Rail institute bond proposal seems like another financial train wreck

Lawmakers are likely to approve hundreds of millions of dollars in loans for a valley electric train.

The calculations seem to be based on a false premise. The bill that is in the legislature now assumes that the rail institute is worth a lot of money. The bill would allow the agency to borrow 40 percent of its estimated worth.

An estimate from the Universidad de Costa Rica says the railroad is worth a bit more than $1 billion. So the bill would give the agency the right to float bonds up to $408 million.

Every person who has been in business knows that a company is worth only what it can net and not the total value of its assets. Most of the assets of the rail institute are not marketable. They include rights-of-way, 125 bridges and a tunnel.

The only reason investors might buy any bonds or notes emitted by the rail agency is because they are backed by the government of Costa Rica. That means the public will end up paying off the bonds.

The bill itself gives the rail institute a blank check that even has raised eyebrows within the legislature. The permissions may be so broad as to be unconstitutional.

Still, it is clear that in their haste to produce a rail system that does not emit the dreaded carbon dioxide lawmakers and officials are grasping at financial straws. No one seems to be asking how the rail agency will pay off this debt.

The bill does not contain any financial projections, which investors will need.

But there is a clause that says if rating agencies fail to evaluate the bonds as investment grade, the debt can be sold privately. That could mean that the $408 million in bonds will be sold back to the country or that some investor will purchase the paper at a deep discount.

Hardly any of the people involved in approving the debt will be around in official positions when the time comes to build the electric railroad or even float the bonds.

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