Bechtel financially fittest in Panama bid-analysts

Tue Jul 7, 2009 6:46am EDT

* Bechtel-led group seen financially strongest

* European groups bring technical strengths

* Price looks key factor for contract

By Danilo Masoni and Sean Mattson

MILAN/PANAMA CITY, July 7 (Reuters) - A team led by U.S. group Bechtel is financially best placed to win the race for an estimated $3.3 billion contract to expand the Panama Canal, analysts said.

The Panama Canal Authority (ACP) overseeing the bidding will open price bids on Wednesday but may take several weeks before announcing a winner. This $3.3 billion contract is the largest chunk of a $5.25 billion project to expand the canal.

Bids were placed months before a presidential election brought into power millionaire supermarket magnate Ricardo Martinelli, bucking a trend of left-wing leadership victories in Latin America. The new president took office last Wednesday.

The other two bidders are a consortium including Spanish giants ACS (ACS.MC), FCC (FCC.MC) and Acciona (ANA.MC), and a smaller group led by Sacyr SVO.MC of Spain and Impregilo IPGI.MI of Italy.

The closely watched decision was initially expected before Martinelli took office. There has been speculation that bids could exceed Panama's budget and that the project could incur cost overruns.

The expansion of the canal, the biggest contract in Latin America, is to be completed by 2014 which is the 100th anniverary of the first transit.

"Such a complex project must have very solid balance sheet guarantees. The Americans have these guarantees and their project is technically as good as the one of Sacyr-Impregilo," a Milan-based analyst said on condition of anonymity.

The analyst said if the project incurred cost overruns a contractor with high equity and low debt like Bechtel could get financing more easily than an indebted one, making sure that works continued even if problems arose.

Although Sacyr sold its road toll business in a cash deal worth about 2.9 billion euros ($4 billion) in May, the building-to-services firm will still close the year with debts of 11 billion euros.

A contract as big as the Canal project would be a welcome shot in the arm. Sacyr leads the consortium with a 49 percent stake and Impregilo has 48 percent.

NICE BOOST

Sacyr has an order and service portfolio of 35 billion euros and assuming it took 49 percent of the value of the contract, in line with its stake in the consortium, a bid priced in line with ACP's budget would boost its portfolio by slightly more than 3 percent.

Impregilo has an order book of 19 billion euros and on a similar basis the impact would be about 6 percent.

The Sacyr-Impregilo group is the only one to have a local partner, Cusa, on board. Having work force and equipment on hand makes it easier for authorisations and could be an edge for the group. Its experience in doing work requiring technology needed for the Canal expansion, such as the 800-metre-long Yacyreta dam between Argentina and Paraguay, is also seen as a plus.

The other consortium led by ACS comes to the bid in a stronger financial position than Sacyr-Impregilo, particularly after Acciona sold its stake in power generator Endesa (ELE.MC) to Italy's Enel (ENEI.MI) for 11.1 billion euros.

Net debt at ACS, one of Spain's least indebted construction companies, fell 4 percent to about 8.9 billion euros at the end of March from end-December. An analyst in Spain said the impact on his target prices for ACS, which has experience in terms of hydraulic works, would be below 5 percent.

Privately owned Bechtel, which has teamed up with Japan's Taisei Corporation and Mitsubishi Corporation (8058.T), had booked $35 billion in new work in 2008.

KEY FACTOR PRICE

Will Gabrielski, a U.S.-based engineering analyst at equity research firm Broadpoint AmTech, said price was a key factor.

"I think they're looking at it pretty closely on price," Gabrielski said.

A report in May by Spanish newspaper Cinco Dias said the bids would be considerably higher that the ACP hopes -- a scenario observers said could complicate awarding the contract.

Expansion-related work is under way and the ACP insists expansion is on time and on budget.

Panamanian engineer Jorge Sanchiz, who has experience in canal-related projects, said he expected considerable cost overruns in the final project, due to rising cement prices and other unforeseen costs.

Sanchiz wants the new Martinelli administration to intervene in favour of an independent review of the bidding process.

Martinelli's canal minister, Romulo Roux, was unavailable for comment. But Martinelli said a change in government would not affect normal operation at the canal, which is considered largely free of government interference.

(Editing by Sitaraman Shankar)

(Additional reporting by Andres Gonzalez in Madrid and Braden Reddall in San Francisco)

($1=.7154 Euro)

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