Trusts and collateral in infrastructure project finance in Argentina
Article 2 minute read

Trusts and collateral in infrastructure project finance in Argentina

08 May 2018

There is a current need for the development of infrastructure projects that has foreign investors making their way to Argentina.

New laws and regulations in Argentina are making it easier to develop the much-needed infrastructure improvements. Under President Mauricio Macri, the country has looking to international and local investors for projects such as, renewable energy, thermal power, transportation, housing, telecommunication and flood risk management. The government has expressed their interest in developing projects for a total $69 billion through 2025. This would require private investments of approximately $30 billion. New regulations and laws have been passed to encourage development between the public and private sectors (PPP). The laws cover environmental controls and contractor responsibility for infrastructure projects bringing a beneficial partnership to both the public and private sectors.

While inflation is a concern, the president is looking to decrease the rate since having a high inflation rate doesn’t allow investors to think long term on a project.

Project agreement guarantees

A typical example of a structured finance project in Argentina could be the development of thermal power projects. Those projects are usually financed through an international bond or a syndicated loan whose repayment will happen after the construction is complete and come through the cash flow from the project. There are different guarantees granted in the agreements before and after the construction process that in case of default will ensure the continued development of the project through a trust or a collateral agency agreement.

For example, the issuer of an international bond can set up companies in Argentina to develop the projects locally and assign shares of the local company to the trustee as guarantee. The Trustee will receive dividends and have voting rights, in case default occurs. The issuer can also pledge the equipment or mortgage the power plant in favour of the collateral agent. In case of default, the trustee and collateral agent will foreclose the pledges, the mortgages, the shares, and any other guarantee involved in the project. In case default occurs during the construction period, the Trustee will appoint another developer to ensure the development of the project.

Having guarantees through a trust or collateral agency agreement will isolate the assets and risk. This makes it so that there is a better chance of getting money back from the assets.

Trustee and collateral agent in Argentina

TMF Trust Company (Argentina) S.A., member of TMF Group acts as trustee in Argentina and is regulated by the National Commission. They are qualified to be the collateral agent and trustee for transactions. In these types of transactions, the trustee becomes the owner of all the assets under the project, including the funds through the off-take agreements allowing for cash flow. No other creditor can attack the funds.

TMF Trust is very involved in all steps of the process since it is very important to have a qualified agent to protect the rights of the investors. 

TMF Group in Argentina has the local knowledge and expertise to guide you through the intricacies of doing business in Argentina. Talk to us.

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