Uruguay: Trust At The Service Of The Private-Public Partnership Act

Last Updated: 13 May 2016
Article by Martin Improta

Capital market boosts financing of projects in Uruguay under the Public-Private Partnership regime. Our local expert explains some of these financing projects.

Private-Public Partnership Law No. 18786

Law No. 18.786 of 19 July, 2011, establishes the regulatory framework applicable to Private-Public Partnership contracts.

Article 2 describes PPP contracts as "contracts in which a Public Administrative Body entrusts, for a given period, the design, construction and operation of infrastructure or any such services to a private party, in addition to financing."

Contracts can be executed in the following areas:

  1. Roads, ports, airports and railways;
  2. Energy infrastructure;
  3. Waste treatment and disposal;
  4. Social infrastructure, including prisons, health centres, education centres, housing, sports complexes and urban development or improvement.

Financing infrastructure projects is usually characterized by long contractual deadlines, high investment amounts and extended repayment periods. Often a special financial structure is required to help mitigate risks.

Financing projects

"Project finance" is a figure utilized in sectors that require significant capital investments with long-life assets, and where the supply of capital comes from large local and foreign investors. Project finance can take several forms of special vehicles; the most commonly used in Uruguay is the trust.


It involves issuing debt securities or participation certificates. These units are placed in the stock market to finance infrastructure work, keeping the assets in a trust. Financial trusts of public offering issue these securities and these in turn are acquired by the beneficiaries.

Negotiable Bonds 

Another financing alternative through the stock market is the issue of negotiable bonds, using a Guarantee trust, by the project development company. Specific assets are assigned to the Guarantee trust, which are administered on behalf of the negotiable bonds creditors. Examples of such assets include: Cash flows, real estate and emerging rights to the project.

The role of the market as an articulator of supply and demand for infrastructure financing is important; it allows for greater flexibility in financial engineering, facilitating the structuring of financing schemes and for risk distribution.

The financing offer attracts institutional stakeholders to invest in such vehicles. And, the legal framework allows the Savings Fund Administrators (AFAP) to invest up to 50% of its portfolio in PPP projects.

Recent legislative changes allow AFAPs to make commitments for future integration in relation to the acquisition of certificates of participation in financial trusts public offering, such as:

  • Issuance of a letter of intent
  • Integration of funds on a deferred basis 

This improves the return on investment, which is critical in this type of projects.

The Capital Market

For placement and issuance in the capital market, as per the securitization process of derivative economic rights of PPP contracts, compliance with the Central Bank of Uruguay regulations is required. The issuer (Financial trust) must submit an application to the Central Bank of Uruguay, accompanied by the information and documentation requested by the Central Bank of Uruguay Superintendence of Financial Services compilation of stock market standards. Another step is enrolment in one of the stock exchanges and for an investment prospectus.

Without the following list being considered exhaustive manners, these are examples of the items that the prospectus must contain

  1. a summary of the terms and conditions of the securities to be issued;
  2. the conditions of subscription and payment;
  3. project description
  4. projected cash flows which demonstrate the ability to repay the issuer or its expected return;
  5. indenture;
  6. auxiliary contracts with the agent, structuring agent, underwriter, payment agent, registering entity and all costs, fees and expenses associated therewith; and
  7. risk rating report.

Advantages of a Financial trust to access the Capital Market

The Financial trust and Capital Markets have, for different parts of the structure of private financing of Public Private Partnerships, the following advantages:

- Insulation/Shielding: Allows isolating future flows transferred to the trust's own corporate risk trustor (Construction/Developer/Promoter), and the trust itself. Create an independent autonomous patrimony of affectation of the parties involved. This condition also permits trust flows that cannot be pursued by creditors outside the business of the trust, and ensures that the contributions are used only for the purposes for which the trust was created.

- Liquidity: Provides liquidity to the contractor PPP contract, to divest its future receivables in exchange for funds available credits.

- Flexibility: Supports setting up a trust, considering the interests of all parties, under the indenture that it is a private document whose wording is left to the will of the parties.

- Funding cost advantage: Access to capital markets is usually more efficient in terms of cost than other traditional funding sources.

- Access to the Pension Savings Funds: The Trust Law No. 17,703 and the regulation's central bank empower AFAPs to invest in certificates of participation in the trust domain of securities, representing secured debt-to-assets comprising the trust or mixed titles.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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