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Sovereign Guarantees Issued to Secure the Financing of Public Transportation Systems and its Impact on their Financing

On June 21 of 2019, the Colombian Ministry of Finance and Public Credit (Ministerio de Hacienda y Crédito Público) (the “Ministry of Finance”) issued Decree 1110 of 2019 (the “Decree”).  Through the Decree, the Ministry of Finance regulated sovereign guarantees issued by the Colombian Nation (Nación) to secure local or foreign financings entered into by entities of territorial level and their decentralized entities (who have entered into a co-financing agreement with the Nation), within the framework of co-financing of public transportation systems developed through concession agreements.

For said purposes, the Decree authorized the Nation to issue sovereign guarantees to secure the financing transactions described above, as long as they comply the following requirements: 

  1. Favorable opinion (concepto) issued by the National Council of Economic and Social Policy (Consejo Nacional de Política Económica y Social -CONPES-), regarding the financing transaction and issuance of the sovereign guarantee in connection with it;
  2. If the term of the sovereign guarantee exceeds one (1) year, a favorable opinion (concepto) issued by the Public Credit Commission (Comisión de Crédito Público) regarding issuance of the sovereign guarantee;
  3. Authorization from the Ministry of Finance both to enter into the local or foreign financing transaction to be secured by the Nation and to issue the sovereign guarantee;
  4. Issuance of such counter-guarantees as deemed appropriate by the Ministry of Finance.
  5. Admissible counter-guarantees include (as long as they are properly approved), among others, future incomes (vigencias futuras) by national or territorial entities.

Also, the Decree provided different requirements that local and foreign financing transactions to be secured through a sovereign guarantee need to fulfill.

In connection with local financing transactions, the Ministry of Finance’s authorization is required both to enter into the financing transaction and to issue the sovereign guarantee.

Regarding foreign financing transactions, in addition to the aforementioned requirement, the Ministry of Finance’s authorization is required before starting negotiations and undertaking any action aimed to enter into the transaction.

The issuance of this type of guarantees within the framework of the co-financing of public massive and collective transportation systems will incentivize and strengthen the financing of these type of projects by local and foreign lenders. No doubt, having a sovereign guarantee issued by the Colombian Nation will substantially reduce lenders’ credit risk.

Consequently, concessionaires and entities of territorial level should obtain more favorable credit conditions, including more competitive interest rates and longer terms.

Currently, there are several large-scale projects such as the REGIOTRAM, Bogota´s Metro and stages I and II of Transmilenio in Soacha that already entered into co-financing agreements for COP$17,1 billion (aprox. USD$5,38 billion). There is no doubt, such large-scale projects will be the major beneficiaries of the Decree.


Portrait of Daniel Rodríguez, LL.M.
Daniel Rodríguez, LL.M.
María Lucía Amador, LL.M.
Laura Roldán