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The $87.5 million financing for the construction of three highways in Ecuador was significant for both its efficient nature and the continual flow of Chinese money into Latin America.
The funding, which was led by Bank of China branches in Panama and Hong Kong, along with Deutsche Bank’s Hong Kong branch, particularly stood out for being executed in less than three months.
The deal, closed at the end of March 2015, supports both the project owner - the Ministry of Transportation and Public Works of Ecuador - and the engineering-procurement-construction contractor, the China Civil Engineering Construction Corporation (CCECC).
The speed with which the deal was concluded was said to have allowed both the owner and contractor to enter a contract successfully and efficiently. The CCECC’s involvement was facilitated by the Chinese-led funding.
It also attracted the attention of Chinese trade credit insurer Sinosure, which provided an insurance policy covering political and commercial risks for the principal amount plus accrued risk with a 95% indemnity ratio for the export credit facility.
It is the third deal closed by Bank of China and the borrower, the Ministry of Finance for the Republic of Ecuador, demonstrating the eagerness of the Chinese bank to support both Chinese contractors and the Republic of Ecuador on mutually beneficial long-term projects.
Funding from overseas is becoming increasingly important to Ecuador, which has suffered a significant decline in oil prices and, subsequently, revenues. It has meant that the government is seeking record loans to maintain current spending on critical infrastructure such as the highways which Bank of China and Deutsche Bank have contributed towards.
With interest rates rising as the Ecuadorian economy struggles, the importance of Sinosure’s insurance is greater than ever, giving the Ministry of Finance the ability to repay the loan over a 13-year period and limiting the lenders’ risk and increasing their willingness to lend over an extended duration.
Amount (USD): $85.7 million
Tenor: 13 years
Financial close: March 2015
MLA(s): Bank of China (Panama Branch), Bank of China (Hong Kong Branch), Deutsche Bank (Hong Kong Branch) ECA(s): Sinosure
Borrower(s): Ministry of Finance of the Republic of Ecuador
Legal advisor(s): Ashurst