Enabling long term. finance in local currency. Enabling Long Term. Local Currency

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1 Enabling long term Enabling Long Term Infrastructure infrastructure Finance in Local Currency finance in local currency

2 Number of Projects Key facts and figures Capital of $280m at end 2014; $305m by end Portfolio Growth Portfolio of $280m at end 2014 Capacity of $840m at end 2014 $1bn by end 2016 Single project exposures of $5m - 50m Transaction tenors up to 15 years Year Rated AA- Fitch, A1 Moody s, AAA Bloomfield 2

3 Summary of GuarantCo Guarantees of local currency loans and bonds to finance infrastructure in lower income countries Conceived to address existing constraints in the supply of local currency debt financing to infrastructure projects and to help match the demand for local medium and long-term funding. Building sustainable financing capacity in domestic capital markets through partnering with local institutions and introducing new approaches to project risk evaluation and financing 3

4 PIDG Facilities (Private Infrastructure Development Group) 4

5 PIDG Mission The Private Infrastructure Development Group mobilises private sector investment to assist developing countries in providing infrastructure vital to boosting their economic growth, and combating poverty A consortium of donor organisations who have joined together to help facilitate private sector investment in infrastructure in developing countries. Private Infrastructure Development Group Trust (PIDG) invests in and owns the PIDG facilities. It is a Mauritian trust, currently administered by a UK-based Principal Trustee, SG Hambros Trust Company Ltd Members: 5

6 Key stakeholders Governments Shareholders Managers & Supplier of Support Services Advisors 6

7 GuarantCo s portfolio Transport 25% Telecom 22% Water 1% Cement 4% Energy/ Power 22% Urban Infrastructure 10% Inputs to Infrastructure 16% GuarantCo s portfolio is spread over 7 Sectors & 11 Countries Net Commitments per Sector Tanzania 2% Meekong 6% Uganda 3% Net Commitments by Country Sri Lanka 4% Ghana 1% Nepal 11% India 29% Pakistan 12% Nigeria 16% Cameroon 9% South Africa 7% 7

8 Why local currency? Better solution at project level.. But also country level responsible banking! Local currency finance matches currency of revenue to debt service Even if a project has the right to pass on currency losses, prices/tariffs may be unaffordable - contractual agreements may fail Involving local lenders can reduce the risk of discriminatory action Local currency financing involves productive recycling of savings within a country rather than increasing the country s external debt burden Involving local lenders helps build capacity to finance future projects We can provide hard currency guarantees in fragile/post conflict countries 8

9 Our mandate 1. Eligible Clients Private sector companies Municipalities / sub-nationals - if funded largely through user fees (or ring-fenced structures providing satisfactory security) Parastatals if privatisation is planned (or case by case if operations are on a commercial basis) GuarantCo can also support: Refinancing of existing projects if hard currency financing is substituted by local currency debt Specialist Financial Institutions focused on infrastructure 2. Eligible Sectors Power generation, transmission and distribution (incl. renewable and non renewable) Water / waste management services Transportation (fixed installations) Telecoms / IT Backbones etc. Urban / social infrastructure (incl. affordable housing / mortgages) Basic industries involved in infrastructure development (e.g. steel, cement, biofuels etc.) & Infrastructure component of agro-industry, mining and energy projects (incl. downstream oil & gas) 3. Focus Countries GuarantCo s investment policy limits activity to the countries in the first three columns of the Development Assistance Committee ( DAC ). (Refer to Slide 16) GuarantCo can however consider highly developmental projects in the fourth column on an exceptional basis. 9

10 GuarantCo additionality African governments lack the resources to finance their infrastructure investment needs in isolation. Private investors have not filled the funding gap, deterred by long project timeframes, political risk and the complexity of operating in African countries. GuarantCo can provide guarantees to support: Local currency funding, to enable the development of local currency banking & capital markets Guarantees can be issued to facilitate: o Tenor extension o Greater quantum (helping banks to overcome single obligor limits) Knowledge transfer on international financing best practices & building capacity for future local financing 10

11 Case Study: Zenith Bank The Transaction USD 22.5m guarantee of a 5 year USD 90 million on-lending facility to Zenith Bank, used to finance a number of projects critical to the newly privatised power generation companies and distribution companies in Nigeria Developmental Benefit A lack of power is one of Nigeria s biggest barriers to economic growth and consequently poverty alleviation. Significant investments is needed to boost current infrastructure levels and grow the network to optimum capacity but access to funding is a key constraint for all participants in the power sector GuarantCo Additionality The intervention of USAID and GuarantCo increased loan size and provided additional benefit to the proposed financing by extending tenor from the commercial market by a further 2 years. 11

12 Case Study: Quantum Terminals The Transaction: GHS 12m partial credit guarantee of long term senior funding raised by the Quantum Group for the construction and operation of an LPG loading and storage terminal in Atuabo, Ghana Developmental Benefit GuarantCo s support enabled Quantum to raise the required local currency financing component for the project which will contribute to increasing availability of affordable LPG in the country helping to lower CO2 emissions and rates of deforestation, and substituting wood/ charcoal in domestic use thereby improving air quality in homes GuarantCo Additionality: GuarantCo s guarantee made it possible for Standard Chartered to offer the local currency tranche for the project alongside the hard currency tranche, thereby helping the company to achieve an optimal currency mix in the financing for the tenors that the project needed 12

13 Approval process Transaction is in line with GuarantCo s investment policy Initial Assessment of Key risks Detailing of developmental benefit and GuarantCo s additionality Approval in Principle Credit Committee/ Board Approval Due Diligence findings are evaluated Detailed Assessment of Key risks and Financial Projections Finalization and execution of Legal documentation Financial Close GuarantCo operates in a commercial manner and can make quick decisions, subject to availability of necessary information GuarantCo has a track record of receiving approvals ahead of commercial counterparties 13

14 The team Chris Vermont, Head of GuarantCo Tel: chris.vermont@fmfml.com Douglas Bennet Deputy Head of GuarantCo Tel: douglas.bennet@fmfml.com Lasitha Perera Executive Director Tel: lasitha.perera@fmfml.com Jules Samain Regional Head, West and Central Africa Tel: jules.samain@fmfml.com Janice Kotut Regional Head, East and Southern Africa Tel: janice.kotut@fmfml.com Denesh Srishanker Investment Advisor Tel: denesh.srishanker@fmfml.com Saurabh Rao Senior Investment Advisor Tel: saurabh.raos@fmfml.com Fiona Ghosn Investment Analyst Tel: fiona.ghosn@fmfml.com 14

15 GuarantCo eligible countries Blue: Local Currency Red: Dollars/Euros 15

16 GuarantCo eligible countries Countries coloured green : Guarantees can be offered in USD/Euros Least Developed Countries Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Laos, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Solomon Islands, Somalia, South Sudan, Sudan, Tanzania, Timor-Leste, Togo, Tuvalu, Uganda, Vanuatu, Yemen, Zambia Other Low Income Countries (per capita GNI <= $1 045 in 13) Kenya, Democratic Republic of Korea, Tajikistan, Zimbabwe Lower Middle Income Countries (per capita GNI $ $ in 2013) Armenia, Bolivia, Cameroon, Cape Verde, Republic of Congo, Côte d'ivoire, Egypt, El Salvador, Georgia, Ghana, Guatemala, Guyana, Honduras, India, Indonesia, Kosovo, Kyrgyz Republic, Micronesia, Moldova, Mongolia, Morocco, Nicaragua, Nigeria, Pakistan, Palestine, Papua New Guinea, Paraguay, Philippines, Samoa, Sri Lanka, Swaziland, Syria, *Tokelau, Ukraine, Uzbekistan, Vietnam * Territory 16