Financial Products: Private Sector Financing
The Asian Development Bank (ADB) undertakes nonsovereign operations to provide financing to eligible recipients in developing member countries (DMCs). Nonsovereign operations comprise the provision of any loan, guarantee, equity investment, or other financing arrangement to privately held, state-owned, or subsovereign entities, in each case, (i) without a government guarantee; or (ii) with a government guarantee, under terms that do not allow ADB, upon default by the guarantor, to accelerate, suspend, or cancel any other loan or guarantee between ADB and the related sovereign.
ADB catalyzes private investments through direct financing, credit enhancements, and risk mitigation instruments. ADB provides direct funding assistance through loans and equity investments. We offer political risk guarantee and partial credit guarantee instruments to enhance the risk profiles of transactions to attract both foreign and local commercial lenders to projects in the developing member countries (DMCs), and to encourage them.
Through cofinancing and guarantees, we also support local investors, domestic banks, and financial institutions to provide funds on suitable terms for ADB-assisted development projects. ADB also mobilizes additional resources for projects through a "B-loan" arrangement.
Loans and other Debt Instruments*
ADB offers hard currency loans, both senior and subordinated, as well as mezzanine financing. We also offer local currency loans in selective markets on a case to case basis. Interest rates and other terms vary, depending on a company’s or project’s needs and risks.
Rates - In pricing its loans, ADB considers prevailing market rates in the relevant country and sector, factoring in country and transaction risks. ADB provides floating rate loans at a spread above the London interbank offered rate (LIBOR) or Euro interbank rate, depending on the currency. It also offers fixedrate loans at the fixed-rate swap equivalent of floating-rate loans.
Fees - Market-based fees are charged. Typically, on floating-rate loans, ADB charges a once-only front-end fee as well as an ongoing commitment fee on the undisbursed balance. We may also charge a fee to cover upfront costs associated with due diligence. Project sponsors or clients will reimburse out-ofpocket expenses, such as travel and external advisory services (i.e., legal counsel, technical consultants, and environmental and insurance advisors, if any).
Security - We will seek security appropriate for the loan and type of financing.
* Including, by way of example, (i) senior, subordinated, mezzanine, and convertible debt; (ii) project or limited recourse finance; (iii) tier 2 capital raised by banks; (iv) capital market debt instruments including synthetic or structured securities, and the related underwriting and liquidity support arrangements; (v) letters of credit, promissory notes, and bills of exchange (vi) performance, bid, advance, and other payment bonds and forms of bond issuances; and (vii) other forms of financial indebtedness or instruments.
ADB may invest directly in an enterprise. It offers financing through equity investments, including direct equity investments in the form of common shares, preferred stock, or convertibles. Equity investments in enterprises, especially financial institutions, occur before an initial public offering. ADB does not seek a controlling interest in an investee company, and will not assume any management responsibilities. It will, however, typically wish to reserve the right to appoint a nominee or an observer to the board of directors of each of its investee companies and to selected board committees, and will exercise voting rights as a shareholder. It will maintain regular contact with company management and require periodic reports on the progress of capital projects, operating performance, financial condition of the enterprise, and economic value added. ADB also requires reports on specific indicators for development outputs and outcomes, and monitors continued compliance its environmental and social safeguards.
Once the objective of its investment has been achieved, ADB will divest its shares at a fair market price. Facilitating this divestment may require the eventual listing of the shares of the investee enterprises on one or more stock exchanges, conducting a trade sale or entering into a suitable buyback agreement. In general, ADB prefers to sell shares to the nationals of the host country to broaden local ownership and further develop local capital markets. When disposing of its shares, ADB will endeavor to consult with its major investment partners and give due consideration to their views, without being precluded from disposing of its investments at its sole discretion.
ADB may also invest in a private equity fund, up to certain exposure limits. ADB will reserve the right to appoint a nominee to the advisory board of the fund. It will maintain frequent contact with the fund manager and require detailed quarterly reports on the fund manager’s investment, monitoring, value addition, and, eventually, divestment progress. With the same frequency, ADB will closely monitor financial performance as measured by net asset value. ADB makes long-term commitments of capital to private equity funds, in keeping with the long-term lifecycle of such investments, and ordinarily stays invested as a shareholder or limited partner through the life of the fund.
ADB provides guarantees that can be used to cover political risks, and more comprehensively, both political and credit risks.
B-loan/Lender of record
ADB can mobilize additional debt resources for a financing through an arrangement in the form of a B-loan/Lender of Record structure.
In addition to financial products, ADB also offers technical assistance (TA), on a selective basis, for public and private sector operations. This may include the following:
- Capacity Development TA − This assistance offers to undertake institutional and organizational capacity development and to support the implementation, operation, and management of ADB-financed projects.
- Project Preparatory TA − This assistance helps in preparing private sector projects for financing by ADB and/or other external sources.
- Policy and Advisory TA − This assistance helps the public sector by financing sector-, policy-, and issues-oriented studies.
- Research and Development TA − This assistance helps strengthen ADB’s role as a knowledge platform to address development issues of a global or Asia and Pacific-wide nature.
- Regional TA − This assistance helps in project preparation, policy advice, or capacity development for operations covering more than one country-specific borrower. Research and development is by ADB definition considered a regional activity.
- Small-scale TA − This assistance is defined by its size, for amounts up to $225,000, and employs streamlined processing.