GuarantCo Enabling long-term infrastructure finance in local - - PowerPoint PPT Presentation

Enabling long-term infrastructure finance in local currency

Quarter 1 2019

GuarantCo

Who we are

3

Our owners

GuarantCo is funded by the governments of the United Kingdom, Switzerland, Australia and Sweden through the PIDG Trust and the Netherlands, through FMO and the PIDG Trust.

4

Our fund manager

Cardano Development Group

Cardano Development Group took over management of GuarantCo in May 2016. Committed to helping frontier economies develop and prosper by introducing innovative financial risk management products and services to make people and businesses active in the local real economy more resilient and protected against risk. Focuses on developing innovative financial risk management solutions that are practical and can be scaled-up. Cardano Development Group has incubated and grown the following funds:

“TCX contributes to reducing currency risks by hedging these risks in frontier markets.” “Frontclear provides guarantees to enhance (interbank) collateralised trading in frontier economies.” “ILX aims to improve the functioning

• f development finance by creating

a managed investment vehicle to assist institutional investors to participate in development finance through participation in loan syndications originated by development banks with a positive track record.” “BIX Capital stimulates the use

• f impact certificates for

essential household products in developing countries.” “The Water Finance Facility mobilises domestic investment into climate compatible water sector projects through the local bond market.”

5

Where GuarantCo fits in the Private Infrastructure Development Group

Operation Construction Early stage development

Technical assistance

TAF grants support PIDG companies at any stage of the project lifecycle. DevCo helps fund PPP advisory services to governments, delivered through the World Bank Group’s IFC.

Concept

Technical Assistance Facility (TAF) DevCo The Emerging Africa Infrastructure Fund (EAIF) GuarantCo

Project preparation

InfraCo Africa and InfraCo Asia originate, develop, structure, invest and manage projects. They can make equity investments in innovative and pioneering projects, or to remedy the absence of capital.

Debt, guarantees and mezzanine

EAIF provides long-term foreign currency loans in sub- Saharan Africa. GuarantCo provides local currency guarantees to banks and bond investors to develop capital markets.

Financial close Commercial operation

Able to hold equity stakes during construction and operation InfraCo Africa InfraCo Asia

6

Our vision

To become a centre of excellence for local currency credit solutions for infrastructure finance in lower income countries thereby assisting with the alleviation of poverty.

7

Our mission

To become a market-based, recognised provider of contingent credit solutions aimed at enhancing the availability and role of local currency finance for infrastructure projects and developing local capital markets.

8

Our philosophy

Build capacity Develop partnerships Deliver impact

9

Our mandate

The guarantee size available from GuarantCo for a single transaction is between USD 5 million - USD 50 million equivalent in local currency. The maximum tenor is 15 years. GuarantCo can provide a variety of contingent products as may be required for a particular project including:

• Partial credit guarantees
• First loss guarantees
• Tenor extension
• Liquidity guarantees
• Joint guarantees
• EPC contractor guarantees
• Counter guarantees

Mobilise private sector funding into infrastructure in Africa and Asia

10

We use blended finance

Public sector investors Equity + Debt

( FMO / Owners )

Guarantee capacity enabled by leverage

• f 3x capital

(Moody’s and Fitch Ratings)

Guarantee capacity

• f USD 1 billion

Private sector investment mobilised USD 4.4 billion

USD 1 of public investment mobilises USD 5 of private sector investment

$30

MILLION

$320

MILLION

$1

BILLION

*As per Q4 2017

11

We are building a track record

1st Leverage facility applied Increases guarantee capacity to USD 146m 1st one PIDG project GuarantCo, EAIF and InfraCo Africa combine on Kalangala project in Uganda Provides 1st co-guarantee with US AID in Uganda Provides 1st guarantee for Standard Chartered Bank Change in Manager to GMC Limited, part of Cardano Development 1st Leverage facility cancelled Beneficiaries rely solely on GuarantCo’s standalone credit ratings Strategic partnership signed with LSE to support developing markets’ local currency bond issuance 1st transaction

• f InfraCredit Nigeria

as operations commence 1st guarantees

• f synthetic local

currency green bond in India, moves market from 5 to 7 years

AAA

RATED

2005 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

A1

RATED

AA-

RATED

AAA

RATED

Fitch Ratings Moody’s Bloomfield

West Africa

PACRA

Pakistan

1st Local currency Corporate bond in Nigeria 1st local currency Project financing in Cameroon 1st local currency Corporate bond in Vietnam and Ghana 1st Local currency Securitisation in India 1st Local currency Bond issue by Celtel Kenya 1st Local currency Bond in Sri Lanka & sukuk in Pakistan 1st Local currency Project financing in Nepal Nairobi

• ffice opens

Singapore

• ffice opens

GuarantCo incorporated as a Mauritian company and tender launched for a new fund manager Total run-rate portfolio size (USD) Co guarantee platform MoU signed with African Development Bank LSE bond listings for Quantum Terminal and Sindicatum

12

Global partnerships

With leading lenders, investors and project developers

Lenders / Investors Sponsors / Issuers / Borrowers Strategic partners

13

London Stock Exchange partnership

GuarantCo signed an agreement with the LSE in presence of the UK Secretary of State for DFID, Priti Patel on 31st March 2017.

“This collaboration with GuarantCo is part of the London Stock Exchange’s commitment to fostering the development of emerging and frontier capital markets. Efficient capital markets are key to raising finance for companies from these economies and it’s our hope that this partnership will encourage and facilitate further development local currency debt markets, building on

• ur experience as the global leader for international

RMB and Indian rupee bond markets.”

Nikhil Rathi,

CEO London Stock Exchange plc.

How guarantees work

15

How our guarantees work

16

Criteria Description

Guarantee size USD 5-50 million in local currency equivalent. Currency Local currency focus. Hard currency guarantees possible in fragile and conflict affected areas. Tenor Up to 15 years. Guarantee types Non-payment guarantee covering all risks. On-demand guarantee, not an insurance product. Principal and interest coverage. First loss, second loss, co-guarantee. EPC contractor guarantee. Innovative structures possible to solve liquidity constraints, tenor mismatch or funding timing constraints. Beneficiaries Private sector infrastructure debt providers – project finance, corporate debt, mezz debt, bonds etc. Clients Borrowers must be private sector entities although in certain cases also municipalities / sub-nationals and parastatals can be supported. Security Typically pari passu security required alongside all other senior debtors. Other key terms Limit on guaranteeing up to 50 percent of the long-term debt position of a company’s balance sheet. Upfront fee, guarantee fees, monitoring fees. English law. Environmental and social standards IFC Performance Standards.

Investment policy

Key guarantee terms

Portfolio overview

18

Current portfolio

By country

Country %

Bangladesh 2% Cameroon 2% Gabon 7% Ghana 10% India 28% Kenya 10% Mali 1% Nepal 3% Nigeria 16% Pakistan 5% Philippines 3% South Africa 1% Sri Lanka 1% Tanzania 0% Thailand 2% Uganda 0% Vietnam 10%

1

COUNTRIES

7

Countries with active projects Countries eligible for funding

As per Q3 2018 data

19

Current portfolio

By sector

Agri-business Digital communications infrastructure Energy Manufacturing Multisector Social infrastructure Transportation Water, sewage & sanitation Urban infrastructure

Bangladesh

• Cameroon
• Gabon
• Ghana
• India
• Kenya
• Mali
• Nepal
• Nigeria
• Pakistan
• Philippines
• South Africa
• Sri Lanka
• Tanzania
• Thailand
• Uganda
• Vietnam
• Total

Total (USD m) $24.4 $16.4 $296.6 $59.3 $152.4 $121.4 $128.3 $1.9 $00.0 $800.6 Total current exposure ( % ) 3.0% 2.0% 37.0% 7.4% 19.0% 15.2% 16.0% 0.2% 0% 100%

Selected transactions

21

Sindicatum

India and the Philippines

Developing capital markets

The guarantee facilitated issuance of first-ever 7 year tranche and a 10-year PhP tranche, a first for INR and PhP offshore bonds respectively and was recently listed on the London Stock Exchange.

Green standards

Bond issued in accordance with:

• Green bond principles.
• ASEAN Green bond standards.

Promoting rating from Moody’s A1

Full credit substitution by GuarantCo.

Promoting financial resilience

Providing local currency finance to reduce currency exchange risk.

Impact

Refinancing for operating solar power plants in India. Construction of new solar and wind power plants in Philippines. Refinancing of existing debt in INR. Construction finance in PhP. 100 percent guarantee denominated in INR and PhP but settled in USD. Synthetic local currency bond Issued by Sindicatum, a developer / owner / operator of renewable power plants in South and Southeast Asia (176MW in portfolio as of Nov 2017).

USD 60m

Green bond Energy Finance

22

InfraCredit

Nigeria USD 1bn

Guarantee capacity

$30m

Leverage facility

USD 320m

Equity

USD 50m

Callable capital

USD 150m

Equity

USD 1bn

Guarantee capacity

x5 x3

Moody’s and Fitch Ratings Agusto & Co and GCR Leverage Leverage

Public sector investors

Public sector invests USD 16.7 million in GuarantCo which is leveraged 3x to provide USD 50 million guarantee to an InfraCredit. This USD 50 million guarantee will be leveraged 20x to help InfraCredit mobilise up to USD 1 billion

• f guarantee capacity in local currency and

therefore leverages the original investment made by the public sector up to 60x.

23

Mixta Real Estate

Nigeria

Developing capital markets

Full credit substitution by GuarantCo enabled local pension funds and insurance companies to invest.

Affordable housing development

Process used to build affordable houses.

Promoting financial resilience

Providing local currency finance to reduce currency exchange risk.

Potential for replication

African local currency bond fund investing in a second tranche.

Impact

Development of affordable houses and infrastructure for land plots. Issued by Mixta Real Estate, an affordable housing developer focused on North and West Africa.

NGN 7.5b

Bond Urban infrastructure Finance

24

Bridge Power

Ghana

Innovation project financing

Facilitates rapid deployment of infrastructure.

Release baseload power

Diversifies Ghana’s power portfolio and reduces load shedding.

Gas infrastructure

LPG storage can be leveraged for increasing LPG use in domestic markets.

Cleaner power source

Helps to reduce reliance on diesel and HFO.

Impact

Financing for greenfield LPG power plant storage facility. Vendor financing allows construction to begin ahead of senior debt closing. 100% payment guarantee to contractor if senior debt not available by commercial operation date. Issue to Mekta, EPC contractor to Bridge Power (200MW greenfield IPP).

USD 50m

Payment guarantee Urban infrastructure Finance

25

Lower Solu

Nepal

Boosting power supply

Deliver sustainable power to 4 million people and increase country’s generation capacity by 11%.

Alignment with national development plans

Supports objective to become a net exporter of power in the medium to long term.

Job creation

Enabling the provision of 1,000 direct and indirect jobs (up to 30% women during construction and

• peration).

Developing capital markets and promoting financial resilience

Increasing acceptance of long tenor local financing and providing a template for future projects.

Impact

Construction of a 82MW run-of-river hydro power project, the first plant in Nepal. 90% partial Credit Guarantee for the senior financing by local currency lenders with a maximum tenor of 16.5 years.

NPR 2.78b

Guarantee Energy Finance

Why work with us?

27

Why partner with GuarantCo?

Borrower/Issuer

Positive signaling. Access new pools of capital (e.g. local currency loans and bond markets). Enhance overall return on investments.

Suppliers

(EPC, equipment etc.)

Offer more flexible terms. Opportunity to accelerate mobilising of projects whilst capital is being finalised. Risk mitigating counterparty risk in event financing is extended.

Financier

Risk transfer (instead of risk mitigation) counterparty risk to AA- / A1 entity. Efficient capital treatment for long dated transactions. Build capacity in sustainable long- term finance using myriad types of financing solutions.

1 2 3 1 2 3 1 2 3

28

GuarantCo’s funding

*As per Q1 2019 exchange rates

Callable capital

GBP 40

million

(USD 52 million*)

Share capital

USD 312

million

GBP 90

million

Committed funding

USD 10.25

million

SECO funding from a total of USD 15 million committed. (4.75 million disbursed in 2017) DFID future callable capital. (Fully disbursed by 2020)

GuarantCo has a track record

• f periodic equity injections

provided by its owners. GuarantCo is part of PIDG, with over USD 2.4 billion

• f total funding.

(As at 31st December 2017. Includes owner funding and

• ther funding sources)

GuarantCo has no debt

• n its balance sheet.

Leverage multiple: The Board allows for leverage up to 3 times equity plus FMO standby facility (USD 30 million) and callable capital. Moody’s and Fitch’s ratings

• f GuarantCo also allow for

leverage of 3 times.

29

Guarantee transaction process

Origination Conduct preliminary assessment of deal including initial KYC check Obtain new business approval Complete mandate letter/term sheet Commence due diligence process including complete KYC Financial close Conditions precedent closure Recourse agreement/contract Negotiate documentation Credit committee approval

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