* 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 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,
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
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.
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
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,"
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)