A $750 million credit guarantee fund, aimed at galvanising
Asias embryonic local-currency corporate bond market,
will be launched today when finance ministers from the ASEAN+3
group gather in Tashkent for their annual meeting.
The Credit Guarantee Insurance Fund (CGIF) will guarantee
local-currency bonds issued by private companies in Asian
capital markets to fund infrastructure and other projects.
The CEGF will serve an extremely useful purpose
at a time when Western banks are effectively withdrawing from
lending, Arvind Mathur chairman of Gurgaon, India-based
Private Equity Pro Partners and a former Citibank official told
The fund will provide comforr to investors and it could
become a "role model" for other such funds, thereby expanding
the universe of bond investors, said Mathur.
This will be one of the most concrete initiatives taken by
the ASEAN+3 group Japan, China, South Korea plus the ten
ASEAN states to foster bond market development, an ADB
executive director told Emerging Markets.
While the total amount involved is small compared to Asian
corporate bond market volumes, the bulk of such bonds are
denominated in dollars or other major currencies, the official
The hope is that, once bond investors become familiar with
local currencies, they will be prepared to subscribe to future
issues without an official guarantee. This will open up a pool
of capital that is largely untapped at present.
There is so much capital available in Asia, but
so much of it flows out of the region, the official said.
The challenge is to get these savings to stay in Asia and
to find ways of putting them to productive
The ADB will subscribe $130 million of the funds available
to the CGIF, which is expected to become operational next year,
and will manage the facility as a trust fund. The remainder
will come from ASEAN+3 member governments.
Japan is expected to contribute around $200 million through
the state-owned Japan Bank for International Cooperation
(JBIC), a major funder of Asian infrastructure projects.
The CGIF will receive premiums from issuers in return for
its guarantees. This should enable borrowers lacking
name-recognition to issue bonds outside their home markets, but
denominated in their local currency rather than an
ASEAN+3 schemes to foster bond market development have in
recent years included Asian Bond Funds aimed at providing
benchmarking indices and measures to develop market
infrastructure, while the ADB has itself undertaken
fund-raising issues in Asian currencies. But the CGIF is the
first such initiative funded by the governments.
Capital needs for infrastructure projects in Asia, including
cross-border projects, have been estimated at more than $7
trillion over the next ten years. The bulk of this will need to
come from bond markets and other private sources.
The CGIF is being launched at a time when efforts are
being intensified to involve the private sector in Asian
infrastructure via so-called Public-Private Projects or
The ADB, together with the Asia Pacific Economic Cooperation
forum (APEC) and the Australian Treasury is promoting the PPP
formula by holding technical workshops across the region.