GuarantCo provides InfraZamin Pakistan with a contingent capital facility of PKR 8.25 billion (c. USD 50 million) to invest in essential local infrastructure
GuarantCo, part of the Private Infrastructure Development Group (PIDG), has provided a contingent capital facility of up to PKR 8.25 billion (c. USD 50 million) with a 23 year tenor to InfraZamin Pakistan to issue local currency credit guarantees against debt financing for infrastructure projects in renewable energy, healthcare, transport, and digital communications.
InfraZamin Pakistan is an initiative set up by PIDG, with a PKR 8.25 billion contingent capital facility by GuarantCo, PKR 2.475 billion (c. USD 15 million), equity from InfraCo Asia Investments and a USD 1 million PIDG Technical Assistance returnable grant, to establish a for-profit credit enhancement facility in Pakistan. The facility seeks to address gaps in the local infrastructure financing market through increased use of credit guarantees. InfraZamin Pakistan will issue credit guarantees for greenfield and brownfield infrastructure-related debt instruments based on the company’s ‘AAA’ long-term rating (by PACRA) and attract private capital investors who would otherwise not participate in lending to infrastructure-related sectors in Pakistan.
The contingent capital that GuarantCo provides to InfraZamin Pakistan can be leveraged up to 10 times. On this scale, guarantees can be truly transformational for local capital markets, as InfraCredit Nigeria, which GuarantCo set up with the Nigeria Sovereign Investment Authority in 2017, has proven.
The core equity providers for InfraZamin Pakistan are InfraCo Asia Investments, another PIDG company, providing 60 percent equity, and Karandaaz Pakistan, a non-profit funded by UK’s Foreign, Commonwealth and Development Office (FCDO) and the Bill & Melinda Gates Foundation, with 40 percent. Total shareholder equity will be PKR 4.125 billion (c. USD 25 million).
InfraZamin aims to catalyse infrastructure development by filling a current gap in the credit markets by providing credit guarantees. The company aims to significantly transform the infrastructure financing market (both bank and capital markets) in Pakistan by mobilising first-timelocal borrowers and investors. The increased participation from new and existing investors, new financial structures and guarantee products will ultimately attract an increased flow of finance to infrastructure with progressively lower levels of guarantees required.
Emily Bushby, Interim CEO of GuarantCo, said: “Following the set-up of InfraCredit Nigeria in 2017, we are very pleased that InfraZamin has now become a reality. The contingent capital that we provide will increase the volume of guarantees InfraZamin can write. In addition, we are keen to partner with InfraZamin passing on our institutional knowledge of closing transactions to meet the infrastructure need. We are confident that the company, under Maheen Rahman’s leadership, will become a game-changer for Pakistan’s project finance and debt capital market development and make a significant impact to benefit local people.”
Maheen Rahman, CEO of InfraZamin Pakistan, said: “We at InfraZamin aim to address a very serious gap in Pakistan’s financing and capital markets. We are all here well aware of the chronic underinvestment in Pakistan’s infrastructure landscape. We are also well aware of the difficulties that are faced in raising financing for such projects and the gaps that exist in the risk taking framework of our banking and capital markets sectors. Infrazamin is founded on the firm principle that such market failures need to be addressed via market based solutions that make commercial and economic sense for all stakeholders.”
Philippe Valahu, CEO of PIDG, said: “InfraZamin Pakistan is a true PIDG Group effort. Initiated by GuarantCo on the back of its experience in setting up InfraCredit Nigeria, InfraCo Asia has come in with the equity and PIDG Technical Assistance provided a USD 1 million returnable grant for InfraZamin’s set up. We are currently looking to set up more local guarantee companies based on the InfraCredit model, to develop capital market specific expertise and solutions that deliver improved access to sustainable infrastructure for people and businesses in those countries.”
There is a significant infrastructure investment deficit in Pakistan which is currently mainly funded by the Pakistani government. The Pakistan financial system is characterised by low levels of financial participation and development. Generally, only the largest family-owned groups have access to official finance channels. The banking sector controls over 75% of all financial assets, and the top 20 corporate borrowers are estimated to account for 30% of all lending in Pakistan and 50% of total corporate lending. Furthermore, the six largest banks (out of thirty-six) dominate over 50% of the banking market.
GuarantCo mobilises private sector local currency investment for infrastructure projects and supports the development of financial markets in lower income countries across Africa and Asia. GuarantCo is part of the Private Infrastructure Development Group (PIDG) and is funded by the governments of the United Kingdom, Switzerland, Australia and Sweden, through the PIDG Trust, the Netherlands, through FMO and the PIDG Trust, France through a stand-by facility and Global Affairs Canada through a repayable facility. GuarantCo is rated AA- by Fitch and A1 by Moody’s. GuarantCo’s activities are managed by GuarantCo Management Company which is part of Cardano Development. www.guarantco.com
The Private Infrastructure Development Group (PIDG) is an innovative infrastructure project developer and investor which mobilises private investment in sustainable and inclusive infrastructure in sub-Saharan Africa and south and south-east Asia. PIDG investments promote socio-economic development within a just transition to net zero emissions, combat poverty and contribute to the Sustainable Development Goals (SDGs). PIDG delivers its ambition in line with its values of opportunity, accountability, safety, integrity and impact. Since 2002, PIDG has supported 171 infrastructure projects to financial close which provided an estimated 217 million people with access to new or improved infrastructure. PIDG is funded by the governments of the United Kingdom, the Netherlands, Switzerland, Australia, Sweden, Germany and the IFC. www.pidg.org
About InfraZamin Pakistan
InfraZamin Pakistan is a commercial credit enhancement facility, developed by GuarantCo, that seeks to crowd-in funding from the local market for sustainable and socially responsible infrastructure projects in Pakistan. Development impact, trust and additionality form the core of InfraZamin’s business values. The facility is an initiative of the Private Infrastructure Development Group (PIDG). InfraZamin’s sponsors include PIDG group companies InfraCo Asia Investments (InfraCo Asia) and GuarantCo, in partnership with non-profit Karandaaz Pakistan (Karandaaz).