InfraZamin Pakistan is an innovative, for-profit credit enhancement facility developed by Private Infrastructure Development Group (PIDG) company GuarantCo. InfraZamin Pakistan will be funded with PKR 4.125bn (c. USD 25 million) equity capital from InfraCo Asia Investments, another PIDG company, and Karandaaz Pakistan which is provided by the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO) and a contingent capital facility of up to PKR 8.25bn (c. USD 50 million) from GuarantCo.
The set-up of InfraZamin Pakistan was based on InfraCredit Nigeria which GuarantCo and the Nigeria Sovereign Investment Authority (NSIA) established in 2017 to act as a market champion for the development of the local debt capital markets and to mobilise long-term investment from local institutional investors and finance infrastructure projects in Nigeria in local currency. GuarantCo is currently planning to set up more InfraCredits in other countries across Africa and Asia.
We spoke with Maheen Rahman, who was appointed CEO of InfraZamin Pakistan on 1st January 2021, about her ambitions to make the company a success.
What is the history of InfraZamin and what does the company aim to achieve?
Based on the successful set-up of InfraCredit Nigeria by GuarantCo and the NSIA in 2017, GuarantCo, together with PIDG, started looking at opportunities to set up another InfraCredit in Pakistan two years ago. This has since transitioned into a collaboration with InfraCo Asia, Guarantco and Karandaaz. I am very keen to establish a similar model in Pakistan in terms of the project finance via the development of debt capital markets. We aim to focus on transactions that contribute to narrowing the infrastructure gap in Pakistan while at the same time develop the impact finance model further with a clear contribution to the SDGs.
I am keen for InfraZamin to be a game changer for Pakistan’s project finance and debt capital markets development. As a lower-middle income country, according to the OECD DAC list, there is a lot to be done to close the infrastructure financing gap. This can be done by changing the way our key stakeholders think about project financing, de-risking solutions for private sector transactions, pricing structures, tenor extensions and impact investing which ultimately is the value that InfraZamin brings.
Why is InfraZamin important to develop the local capital market and creating impact through improved infrastructure for the people in Pakistan?
Pakistan’s debt market issuances are heavily dominated by the power and banking sectors with significant reliance on government issuances and guarantees. This means that there is a significant amount of capital and liquidity which is not properly allocated to private sector projects due to a perceived risk element and crowding out by the government. There is limited appetite for investment opportunities that are rated lower than AA and that too are only considered by investors if a higher interest rate and short tenor is accepted.
Through InfraZamin’s guarantee structures we can create opportunities to attract more interest from investors by changing the risk profile of a project. Longer term, we are aiming to convince investors and borrowers to tap much more into the capital markets rather than simply going to the banks.
The contribution that Pakistan is making to the SDGs is currently significantly behind plan. Pakistan itself has much to do in terms of addressing poverty, health care, gender equality, etc. so there is a huge opportunity. Impact financing is currently not well understood and we are aiming to address via InfraZamin’s projects and PIDG’s focus on sustainability. In addition, we need to educate our stakeholders about guarantees, financial inclusion and impact investing.
What opportunities and challenges do you see?
There are multiple opportunities to engage with industry particularly in sectors such as: renewable energy, solar and hydro, agriculture, digital infrastructure and water.
In terms of challenges, we are attempting to create a new marketplace, which looks at project financing through a different lens. This will require close collaboration with regulators, the borrowers and the lenders to effectively structure and de-risk projects to make them more bankable. Given current dynamics this is a significant challenge, but with the strength of InfraZamin’s sponsors and experience we aim to overcome such hurdles.
How do you believe partners such as PIDG companies, including GuarantCo and InfraCo Asia, and Karandaaz can support InfraZamin going forward?
Educating our main stakeholders is key and therefore the support from PIDG companies in terms of training and development is critical to ensure our success. In addition, we are looking to attract foreign investors along with local ones. PIDG companies are well placed to support InfraZamin on both counts through their experience in similar markets.
What other partners are important to make InfraZamin a success?
In addition to the support of PIDG companies, local stakeholder support via local banks, investors, transaction projects (origination to fill our pipeline), local regulators and rating agencies are all important to name a few of the key ones. So far, the initial reaction to InfraZamin has been very positive.
What would success look like in five years’ time?
We need to develop the debt capital markets of Pakistan, get our key stakeholders on board and close transactions; particularly transactions that have been considered ‘unbankable’ in the past. Even a few transactions would set the bar in terms of how this can be done and pave the way to open up the markets to similar borrowers and projects in the future.
Longer term, absolute success would be that we should not have to issue guarantees anymore to ensure the future of project financing. For example, in the case of infrastructure bonds, as InfraCredit has now successfully achieved with the Axxela bond. InfraZamin, following in InfraCredit’s footsteps, should be the catalyst and not be needed for credit solutions in the future. In fact, the better we do our job, the less of a need there should be for guarantee type structures in the future!
Finally, it is a great thing for Pakistan that PIDG, GuarantCo and InfraCo Asia have selected Pakistan to be only the second market to take such exposure in. This is a very positive development for our country and sends a strong message to the local and international community that business opportunity exists here and I personally am very excited to be taking this forward!