MADRID A consortium led by Spain's Sacyr (SCYR.MC) has signed a deal to complete work on widening the 100-year-old Panama Canal, it said on Friday, settling a long-running dispute over cost overruns that had put the multi-billion-dollar project in jeopardy.
Insurer Zurich (ZURN.VX), whose agreement was necessary to get financial backing for the project, also said later on Friday that it had signed the deal.
The Grupo Unido por el Canal (GUPC) consortium, which also includes Italian company Salini Impregilo (SALI.MI), said in a statement that the accord sets a new December 2015 deadline to complete the project, six months later than estimates given earlier this year.
"Zurich worked diligently with the Panama Canal Authority and GUPC to reach an agreement ... and fortunately the two sides have had a successful negotiation," Zurich said in a statement.
Hold-ups on the engineering project, which involves the construction of a third set of locks, have left trading nations worldwide waiting anxiously to start moving a new generation of large container ships and liquefied gas tankers along the 50-mile shortcut between the Atlantic and Pacific oceans.
Zurich's agreement was the last remaining step needed for the deal to be wrapped up, said one source with knowledge of the matter.
The dispute centered on $1.6 billion in cost overruns for the work, which is 70 percent done. The builders and the canal authority had blamed each other for the additional expense on the project, which was supposed to cost $3.2 billion.
Sacyr's shares fell 4.4 percent on Friday, one of the main percentage fallers on the benchmark IBEX .IBEX index, before Zurich confirmed it had signed the deal. Traders cited concerns that without a Zurich signature the agreement was not definitive.
Shares in Salini Impregilo dropped 1.2 percent to 4.40 euros.
The project accounts for a quarter of Sacyr's international revenue. The Spanish company declined to comment on Friday.
The terms of the deal as laid out in the consortium's statement on Friday were in line with the preliminary agreement reached in February.
The Panama Canal Authority and the consortium will each contribute $100 million to get the work back on track while the PCA will extend a moratorium on the refund of advance payments until 2018, freeing up funds to complete the work, the consortium said.
Under the terms of the agreement, a $400 million surety bond from Zurich will be used as backing to obtain additional funding, the consortium said. The consortium took out the bond as a required insurance policy in case it did not finish the project.
Twelve lock gates, under construction in Italy, will be delivered to Panama by the end of the year. Meanwhile, claims relating to unexpected costs will be resolved in international arbitration courts, the consortium said.
The GUPC consortium also includes Belgian firm Jan de Nul Group and Panama's Constructora Urbana S.A.
(Editing by Anthony Barker)