no default insurance as has been said and that the cut rate will be in similar ranges to what is seen in other bonds on the market. The Discount bond, for example," the same source said.

According to his explanation, the sovereign paper would have a base rate plus a differential that will not be the country-risk. "That index is made up with papers that are in circulation. What will be used will be the CDS (credit default swaps)," he said.

This CDS tool, highly used around the world, is a measuring window through which one sees how the market looks at the probability of a failure of payments on various amounts.

If someone wants to invest in a title and protect themselves against the risk of non-compliance, they could acquire insurance through this market, buying an option to sell the instrument to a third party if there is a non-compliance in payment. The differential of the CDS is the price (or effective prime) of that insurance. In the midst of the political crisis from the fight with the farm sector, the CDS has shot up.

"There is nothing rare in this, it's a transparent operation that, also, will move toward a kind of financing that the country doesn't have due to the default that it still has with the Paris Club," another source said.

Once the bond is emitted and the money comes in to pay the 400 million that the project is expected to need for this year, then they'll be able to go back to putting the work into place that is worked out in detail and carry it forth.

"Then the fine plan will begin to be made. For now everything is general," one source said, always saying that they couldn't give their names.

Beyond the funds that aren't there, something does appear to be worked out: the line. According to the first blueprints, the train will run on the Ferrocarril Mitre lines. But this is a change. Now it will go to Rosario through the Belgrano Norte corridor, and from there to Cordoba, through the passage that crosses the Mitre.

Another of the doubts that appears to be cleared up has to do with Villa 31. There had been some who said that, as the State has the obligation to deliver available land, before beginning work they'd have to tear down much of the town that surrounds Retiro. "It's not like that. There is not going to be any need to relocate the town," said one of the sources that is familiar with the public work.