Replicability: delivering transactions faster to the benefit of local people

One of the main challenges to successfully finance infrastructure projects in lower income countries is managing the length of the project preparation timeline. The estimated time for project preparation and structuring can vary significantly depending on the circumstances and readiness of each project but generally ranges from 24 to 30 months and roughly accounts for 5 to 10 percent of total project investment from project conception to commercial and financial closures, according to the World Bank^[1]. In developing and frontier markets, this can even be longer.

At GuarantCo, part of the Private Infrastructure Development Group, one of the key focus areas in order to efficiently close transactions with the aim to improve local people’s lives through the improved infrastructure that they will have access to, is pursuing more replicable transactions to benefit from a shorter project preparation time frame after the first transaction.

What is replicability and what does a replicable deal mean?

Since 2005, GuarantCo has closed over sixty transactions many of which were innovative and a first of its kind. In the lower income countries across Africa and Asia in which we operate, capital market transformation is crucial to finance essential, sustainable infrastructure projects. For example, in 2019 GuarantCo closed its first transaction with Acorn Holdings in Kenya, providing a partial credit guarantee to investors in Acorn’s KES 5 billion note programme to fund the construction of accommodation for 5,000 students in Nairobi. The bond was listed on both the London Stock Exchange and the Nairobi Securities Exchange. The first transaction paved the way for a second one in 2021. Both bonds were rated above the sovereign rating benefiting from GuarantCo’s high international credit ratings. The Acorn bond listing was a catalyst for further similar corporate issuances.

Replicability does not only mean closing transactions faster but also scaling transactions with the aim to have a catalytic effect to deepen the impact and develop local capital markets to strengthen the economy and improve infrastructure to the benefit of local people.  Replicability can vary from replicating a transaction across different markets, replicating a transaction in the same sector, replicating a transaction in the same market and replicating a transaction with the same client. In addition, building long-term strategic partnerships is also a crucial lever to replicate transactions more efficiently.

An example of replicating a transaction across different markets was the XOF 14.55 billion (c. USD 25 million) portfolio guarantee to Orabank Togo, the largest bank in the country, in 2022. The guarantee allows Orabank to benefit from capital relief, enabling the bank to grow its infrastructure portfolio whilst remaining within single obligor limits.  Building on the learnings of this transaction, we were able to close a second portfolio guarantee of XOF 10 billion (c. USD 15 million) with the same group later in 2022 to grow the bank’s infrastructure portfolio across Cote d’Ivoire, Senegal, Mali and Burkina Faso. These two transactions also emphasised the importance of strategic partnerships.

GuarantCo’s transaction with Axis bank, the third largest private sector bank in India, is another good example of strategic partnerships. Mid 2022, we signed a framework guarantee agreement of an USD 200 million INR equivalent guarantee to allow for the mobilisation of funds between USD 300 and 400 million in local currency to finance the e-mobility ecosystem in India. This guarantee-backed debt funding was a first of its kind in India and is expected to accelerate the development of the EV ecosystem in the country. The framework will not only enable GuarantCo and Axis Bank to replicate transactions in the EV sector but will also pave the way for executing more transactions in this sector within the country and the region.

In addition, the deal with Axis Bank led to a transaction with Northern Arc seven months later providing an INR 3.25 billion (c. USD 40 million) financing solution to ensure increased access to finance for underbanked borrowers in India. This deal also demonstrated that replicating a transaction in the same market is faster and more efficient to execute particularly since partnerships with finance partners involved in the transaction have already been established.

An example of replicating a transaction with the same client and in the same market whilst capitalising on existing partnerships is the GreenYellow project in Madagascar. In 2020, GuarantCo’s first MGA 36.9 billion (EUR 8.1 million) guarantee was to support local bank debt funding for the largest operational 20MW solar power plant in the Indian Ocean and the first grid connected plant in the country, developed by GreenYellow. In 2022, GuarantCo closed a second MGA 23.5 billion (c. EUR 5 million) transaction.  In both transactions, Societe Generale was the main lender and the African Guarantee Fund, to which GuarantCo provided an up USD 30 million finance solution in 2018, acted was the co-guarantor.

Following the two GreenYellow transactions, GuarantCo subsequently closed two other transactions in Africa together with Societe Generale: TollCam, a USD 38.4 million XAF equivalent guarantee to finance infrastructure development in Cameroon and Spiro a XOF 37.8 billion (c. USD 63 million) financing solution to finance the company’s fleet of electric motorbikes in Benin and Togo.

Closing multiple transactions with the same client and the same finance partner also leads to the finance partner in the transaction becoming more comfortable with naked risk or a partial guarantee in follow up transactions.  An example of this is PRAN Agro, one of the leading agro-processing companies in Bangladesh.  Mid 2021, GuarantCo provided PRAN Agro with a 100 percent guarantee of a BDT 2.1 billion (c. USD 25 million) on-shore bond with a seven-year tenor to attract domestic institutional capital from Bangladesh and support the company’s expansion plans. Mid 2023, a second transaction was closed with a partial guarantee to support a BDT 2.6 billion (c. USD 24 million) onshore bond finance further expansion plans. In both transactions, MetLife Bangladesh was the sole investor and Green Delta Capital acted as the trustee and security agent.

In conclusion, replicating transactions is a critical part of GuarantCo’s strategy as it is key to closing deals more efficiently and faster. This results in quicker development of local capital markets, greater scale and faster delivery of essential, sustainable infrastructure to the benefit of the people in lower income countries across Africa and Asia who need it most.