Panama Canal Authority Reaches Deal With Sacyr on Expansion

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February 28, 2014

Image courtesy Panama Canal Authority

Feb. 28 (Bloomberg) — The Panama Canal Authority agreed with a group of builders led by Sacyr SA on a deal to end a two- month dispute over expansion of the waterway, setting a deadline for the work to be finished by the end of next year.

The canal authority reached a “conceptual” agreement with the consortium, it said in an e-mailed statement late yesterday in Panama. Sacyr shares rose as much as 2.9 percent in Madrid.

Sacyr and its partners had been in talks since the start of the year over the project to build a new set of locks, which would allow the canal to accommodate larger ships and help reduce transport costs for commodities such as liquefied natural gas. As part of the agreement, the locks must be completed by December 2015, a year later than the initial target, which was originally set to coincide with the centennial of the waterway, which links the Atlantic and Pacific Oceans.

A spokeswoman for Sacyr confirmed today by phone that the Panama Canal Authority’s statement is accurate. In a regulatory filing today, the building group, known as GUPC, said it expected to finalize the agreement and financing soon in order to finish the work.

Awaiting Signature

Under the agreement, which still needs to be signed, the canal authority and GUPC will each provide $100 million to enable work to resume at its normal pace. The canal won’t pay the companies’ claims for cost overruns, while it may extend a moratorium for the repayment of advances until 2018,

The two sides reached an outline deal on Feb. 12 to end the dispute over $1.6 billion of extra costs, even as the canal authority said it continued to explore alternatives to getting the expansion work finished. Madrid, Spain-based Sacyr had threatened to abandon the project if the group’s demands weren’t met.

A set of lock gates that’s now in Italy must be delivered to Panama by December, the authority said in the statement. A $400 million bond may be released to insurer Zurich North America to obtain financing to complete the work, the authority said, without giving more details.

Indebted Spanish builders are increasingly reliant on foreign projects amid public-works spending cuts and a real- estate market struggling to absorb surplus homes. More than half of Sacyr’s revenue comes from foreign markets, and 25 percent of its 1.32 billion euros ($1.8 billion) of nine-month international revenue came from Panama.

Sacyr is due to report full-year earnings today and will hold a conference call at 1:30 p.m. in Madrid.

– Eric Sabo and Nick Leiber, Copyright 2014 Bloomberg.
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