The Private Sector at the Forefront of COVID-19 Response
The private sector is vital to completing ADB’s mission to reduce poverty in Asia and the Pacific—by creating jobs, driving businesses, funding investments, and spurring innovations. The sector contributes to taxes being paid, families having jobs, and communities gaining access to services and goods.
The COVID-19 pandemic caused an unprecedented negative impact on many supply chains and industries around the world. From travel restrictions disrupting the supply chains of small businesses to the plummeting sales of big retail stores, there are numerous examples of how the pandemic has hit the private sector hard. But as the pandemic unfolded, it quickly became clear that the private sector was not just a casualty; it was also a big part of the solution. From primary healthcare provision to vaccine development, the private sector was at the forefront of the fight against COVID-19.
Private Sector Cofinancing in 2020
In 2020, cofinancing for ADB’s private sector (nonsovereign) totaled $5.3 billion, of which $3.1 billion was short-term cofinancing and $2.1 billion was long-term cofinancing, while cofinancing of private sector transaction advisory services amounted to $76 million. Roughly 74% ($2.3 billion) of short-term private sector cofinancing went to COVID-19 transactions, providing urgent liquidity and working capital to private entities responding to the pandemic with much-needed goods and services. For long-term private sector cofinancing, 15% ($314 million) supported COVID-19 activities.
Overall private sector cofinancing in 2020 declined compared to 2019—when it reached $6.9 billion—largely due to the negative impact of the COVID-19 pandemic, which resulted in a drop in ADB private sector operations from $5.2 billion in 2019 to $4.5 billion in 2020. More than half (21) of ADB’s 38 private sector projects had cofinancing from partners in 2020, a slight improvement from the 2019 figure of 19 out of 38. As in previous years, the bulk of private cofinancing—$4.9 billion, or 94% of the total—came from commercial partners while the rest originated from official sources.
Check out the cofinanced projects in 2020 by subregion and member country.
In 2020, ADB focused on supplying shorter-term, smaller-scale liquidity and working capital to private entities that were responding to the pandemic with much-needed goods and services. Among the more active countries were Bangladesh, Pakistan, Sri Lanka, and Viet Nam.
The $3.1 billion of short-term cofinancing in 2020 was generated through the Trade and Supply Chain Finance Program (TSCFP). Among the numerous examples of the TSCFP mobilizing short-term cofinancing to support COVID-19-related goods are (i) transactions involving the importation of medical supplies to Sri Lanka from India valued at $25 million ($9.3 million of which was cofinanced), (ii) the importation of medicaments to Uzbekistan valued at $2 million ($0.9 million of which was cofinanced), and (iii) the importation of ventilators and nebulizer kits to Viet Nam from Singapore with a total value of $1.1 million (about $200,000 of which was cofinanced).
The TSCFP has two components:
Trade Finance Program
Delivering substantial support to small and medium-sized enterprises (SMEs), the TFP provides guarantees and loans to banks in support of trade. TFP’s transactions occur intra-regionally (between an ADB member country and a non-member country) or between developing members, covering consumer goods, commodities, capital goods, and others. With SMEs comprising more than 90% of the businesses in Asia and the Pacific, they have a vital role in helping close the global trade finance gap. This gap stands at $1.5 trillion, according to ADB’s Trade Finance Gap survey, with 40% of this gap coming from the region.
In 2020, the TFP supported 7,178 transactions worth $5.8 billion—including $2.8 billion in cofinancing—helping 2,114 SMEs. This enabled the TFP to more than double the amount of trade it supports at any given time under its current $2.2 billion program limit.
Financial institutions in Germany, Switzerland, and the United States were the largest sources of cofinancing for the TFP. To better support the efforts to fight the COVID-19 pandemic, the TFP raised its program limit temporarily by $800 million. Of the $5.8 billion in transactions supported, $4.5 billion were deals related to fighting the COVID-19 pandemic, with $2.3 billion of that cofinanced.
The TFP works closely with key donors. One example is Australia’s Department of Foreign Affairs and Trade, which provides funding for efforts such as TFP’s safeguards and gender initiatives, capacity building, and a study on global gaps in trade finance. Funding from the Government of Luxembourg helps in TFP’s gender initiatives and anti–money-laundering work. The TFP works on the upgrade of safeguards measures through funding from the Rockefeller Foundation and the governments of Switzerland and the United Kingdom.
Supply Chain Finance Program
The Supply Chain Finance Program (SCFP) helps enhance SMEs' access to working capital. Rather than focus on balance sheets and collateral, which tend to be weak at SMEs, supply chain finance focuses on the history of performance, longevity, and nature of relationships within a supply chain. This helps address the financing gap that SMEs face against larger, more-established businesses.
In 2020, deals supported by the SCFP amounted to $246.2 million, with cofinancing under the SCFP at $162 million. Of this cofinanced amount, about $144 million were deals related to fighting the COVID-19 pandemic.
The TSCFP also has partnerships that include certification programs for trade and supply chain finance by the International Chamber of Commerce Academy and anti–money-laundering and slavery programs presented by the Association of Certified Anti-Money Laundering Specialists (ACAMS), as well as certification in Ending Illegal Wildlife Trade with ACAMS, WWF, the Basel Institute on Governance, United for Wildlife, and The Royal Foundation.
Other partners include the International Chamber of Commerce, the Bankers Association for Finance & Trade, Financial Stability Board, Global Legal Identifier Foundation, Government of Singapore, International Finance Corporation, International Trade Factoring Association, SWIFT, Wolfsberg Group, Women’s Network, and the World Trade Organization.
The pandemic highlighted just how important and vulnerable supply chains are. When ADB asked partner banks to specify which of their clients are critical to the supply chain of COVID-19 goods (e.g., ventilators, masks, vaccines, cold storage, etc.) and need short-term financing, many could not do so. In response, an interactive supply chain mapping tool was developed to help banks, investors, governments, and healthcare professionals access the information they need to reach out to companies involved in the supply chains of goods to fight COVID-19.
Strategy 2030 set for ADB’s nonsovereign operations a target ratio of $2.5 cofinancing for every $1 of ordinary capital resources deployed. In 2020, ADB realized a cofinancing ratio1 of 2.1 for its nonsovereign operations relative to its own lending.
The $2.1 billion worth of long-term cofinancing in 2020 was generated through official and commercial cofinancing. Of this, $314 million funded projects or parts of projects that responded to the pandemic.
Of the $314 million devoted to the pandemic response, $157 million went to five COVID-19 projects, three of which were supported via risk transfers and two via parallel cofinancing. One is an ADB assistance in India that enhances microfinance loan and guarantee support to provide liquidity to SMEs, including those owned and run by women. This initiative provided a $40 million loan to private company Northern Arc Capital Limited, which will then on-lend the loan proceeds to microfinance borrowers and SMEs in India affected by the pandemic. A project with Olam International will help sustain the livelihood of smallholder farmers impacted by COVID-19 in Indonesia, Papua New Guinea, and Viet Nam by providing working capital financing for raw material procurement from these farmers. Another project brings ADB assistance back to the Wuhan firm it supported at the start of the pandemic. In February 2020, ADB provided an emergency loan of $18.6 million to the Jointown Pharmaceutical Group Co., Ltd. to help supply essential medicines and personal protective equipment in Wuhan, the original COVID-19 epicenter. In November, ADB approved the Jointown COVID-19 Pharmaceutical Distribution Expansion Project, which will support the construction and expansion of Jointown facilities in more provinces of the People’s Republic of China, including cold-chain warehouses for temperature-sensitive pharmaceutical products like vaccines. The Deutsche Investitions und Entwicklungsgesellschaft mbH cofinanced the project.
The long-term cofinancing products are as follows:
B loans are loans made by ADB, funded by a third party or parties, without the borrower having any recourse to ADB. B loans are funded by commercial banks and other eligible financial institutions with ADB acting as lender of record. Participants benefit from ADB’s status as a multilateral development institution, including its relations with governments and experience in a certain sector. In 2020, ADB closed three B loans for $467.7 million, a historic high for ADB’s operations. Indeed, ADB saw the largest B loan so far, which was for the mitigation of water pollution in rivers and lakes in the People’s Republic of China. Other B loans include the operation of a 257-megawatt (MW) solar photovoltaic power plant, and the construction and operation of a 50 MW solar power plant and associated transmission lines. The last two projects are in Viet Nam.
To catalyze capital flows into and within its developing members for eligible projects, ADB extends guarantees for eligible projects which enable financing partners to transfer certain risks that they cannot easily absorb or manage on their own to ADB. These guarantees can be “partial credit guarantee,” where ADB provides comprehensive cover to cofinanciers against commercial and political risks; and “partial risk guarantee,” with ADB covering some (not all) of the risks associated with a loan. ADB’s guarantees support infrastructure projects, financial institutions, capital market investors, and trade financiers. They cover a wide variety of debt instruments. In 2020, guarantees worth $35 million were issued supporting commercial financing from the private sector to microfinance institutions in the region.
Official cofinancing is financing with bilateral and multilateral partners, including public sector lending windows of export credit agencies. In 2020, the official cofinancing was $267 million, including long-term financing for a 10 MW wind power project in Thailand, raising equity capital from new and existing shareholders to scale up investments in sustainable infrastructure in the region, and construction of a natural gas-fired power plant in Bangladesh.
Parallel cofinancing is cofinancing provided by third-party cofinanciers to a project alongside ADB. This can either be a parallel loan, which is a third-party loan in transactions that have ADB’s direct loan or equity participation; or a parallel equity, which is a third-party equity investment in a private equity fund or a transaction where ADB makes a direct investment. In 2000, ADB’s parallel cofinancing totaled $754 million. An example is a project that enables the borrower to construct a 200 MW solar photovoltaic–based power plant located in Gujarat, India.
A risk transfer is an agreement between ADB and a financing partner under which—through insurance policies, risk participation agreements, or other similar contracts—the partner assumes a portion or all of ADB’s risk of loss. In 2020, ADB transferred $558 million of its credit exposure on loans and guarantees to independent counterparties, translating into $443 million in cofinancing. Of those, one was for a loan to fund the lease or purchase of new energy buses. Such buses are needed to reduce the climate impact of urbanization and develop public transport in a sustainable manner.
Lessons from COVID-19 Response
ADB private sector operations played an active and crucial role at the beginning of the crisis. For example, even before the World Health Organization declared COVID-19 a global pandemic on 11 March 2020, ADB had already approved in February its loan to help Wuhan-based Jointown Pharmaceutical Group Co., Ltd ensure a continuous supply of essential medicines and personal protective equipment amid mobility restrictions and soaring demand at the disease’s initial epicenter. This happened because the company had a strong information technology setup that enabled it to pinpoint where supply gaps existed.
Digitization plays a vital role in ensuring supply chains are robust. Setting up a fluid digital trading system—from exporters to shippers to ports to customs to warehousing and more—to increase productivity, defining digital standards to drive digitization, and understanding what legislation gaps exist to impede digitization are crucial.
Toward the end of 2020, ADB’s private sector support also covered financing to construct cold-chain warehouses for vaccine distribution. Moving forward, the private sector operations have a huge opportunity to help achieve resilience and health security during a pandemic by funding infrastructure and helping increase manufacturing capacities to support supply chains.
2020 Nonsovereign Projects
- Approval: 22 July 2020
- Borrower: Georgia Global Utilities JSC
- Leading Asia's Private Infrastructure Fund (LEAP) $20 million
Economies worldwide are increasingly becoming aware of the effects of global warming and climate change. Investors recognize the need for collective efforts to mainstream climate mitigation and adaptation in their investment decisions.
With debt investments in green bonds from ADB, LEAP, and other partners, the Georgia Global Utilities JSC will issue up to $250 million of 5-year green bonds, where proceeds of the issuance will be used to finance capital expenditures to rehabilitate the water supply and sanitation system in Tbilisi and neighboring municipalities, and to refinance existing debt of renewable energy and water assets.
Green bonds are innovative financial instruments to promote transparency and accountability to investors, with the proceeds used exclusively to finance or refinance, in part or in full, new or existing green projects with environmental or climate-related benefits. Supporting the first green bond in Georgia will expand trade, create more jobs, and combat poverty by developing economic corridors in Georgia through the private sector.
- Approval: 13 January 2020
- Borrower: Lomligor Company Limited
- Clean Technology Fund $4.7 million
Thailand’s natural gas resources have long been a reliable source of low-cost energy. However, growing demand, dwindling domestic reserves, and the commitment to reduce greenhouse gas emissions mean the country must find new fuels and technologies to help meet its future power needs. Energy demand is expected to double from 2015 to 2036.
With loans from ADB and Clean Technology Fund, Lomligor will provide long-term financing for a 10 MW wind power project with an integrated 1.88 MW-hour pilot battery energy storage system. The project will be the first private sector project in Thailand to integrate utility-scale wind power generation with battery energy storage.
The project is in southern Thailand, one of the country’s least-developed regions, which suffers from lack of investment, job opportunities, and access to basic services. The project will provide additional generation capacity to the region, help make the power network more resilient, and thus support economic growth.
- Approval: 8 July 2020
- Borrower: Clifford Capital Holdings Pte. Ltd.
- Leading Asia's Private Infrastructure Fund (LEAP) $45 million
Developing Asia requires annual infrastructure investments of $1.7 trillion until 2030. Presently, 70% of developing Asia’s infrastructure investment in Asia is financed by the public sector, and this is not sustainable. As governments allocate public funds for emergency response and recovery post–COVID-19, there will be a greater reliance on private sector funding to close the infrastructure gap in developing Asia.
With loans from ADB and the LEAP, Clifford Capital Holdings Pte. Ltd (CCH) is raising equity capital from new and existing shareholders to scale up its investments in sustainable infrastructure. They plan to achieve this by expanding two existing group companies, Clifford Capital Pte. Ltd. and Pierfront Capital Fund Management Pte., Ltd., and establishing two new group companies, Bayfront Infrastructure Management Pte., Ltd. and a supply chain financing entity.
ADB’s investment will support CCH’s growth in sustainable infrastructure financing in developing Asia, which is in line with ADB’s priority sectors including environmental infrastructure and transport, among others.