First-of-its-kind, credit enhancement facility for infrastructure-related debt instruments in Pakistan


Context

Pakistan has significant unmet need for long term local currency financing for infrastructure projects. Pakistan’s financial system is characterised by low levels of financial participation and development – generally, only the largest corporate groups have access to formal 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, Pakistan’s six largest banks dominate over 50% of the banking market.

There are smaller pockets of liquidity represented by insurance companies, pension funds, DFIs, mutual funds and the National Savings Scheme. These sectors are relatively untapped and have potential to become meaningful investors in long term credit enhanced debt instruments.

The current scenario has resulted in the lack of availability of funds for infrastructure financing in Pakistan. InfraCo Asia aims to address this bottleneck through the establishment of a first-of-its-kind credit enhancement facility targeting infrastructure-related debt instruments.

The Project

InfraZamin Pakistan (“InfraZamin”) is an initiative by the Private Infrastructure Development Group (PIDG), developed by PIDG company GuarantCo, to establish a for-profit, credit enhancement facility in Pakistan.

The core equity providers for InfraZamin are InfraCo Asia Investments, via its indirect wholly owned subsidiary Indus Guarantees, and Karandaaz Pakistan, a non-profit that promotes access to finance for micro, small and medium-sized businesses, as well as financial inclusion for individuals. GuarantCo, another PIDG company, is providing a contingent capital facility.

InfraZamin will issue credit guarantees for infrastructure-related debt instruments based on its AAA rating from the Pakistan Credit Rating Agency (PACRA), and thereby attract private capital that would otherwise not participate in lending to infrastructure-related sectors in Pakistan.

InfraZamin’s operations will benefit from InfraCo Asia infrastructure investment and development experiences in Pakistan, as well as GuarantCo’s experience in providing credit guarantees for a number of financing transactions in Pakistan and with InfraCredit – a similar credit enhancement facility in Nigeria.

Through InfraZamin, InfraCo Asia seeks to act as a catalyst to build the missing pieces of the financial infrastructure in Pakistan that will encourage the crowding-in of underused pockets of liquidity in the Pakistani financial markets, to fund sustainable and transformative infrastructure projects.

Our Impact

Market transformation: the project, a first-of-its-kind credit enhancement facility targeting infrastructure-related debt instruments, contributes to transform the infrastructure financing markets and capital markets in Pakistan by increasing local investors and financial institutions’ participation by offering credit guarantees for complex transactions. These interventions will ultimately increase the flow of finance to infrastructures in the country.

SUSTAINABLE DEVELOPMENT GOAL(S)

Company

InfraZamin Pakistan

Total Project Cost

N/A

Country

Pakistan

Region

N/A

Timeline

  • Shareholders agreement signed in Nov 2020
  • Financial close in Dec 2020
  • Contingent Capital Facility signed with GuarantCo in July 2021

Sector

Multi-sector

InfraCo Asia Funding Committed

US$ 40M

Other PIDG Funding Committed

US$ 50M

InfraZamin Pakistan signs its first guarantee

The InfraZamin Pakistan Management Team

IJ Global Frontier Market Deal of the Year: InfraCo Asia and GuarantCo's support of InfraZamin Pakistan

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