The Inter-American Development Bank (IADB) has approved a partial credit guarantee for American International Group (AIG) covering up to half its exposure for Latin American projects undertaken by Construtora Norberto Odebrecht S.A. of Brazil.
Odebrecht is Brazil’s largest engineering and construction company and a major one in the region. With about US$3.5 billion in total revenues in 2006, it also is the largest exporter of services in Brazil.
AIG is the largest insurance company in the world and a key player in surety markets. It has been Odebrecht’s leading source of surety bonds for 16 years, issuing more than US$11 billion in bonds on the builder’s behalf.
IADB is to provide a partial credit guarantee for an aggregate amount of up to US$200 million to cover 50 percent of AIG’s net exposure under surety bonds, such as bid, performance, advance payment, retention, payment, and maintenance bonds, issued on behalf of Odebrecht and its subsidiaries.
IADB said the surety bond market in Latin America and the Caribbean has a relatively small number of players, with surety bonding capacity scarce and constrained. The bank expects the program to: provide needed bonding capacity to Odebrecht for engineering and construction contracts; reduce the infrastructure gap in Latin America; and have a demonstration effect that leads to similar transactions in the future.