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Sacyr and Panama make peace at last

Sacyr and Panama make peace at last

Posted by Juan Gavasa on February 13, 2014

It has been a long process plenty of gives and takes but Spanish company Sacyr and Panama Canal authority have agreed in principle over works’ finalisation at the inland waterway that connects the Atlantic Ocean to the Pacific. The pre-deal is a cocktail mixing proposals of one side and the other: converting the $400 million insurance into a loan to enable the firm obtain external funds, and also an equally divided contribution of $100 million on each part. Furthermore, Panamanian administrator will allow GUPC to postpone the repayment of $780 million anticipated in the contract. The international arbitration on $1,600 million in overun costs will continue parallel to project’s termination.

In the end Panama Canal will have their third set of locks finished presumably by December 2015. Eight days after construction works were paralized, PCA’s head Jorge Quijano announced a principle of agreement, which combines proposals of both parts involved  in the dispute: co-financing and using the infrastructure’s guarantee to obtain external funds.

Even though deal’s terms have not been communicated officially, they will include the offer presented by Panamian authorities via Canal works’ insurer at Zürich, which considered the conversion of the $400 million deposit into a loan for the GUPC. This amount would be used to increase liquidity in order to terminate the project and would come with a $ 100 million contribution by each of the parties. This co-financing solution was made by Sacyr in due time. On the other hand, the PCA will also accept to extend for three years, to December 2018,  the repayment of $ 780 million the European consortium gave in advance to solve past liquidity crisis. Pre-deal terms would be deployed at the same time international arbitration body created when starting the works, the Dispute Adjudication Board, are taking a decision about who is responsible for the $1,600 million in overrun costs.

Nevertheless, Jorge Quijano, insisted that the PCA has an alternative plan to re-start the project on its own if the agreement will not consolidate by next Tuesday at the latest. One day before  pre-deal announcement, Panamanian authorities said they might contact with Italian Cimolai, the company which is making Canal’s locks-gates.

European leaders such as EC Industry Commissioner and Vice-President Antonio Tajani, who offered his help to mediate in the conflict, has welcomed this first sign of peace at Panama Canal. Also the Spanish Sacyr, that have seen their shares appreciated by 5% on Thursday. “ It is still very soon to calculate pre-deal impact on the construction company although market is already considering possibilities for the firm to disinvest, for example selling part of its subsidiary Testa or of its 9.5% stake in Repsol”, analysts at Madrid Renta 4 commented.

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