PANAMA CANAL EXPANSION NEXT STEPS PART II:

UNCLAS PANAMA 002375

SIPDIS

SIPDIS

FOR STATE WHA/CEN TELLO

E.O. 12958: N/A
TAGS: ECON EWWT FCSC PM
SUBJECT: PANAMA CANAL EXPANSION NEXT STEPS PART II:
FINANCING

REF: A. PANAMA 02066


B. PANAMA 02374


1. (U) SUMMARY. At a December 6, 2006 meeting with Panama
Canal Authority (ACP) Chief Financial Officer Jose Barrios
Ing told EmbOffs that he believes the ACP will need to raise
$2.5 billion in debt financing, not $2.3 billion as the ACP
originally estimated. Barrios also prefers to have the debt
financing be a bond offering with a ten to twenty year
maturity, instead of the eight year maturity which the GoP
and ACP have publicly discussed. The ACP will implements an
increased toll structure during the first quarter of 2007.
Part I (ref B) addresses the ACP's next steps on the
Project's contract bidding process. END SUMMARY.

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Financing
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2. (SBU) At a December 6, 2006 meeting, ACP CFO Barrios told
EmbOffs that he believes the ACP will need to raise $2.5
billion in debt financing, not $2.3 billion as the ACP
originally estimated. He said the overall project costs have
not changed. The balance of the Project cost will be
financed from the canal's toll revenues, which are scheduled
to be increased during the first quarter of 2007.


3. (SBU) Barrios prefers a bond offering with a ten to twenty
year maturity, instead of the eight year maturity which the
GoP and ACP had previously discussed. Barrios said he
believes the eight year maturity was meant to assuage the
public's concerns about increasing the national debt level by
promising a quick repayment of any indebtedness. Barrios
believes it makes no sense to issue medium term bonds which
will be collateralized by the cash flows of a long term
project.

4, (SBU) Barrios said he would like to see a small ($100 to
$200 million ) local bond offering so Panamanians feel they
are financially part of the expansion project. Barrios
believes that the local financial markets could not absorb
more than $200 million in bonds.


5. (SBU) Barrios said he has met with approximately 60 local
and foreign banks which have offered to finance the expansion
project. Despite his preference for a bond offering, Barrios
believes given the excess banking liquidity, a bank syndicate
could easily provide the required financing.

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Toll Increases in First Quarter 2007
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6. (U) Barrios said the ACP will implement its new increased
toll structure during the first quarter of 2007. The
magnitude of the toll increases have yet to be disclosed.

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Comment: GoP and ACP Off on the Left Foot?
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7. (U) The GOP and ACP delivered a hard sell to Panamanian
voters to secure approval of the October 22 referendum on the
Project. Promises of thousands of new jobs for Panamanians
and easy financing figured largely in the GoP's sales pitch.
Should it turn out that local firms garner little of the
expansion work and that the ACP starts out by incurring $200
million more in debt than originally projected, opposition
figures may well seize the opportunity to attack the GoP's
credibility. End Comment.
Arreaga