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p. 23 of 24 BACK | NEXT The Asian Development Bank Mobilizing Private Capital Assistance to Private Enterprises Eligibility for ADB Assistance Advantages of Working with ADB Extent of ADB Assistance Appraisal Criteria Loan Terms Security Procurement Accounting and Auditing Arrangements Corporate Governance Environmental Considerations Role of ADB in Supervising Investments Risk Principles for Investment Funds Sale of ADB Equity Investment Commercial Cofinancing Complementary Financing Scheme Guarantees Export Credit Agency Cofinancing Applying for ADB Assistance Processing Procedures Illustrative Private Sector Projects of ADB Contact Information

ADB’s Private Sector Operations: Catalyzing Private Investments Across Asia and the Pacific

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Illustrative Private Sector Projects of ADB

Capital Markets

ADB approved in 2000 an equity investment of up to US$25 million in the Liberty New World China Enterprises Investments Limited Partnership,a fund to help spur the growth of SMEs in the People ’s Republic of China (PRC).

The fund combines the PRC investment expertise of New World Group and the international fund management expertise of Newport Private Equity Asia,an affiliate of Liberty Mutual Group.In addition to the capital contribution to the fund,ADB helped structure the project to ensure best corporate governance and management practices in the fund itself as well as in its investee companies.

The fund raised $75 million at the time of its initial closing.With an arrangement of New World Investments Ltd.making equal amounts of investment with the fund in a joint venture investment company,a total amount of $150 million is committed to the joint venture company to make investments in PRC.

Since the launching in December 2000,the fund has invested in seven projects.The fund ’s investment strategy is to (i)invest in companies wh have strong growth potential but lack financial strength,(ii)add value through strengthened financial discipline as well as employment of modern marketing and management techniques,and (iii)expand and replicate successful investment and business strategies into other regions in PRC.

In November 1996,ADB approved its participation in a regional equity investment fund,the Lombard Asian Private Investment Company Limited (LAPIC)by means of (i)a US$25 million investment in LAPIC and (ii)a US$1 million investment in a related fund manage- ment company.It was structured as a closed-end direct investment fund with a 10-year life from the date of final closing,with a possibility of a two-year extension.LAPIC has raised a total equity capital of US$252 million from the California Public Employees Retirement System (CalPERS)through Lombard Pacific Partners (LPP).Its eligible investments are equity,or equity-linked securities such as convertible bonds,issued by companies undertaking (i)industrial projects, including mainly industries and services that are infrastructure related and those enhancing efficiency as a result of economic liberalization policies such as privatization;and (ii)financial services companies,such as commercial banks,leasing companies,rating agencies,and insurance companies in ADB ’s DMCs.

Infrastructure Projects

The North Luzon Expressway is one of the Philippines ’main road arteries.Presently a narrow,congested and poorly maintained expressway,its upgrading will spur development of central and northern Luzon —the Philippines ’biggest island,help decentralize economic activities from Metro Manila,and support the government thrust to develop the national road network with private sector participation.

The total cost to upgrade 84 kilometers of the expressway was estimated at US$377 million,for which ADB ’s funding support would consist of a loan of US$45 million from its own resources and a comple- mentary loan of US$25 million funded by international commercial banks. ADB acted as the lead coordinating bank in structuring the debt package for the Project.Other key lenders include Export Finance and Insurance Corporation of Australia,International Finance Corporation,and seven international commercial banks.

Structured as a public –private partnership,the Project is being undertaken by the Manila North Tollways Corporation (MNTC)on a rehabilitate-operate-transfer basis.MNTC is a limited liability company jointly owned by the First Philippine Infrastructure Development Corporation,a major private infrastructure development firm;Egis Projects, a unit of the largest French tollway operator;and Philippine National Construction Corporation,a government controlled company that held the original franchise for constructing and operating of the expressway.At the end of the concession period in 2030,the expressway will be transferred to the Government without cost.

The Meghnaghat Power Project is the first power-generating plant to be financed by the private sector in Bangladesh.This BOT Project is expected provide cheaper electricity for the people and more reliable power supply to agriculture and industry.To be built on the northern bank of the Meghna River,20 kilometers from the capital city of Dhaka,the Project will consist of a 450-MW gas-fired combined-cycle power plant,the largest in the country.Sponsorship of the project was won in an international competitive bidding by AES Corporation,a leading independent power producer based in the United States.

The Project is part of the least-cost power expansion program and will provide additional base-load capacity to mitigate the present and projected power shortages.ADB has played a lead role in developing the Project:through a series of technical assistance packages,ADB supported the preparation of the project feasibility study and detailed engineering design,as well as the planning and conduct of the whole bidding process.

The total project cost was estimated at US$300 million.T help finance this,ADB arranged a debt financing package consisting of a US$50 million loan from ADB ’s own resources,a US$70 million loan from a syndicate of commercial banks against an ADB political risk guarantee,and another US$20 million loan funded by the same syndicate of commercial banks under ADB ’s CFS.In the spirit of public –private partnership,ADB also committed to provide a public sector loan to finance the transmission lines of the Project.

The Chengdu Water Project was designed to provide bulk supply of treated water to the capital city of Sichuan Province in the People ’s Republic of China (PRC)under an 18-year BOT contract.Chengdu is the second largest city in the southwestern part of the country and one of the cities classified by the PRC Government as having serious water shortages.The Project involves the construction of a water treatment plant with a capacity of 400,000 cubic meters per day,two water intakes,and a 27-kilometer transmission pipeline to the city.The project sponsor is a consortium of Vivendi from France and Marubeni Corporation from Japan.

The Project was developed with the assistance of ADB.As the first BOT water supply project in the PRC,it would serve as a model for similar projects in other parts of the PRC.Through technical assistance support to the Chengdu Municipal Government,ADB helped ensure that the basic elements of transparent bidding were observed,that the lowest feasible tariff was obtained,and that the project fundamentals,such as tariff increases to enable cost recovery,were in place.The Project demonstrated that the BOT structure could be used at the municipal level and funded externally without any central government guarantee.

ADB was instrumental in structuring the finance for the Project, estimated to cost US$106.5 million.Besides its own direct loan of US$26.5 million,ADB helped secure debt funding commitments from seven commercial banks under ADB ’s CFS (US$21.5 million)and under a guarantee facility from the European Investment Bank (US$26.5 million).

Following approval by ADB and financial closing,the Project won three awards for excellence in project finance in 1999 from three internationally recognized financial publications.The London-based Project Finance International cited the Project as the “Infrastructure Deal of the Year,”while both Hong Kong-based Financial Intelligence Agency and the International Financial Law Review voted it as the “Project Finance Deal of the Year.” The awards were given in recognition of the Project ’s innovative and superior financing structure that allowed the international lenders to take long-term municipal risk in PRC for the first time.

The Project represents a joint venture between a well-established Norwegian telephone operator and a telecommunications company controlled by Grameen Bank of Bangladesh.It involves constructing and operating a nationwide cellular telephone network using GSM technical standard.The backbone of the proposed system is the state-of-the-art 1,800 kilometers fibre-optic transmission system that is leased from the Bangladesh Railways.The network covers almost the entire country and provides the most cost-effective solution to building up a nationwide network covering cities/towns as well as rural areas.The key innovative aspect of the Project is the inclusion of village pay telephones (VPPs),based on the proven and successful experience of Grameen Bank.This allows many villagers to have access to telephone services for the first time, providing a sound business opportunity,particularly for women entrepreneurs.

The development impact of the GrameenPhone Project has been well documented.Researchers from the University of Bonn did an analysis of the development impact of VPPs.They found that out of the 3,000 operational VPPs,each served 1,500 –2,000 people,giving about half a million people access to telephone services for the first time.A sample of 50 phone owners spread over 50 villages surrounding Dhaka metropolitan city indicated that 15 percent of the users are poor,accounting for 25 percent of phone calls made through VPPs.Thirty-five percent of the total phone calls sampled were for family and personal purposes,and ten per- cent were directed for seeking solutions related to health.The proportion is higher for poor people,where most of their calls are directed at obtain- ing market information and emergency health services.A significant im- pact cited by the study relates to the use of VPPs to increase transparency and consequently real income,via productivity increase and fair pricing of commodities supplied by villagers.Women were also more empowered due to phone ownership.The study concludes that “telephones in rural areas trickle tremendous socioeconomic benefits to the villagers,and more so to the poor ones.”

The total cost of the Project was US$167 million.ADB ’s support approved in 1998,consisted of a US$16.7 million loan and a US$1.6 million equity commitment,and was an important component of a financing package from a group of four multilateral and bilateral funding agencies.

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