ADB targets joint finance deals to meet shortfall

04/05/2013 | Anthony Rowley

Senior officials at the ADB set out their ambition for more co-financing to fill Asia's massive infrastructure needs

The Asian Development Bank must find new sources of co-financing if it is to maintain its current levels of lending, ADB managing director Rajat Nag said in an interview with Emerging Markets.

The bank’s role as a catalyst of external funds to help finance Asia’s massive infrastructure needs has been beefed up during the annual meeting through a series of co-financing agreements.

On Friday, the bank signed a deal worth around $2 billion with the Eurasian Development Bank to help fund infrastructure projects, and a public-private partnership (PPP) deal with International Enterprise (IE) Singapore.

The ADB is currently lending around $10 billion a year from its ordinary capital resources plus $3 billion of soft loans from the Asian Development Fund. Last year the ADB arranged co-financing totalling $8 billion – making $21 billion in all.

However the challenge of closing the funding gap still remains huge, according to Nag. “One curve that is going straight up is co-financing but it is nowhere near where we have to get it,” he told Emerging Markets.

The European Investment Bank (EIB) “has doubled its allocation to Asia and we are working with them much more closely and aggressively than we have in the past,” said Nag. The ADB also co-finances with institutions such as the Japan Bank for International Cooperation (JBIC) among others.

“But I still think that the bulk of [co-financing] will have to come from the private sector, such as public-private partnership [deals] because in a way the official [contributions] are a zero sum game because if we did not do it someone else would,” said Nag.

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ADB president Takehiko Nakao told Emerging Markets that the bank’s investment income was falling short of target as a result of low interest rates and that co-financing must be stepped up if the ADB is to maintain its own lending levels.

Regional development banks and other institutions find co-financing with the ADB attractive due to the Manila-based bank’s close knowledge of Asian countries, Sergei Shatalov, deputy chairman of one of the Eurasian Development Bank’s funds told Emerging Markets.

“It is always valuable to partner with an institution which has longer experience, which is present [in a country] and with which you can allocate risk more efficiently,” Shatalov said.

The ADB also signed a letter of commitment with International Enterprise in Singapore under which the two will launch a PPP scheme to catalyze infrastructure development within ASEAN.

The ADB has already become an equity partner in the ASEAN Infrastructure Fund (AIF) and it may be possible in time for investors to buy infrastructure bonds backed by the ADB and AIF, said Nag. “But I think we are still some distance away [form that] because we first have to establish a track record” for the fund, he said.

Sovereign wealth funds are a major potential source of co-financing for infrastructure projects. But Nag said: “I sense reluctance for them to step in yet. Everyone is waiting for a track record and of course you can’t build a track record until you get started.”

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Tagged as: Asia financing ADB infrastructure investing in Asian infrastructure PPP

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