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. -------------- Financing -------------- ¶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. -------------- Toll Increases in First Quarter 2007 -------------- ¶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. -------------- Comment: GoP and ACP Off on the Left Foot? -------------- ¶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