LRTA’s Canadian partner seeks $25-million bridge financing

Canadian firm SNC Lavalin International Inc. (SLII), the partner of the state-run Light Rail Transit Authority (LRTA) for the $865-million Cavite LRT 1 Extension, is looking for a $25-million bridge financing that would help jumpstart the project this year.

SLII is reportedly talking to a number of local banks to acquire $25 million as interim financing while it negotiates with a consortium of foreign banks to complete the fund requirements for the Cavite LRT project.

"By the time the senior financing comes in or the loan from foreign banks, SNC Lavalin would have the money to pay off the local component of the loan," a source from the Department of Finance (DOF) said.

The source however, could not name the local banks that are negotiating with SNC Lavalin.

"Since the financial closing for the foreign loans is not expected until the latter part of the year, SNC Lavalin wants to at least start the civil works so that it could meet its timetable," the source added.

The Canadian company has scheduled to complete the project by 2005.

Under the implementation agreement between SLII and LRTA signed last month, the financial closure between SLII and its lenders and investors is targeted to take place in the third quarter of 2002, and construction to start in the first quarter of 2003.

The total project cost of $865 million comprises both civil work and electromechanical systems costs. The $400-million civil works will be funded by loans to be sourced by SLII and upon completion, will be turned over by SLII to LRTA which in turn, will amortize the use of the civil works to the joint venture.

A unique feature of the implementation agreement is the risk-sharing agreed upon between the national government and SLII. As a rule, tariffs are fixed based on the formula in the agreement which essentially incorporates domestic inflation into the annually adjusted tariff.

The source explained that if foreign inflation and peso devaluation exceeds local inflation, it is the national government and SLII that will absorb the excess costs.

The arrangement requires SLII to take on the initial portion of an adjustment factor and the national government will take on the balance.

This arrangement benefits commuters who are protected from abnormal devaluations while retaining the viability of the project.

In consideration of national government’s foreign exchange support, LRTA and SLII will share 60 percent — 40 percent of the upside beyond 17.5 percent of SLII’s internal rate of return. The investment coordinating committee approved a SLII internal rate of return of 20 percent.