Co-published project finance guide: Dominican Republic


constrained in their ability to lend large amounts to a single borrower or economic group due to regulatory restrictions affecting solvency ratios. However, we have noted that most


commercial banks in the DR are currently flush with deposits. This is backed up by very recent declarations issued by IMF representatives, where they have praised the capitalisation of the DR banking system. It is expected that we will see a climb in


local finance interest rates, as well as possibly a downgrade on the many loan portfolios of banks as a result of how the middle and lower economic classes end up being affected by the looming fiscal measures that are being implemented in the DR. As a result, it is reasonable to believe that many of the deposits that banks are currently holding are more likely to be allocated in pursuing larger project finance deals, where they place larger amounts of credit at reasonable returns on investments in an effort to subsidise the diminishing local loans.


IFLR: Are project bonds being explored as a possible alternative to bank finance? Over the past 12 months we have seen a few bond projects that have been either explored or placed for important infrastructure related projects. Most notably, Aeropuertos Dominicanos Siglo XXI (AERODOM) just placed a $500 million issuance used to cancel existing financing principally relating to the acquisition of the company five years ago. In most cases however the bond placements have been analysed as mechanisms to free up corporate restrictions that bank finances generally impose. As to local issuances, the securities market still has not obtained the necessary maturity to compel enough local corporations to pursue this type of financing. However, the DR government has been quite active in local bond placements for specific financing of infrastructure projects, making it the largest issuer in the country. Yet we have noted that due to country


risk considerations as well as recent precedents of issuances that have gone into default, pricing on bond placements is a difficult issue for many potential issuers. Once some of the defaulted issuances are resolved we expect the market to permit some of the more prominent corporations to consider bond issuances as alternatives to local financing, especially as a result of probable increases in interest rates.


IFLR: How successful has the government been in encouraging an IPP industry? Power production is currently one of the


72 IFLR/December/January 2013 Author biographies


Ernesto Bournigal Read OMG


Ernesto is a senior director in the firm's finance department. He graduated cum laude from Universidad Iberoamericana, Santo Domingo, Dominican Republic in 2003. Has an LLM degree in Banking and Financial Law with dual concentration in International Banking Regulation and Lending Transactions from Boston University, Massachusetts (2005). He specialises in financial, banking, administrative, corporate, and international financial law. He has served as a professor at the Universidad


Iberoamericana teaching Financial Law. He is fluent in English and Spanish.


Ingrid María Jesús Rodríguez OMG


Ingrid is a consultant in the firm's finance department. She graduated from Pontificia Universidad Católica Madre y Maestra in Santiago, Dominican Republic, in 2010. She obtained an LLM degree from Universidad Carlos III, Madrid, Spain in 2011. She completed a postgraduate programme on International Business Treaties and Corporate Law at Boston University’s Summer Legal Institute in London, England. She has participated in various seminars on constitutional, business,


commercial, real-estate, maritime, intellectual property and telecommunications law. She specialises in business and corporate law. She is fluent in Spanish, English and French.


most difficult industries for financing in the DR, due to the government currently being indebted by over $600million (as of October 2012) with power producers. This debt certainly affects revenues for all power generation facilities that are connected to the national power grid, which supplies the currently state-owned electric distribution companies. Although the DR does not have any


legislation regarding guarantees by the government (aside from constitutional considerations), nor a programme designed to secure debt service in any particular industry, we have seen and participated in past negotiations with the Dominican government where it has been willing to guarantee a certain indebtedness of public concessionaires as necessary for the financing of such projects. In addition it is very typical in contracts relating to public utilities, as well as many take or pay type contracts, to include covenants for insuring economic equilibrium throughout a project.


IFLR: Can you describe the risk allocations typically seen in projects today? The structuring of project finance type deals in the DR does not differ greatly from other jurisdictions. The main objective is to correctly allocate the risks amongst the parties with adequate credit capacity


involved in the project and that will assume liability, provided that those parties have enough prevention strategies, control and influence over the risk or its outcome. The challenge in project financing is to convert risks into usable, separable and transferable risks, so neutralising their impact on the participant’s liability and especially on the project development. Typically, in the DR, as in most jurisdictions, the risks are shifted in various phases of the project. These risks can be grouped into structuring risks, construction and completion risks, start-up risks and operating risks. • During the structuring phase, risks are allocated to the project sponsor and the development lenders, where the most common contingencies are highly sensitive issues such as governmental approvals and community and third party oppositions to the project.


• Once all approvals are in place (from project sponsors and construction lenders) the construction risks are dealt with by taking the necessary precautions to mitigate against events such as those affecting the construction costs (which if not properly addressed may cause significant losses): price changes caused by currency exchange inflation or fluctuation, interest rates, delays, environmental


risks, legislative applicable modifications, social risks, www.iflr.com


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19