Panama Canal Authority signs loan agreement with international banks to finance canal expansion

(Panama City, December 9, 2008).– With Panamanian President Martín Torrijos as a witness of honor, the Panama Canal Authority (ACP) signed Tuesday a loan agreement for US$2.30 billion with senior directors of five multilateral and bilateral banks for financing the Canal Expansion Program.

The signing, which took place during a ceremony in the Auditorium of the ACP Ascanio Arosemena Training Center, ended several months of negotiations between the Canal and banking institutions of Europe, Asia, Latin America and the United States.

The loan agreement is with the following banks:

• European Investment Bank (EIB)
• Inter-American Development Bank (IDB)
• International Finance Corporation (IFC)
• Andean Development Corporation (CAF)
• Japan Bank for International Cooperation (JBIC)

The participants in the signing were: ACP administrator Alberto German Zubieta; director of the Asian and Latin American Department of EIB, Francis of Paula Coelho; IDB President Luis Alberto Moreno; managing director of the World Bank, representing the IFC, Juan José Daboub; CAF Executive President & CEO Enrique García; and JBIC Vice President Yoshiko Morita.

President Torrijos signed as a witness of honor in the presence of members of the cabinet and the ACP Board of Directors, headed by Dani Kuzniecky, Minister for Canal Affairs. The guests included the Secretary General of the Organization of American States (OAS), José Miguel Insulza.

"Expansion of the Canal has become an emblematic project and an example of what a nation can achieve to serve its people and the world", the president said.

Canal Administrator Alemán Zubieta said, "the positive results of the contracting relate to the efficiency and transparency with which we Panamanians decided the Canal should be administered." "Today a new stage in the history of the Canal begins which poses significant new challenges for our institution. We will work so that every Panamanian, present and future generations, feels the benefits that the Canal brings to our country.”

The agreement covers the following amounts: European Investment Bank (EIB) $500 million Japan Bank for International Cooperation (JBIC) $800 million Inter-American Development Bank (IDB) $400 million International Financial Corporation (IFC) $300 million Andean Development Corporation (CAF) $300 million Total: $2.30 billion

The IDB president, on behalf of the signatory institutions, said the agreement "is a milestone which is assuming greater importance" in view of current conditions on financial markets stemming from the international situation.

The structure of the financing is on terms favorable to ACP: 20 year term, with 10 years of grace.

The finance is granted without guarantee or backing by the Panamanian State, and is not tied to commitments to purchase goods and services from any particular source. The creditors will not be involved in the management or operation of the Canal, and the loan will not affect the Canal’s contributions to the National Treasury, in accordance with Law 28 of 2006.

As a result of the management model which Panamanians chose for the Canal and its good management, last September ACP obtained from the prestigious agency Moody's the A1 rating as a government-associated body, and the A2 investment-grade prospective rating, above the country rating ceiling A3, based on the dynamic development of the country. This excellent rating was the basis for the better conditions of this partial financing of expansion plan.

The loan will cover a portion of the estimated cost of US$5.25 billion for the project; the rest will come from the Canal’s operating income.

Details of the financing of the Panama Canal expansion plan

Since July 2007 the Panama Canal Authority (ACP), with support from its financial adviser Mizuho Corporate Bank and its legal advisor Shearman & Sterling, had been meeting financial institutions to analyze and define the most viable options for financing the Expansion Program. The process began in Panama and included presentations to various institutions in New York, Washington, Hong Kong. and London.

As a result, five multilateral and bilateral banks in Europe, Asia, Latin America and the United States offered to finance the expansion. After several months of negotiations, they agreed on broadly favorable terms for the Canal and execution of the project.

The operation was approved last October by the Panamanian cabinet, which authorized ACP to contract the required funding of US$2.30 billion from the banks for the amounts indicated:

The terms of the finance are significantly favorable:

• Finance is granted without guarantee or backing from the Panamanian State, which means, as proposed in the expansion plan, the loan will not be part of the public debt.
• Financing is not subject to commitments to purchase goods and/or services from any source in particular.
• Creditors will not intervene in the administration or operation of the Canal.
• Financing will not affect contributions to the National Treasury in accordance with Law 28 of 2006.
• The term of the loan will be 20 years with a 10 year grace period.

The finance will cover a portion of the estimated cost of US$5.25 billion of the project; the rest will come from Canal operating income.