Andrew Bainbridge The UK-based Private Infrastructure Development Group (PIDG) plans to invest US$300 million in Bangladesh's infrastructure sector over the next three years, focusing on renewable energy and affordable housing.
The group is working on combating poverty in the poorest and most fragile countries through pioneering infrastructure.
Last month its subsidiary Guarant Co launched a study on the Bangladesh's bond market at a conference in Dhaka. On the sidelines, PIDG chairman Andrew Bainbridge sat with the FE. Below are excerpts of the interview:
FE: Have you planned to invest in infrastructure projects in Bangladesh?
AB: The Private Infrastructure Development Group (PIDG) expects to invest up to US$ 300 million in Bangladesh over the next three years through its companies, GuarantCo and Infraco Asia. The sectors that we focus on are renewable energy, transportation and logistics and affordable housing.
GuarantCo has just closed its first groundbreaking transaction in Bangladesh. With GuarantCo's guarantee, 28mw Technaf Solar Limited, which is mainly Bangladeshi owned, is the country's first and only operational utility-scale solar independent power producer, was able to access a 15-year USD and Taka financing from banks.
With the first ever commercial loan in Bangladesh, this is the first of its kind transaction in the country, which helps create a framework for financing future projects under a similar structure.
FE: What potential do you see for your business here and why have you chosen Bangladesh?
AB: Bangladesh is a fast-growing economy with an active and ambitious private sector. Equally, the country suffers from a significant infrastructure deficit. The PIDG sees its role as to work with local stakeholders to catalyse the private sector both within Bangladesh and abroad to help address the infrastructure deficit. This will not only help unlock alternate sources of capital for financing infrastructure but will also support building capacity and best practice amongst local financing institutions, including commercial banks and NBFIS, which will accelerate development of the sector and the economy.
FE: What is the system of funding of PIDG and what are the competitive advantages compared to other institutions?
AB: PIDG's biggest competitive advantage is that we do not seek to compete with anyone. The aim of PIDG is to mobilise other investors into the infrastructure sector in Bangladesh. As such, partnership is at the heart of everything that we do and we seek to support other investors, both local and international, by bringing long-term patient capital and being prepared to accept certain risks that other investors might not be prepared to.
Through PIDG's technical assistance facility, we also seek to provide capacity building, transaction support and enhanced development impact to infrastructure projects in Bangladesh, which in turn will help mobilise investment into projects and transform access to infrastructure for the poorest in society.
FE: As we know the GuarantCo has studied state of Bangladesh's bond market. What's the weakness of the market and what's the future?
AB: The bond market in Bangladesh is at a nascent stage; only three corporate bonds have been publicly placed, none of which are for financing infrastructure projects. Commercial banks rely on the bond market to meet their capital adequacy requirements, under the BASEL III norms. Corporate bodies, on the other hand, are not active in the debt capital market to raise funds.
However, with challenges also come opportunities - the untapped institutional investor base (mainly insurance and provident funds, with some limited pension funds) and the Islamic finance market (including Zakat) is a potentially a powerful source to address the funding needs for infrastructure in Bangladesh.
FE: Do you have plans to support Bangladesh in launching bonds? Is there any plan to support launching foreign currency bonds too?
AB: Like the groundbreaking Technaf solar transaction where GuarantCo supported the de-risking of the bank's balance sheet and provided the first-ever 15-year loan in Bangladesh, we are committed to working on innovative transactions to help Bangladeshi issuers (sponsors, banks, NBFIs) to issue highly rated bonds, which will help "crowd-in" institutional capital to finance infrastructure projects. Whilst GuarantCo is open to guaranteeing foreign currency bonds, one of the key principles of their mandate is to develop the local currency capital markets.
A local currency infrastructure financing solution is more beneficial to a country like Bangladesh as this reduces the foreign currency risk to the country and also helps develop the capability of the market and the capacity of local financing institutions. We believe that a guaranteed Taka bond in the offshore market will be more beneficial in the long-run than a foreign currency bond to help address Bangladesh's credit needs for infrastructure and at the same time, reduce reliance on foreign currency debt.
FE: What are your observations about Bangladesh's capital market?
AB: Bangladesh's infrastructure sector needs more novel sources of capital like bonds and Islamic financing (e.g. Sukuk) to supplement traditional bank financing to fulfil its significant financing needs. There is a need to unlock non-bank, institutional capital such as insurance, pension and Zakat funds, to help address Bangladesh's long-term funding needs for infrastructure projects. Lack of liquidity, lack of investor awareness, credit concerns and regulatory challenges are some of the biggest roadblocks that need to be addressed to develop an efficient capital market in the country.
However, we see these also as the lowest hanging fruit as the changes required to ensure functioning of a transparent and an efficient capital market are fairly basic. However, government, regulators, market participants and other stakeholders will need to work together to develop the capital market in the country.
FE: What is the linkage between stock market and bond market?
AB: At a very high level, the bond market focuses on debt instruments whilst the stock market focuses on equity. Consequently, the two markets are complementary and for Bangladesh to grow it needs to have both; a strong bond market and a strong stock market as the two provide investors with more than one way to invest in the country. If you look at most developed markets, they have both strong bond and stock markets and usually the bond market is larger than the stock market, so potentially Bangladesh is missing a significant growth opportunity by not having an active bond market.
FE:As we know GuarantCo works as a guarantor between foreign funds and the borrowers. What risks it bear?
AB: GuarantCo guarantees the payment risk of a borrower to lower the risk of loss for investors or lenders. Its guarantees are available to all investors or lenders, both local and foreign. Simply speaking, a guarantee is a promise to pay an investor or lender if a borrower does not. How this promise is structured is where GuarantCo adds value as it seeks to find innovative ways to help address concerns of the relevant financier and mobilise funding for infrastructure projects.
FE: Has GuarantCo ever faced any problem while bearing the risks? Have any of your clients become defaulter and you had to pay?
AB: In its 13-year history, GuarantCo has had only three guarantees called and has always made payment on a timely basis to investors. GuarantCo has then worked with the defaulting parties to help resolve their issues and to recover its money. GuarantCo is a provider of patient capital and as such is able to work with clients over the long term to help their projects deliver for the good of society.
FE: Do you want to add anything more for our readers?
AB: We intend to play a pro-active role in the development of a mature bond market in Bangladesh, through a combination of advocacy, awareness generation and guarantee products. Bangladesh is a priority country for PIDG and we look forward to working with the private sector and the government to help mobilise greater investment towards reducing the infrastructure deficit that exists at present.
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