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Private Sector (Nonsovereign) Financing

ADB focuses on projects that help promote private investments in the region that will have significant development impact and will lead to accelerated, sustainable, and inclusive growth.

Commercial Cofinancing

Commercial Cofinancing

The primary objective of ADB’s Guarantees and Syndications Unit is to assist developing member country (DMC) governments and private sector borrowers in securing debt financing on commercial terms for ADB projects through engagement with commercial financial institutions.

To catalyze capital flows into and within its DMCs, ADB extends guarantees for eligible projects that enable financing partners to transfer to ADB certain risks that they cannot easily absorb or manage on their own. ADB also mobilizes additional debt resources for financing through loan syndication.

Commercial cofinancing supports ADB’s developmental objectives by facilitating investment, trade, and capital flows into DMCs.

Main products

To catalyze capital flows into and within its developing member countries 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.

ADB’s guarantees support infrastructure projects, financial institutions, capital market investors and trade financiers, and cover a wide variety of debt instruments. Guarantees may provide either comprehensive (financial risk) or limited coverage, including political risk.

Guarantees can be provided when ADB has a direct or indirect participation in a project or related sector, through a loan, equity investment or technical assistance.

ADB offers two primary guarantee products—a political risk guarantee and a credit—both designed to mitigate risk exposure of financing partners.

Political risk guarantee

Guarantees covering political risk are designed to facilitate cofinancing by providing financing partners with coverage against specifically defined political (or sovereign) risks.

ADB’s political risk guarantee (PRG) is primarily designed to facilitate private sector development, either through public or private sector projects. PRGs are well suited where commercial lenders are prepared to accept commercial (or credit) risks of a project, but not the political risks.

Risks covered include transfer restriction, expropriation, political violence, contract disputes, and non-honoring of a sovereign obligation or guarantee.

Partial credit guarantee

ADB provides partial credit guarantees (PCGs) to lenders of most forms of debt. These include commercial bank loans, loans made by shareholders, loans guaranteed by shareholders or third parties, capital market debt instruments, bonds, financial leases, letters of credit, promissory notes, and bills of exchange.

PCG covers nonpayment by the borrower or issuer (for any reason) on the guaranteed portion of the principal and interest due. This guarantee product is principally applied to financial services and capital markets (e.g., banking, leasing, insurance, and funds); and infrastructure (e.g., power, transportation, water supply and waste treatment, and telecommunications). ADB may consider other sectors on a case-by-case basis.

Partial credit guarantees can be applied to loans or other debt instruments issued by private and public sector projects (limited recourse financings), public–private partnerships, corporates, as well as (sub) sovereign entities.

B Loans are funded by commercial banks and other eligible financial institutions with ADB acting as lender of record. A direct ADB loan (A Loan) is required in the project to fulfill ADB’s direct participation requirement.

Although B Loans do not provide co-financiers with recourse to ADB for debt service, such loans do enjoy the same privileges and immunities as ADB’s direct or A Loans, including:

  • exemption from restrictions on currency conversions and on remittance of interest payments and repatriation of principal,
  • exemption from withholding taxes,
  • reduced likelihood of rescheduling in the event of an external debt crisis in the borrowing country, and
  • exemption from country provisioning requirements (where applicable).

Other benefits include ADB's:

  • project appraisal,
  • supervision and monitoring of project implementation, and
  • loan administration services.

Reputable commercial financial institutions not incorporated or residing in the country of the borrower or project can participate as a B Loan lender.

Unfunded Risk Participations enable ADB to transfer risk and to share returns and any associated recovery rights with respect to a loan provided by ADB with one or more risk participants (typically commercial banks).

Unfunded risk participation enjoys the same privileges and immunities as ADB’s A loans.

Benefits

For borrowers (DMCs and the private sector)

  • additional financial resources to close financing gaps
  • debt financing on best possible terms with ADB’s commercial cofinancing products

For cofinancing partners (shareholders/investors)

  • share ADB's due diligence, financial, technical, environmental and social safeguards
  • risk mitigation where applicable
  • where applicable, regulatory relief
  • lower risk of rescheduling in the event of an external debt crises in the borrowing country

Role of commercial cofinancing

ADB plays an active role in identifying and arranging commercial cofinancing for its projects or programs. Examples of such assistance include:

  • formulating risk mitigation structures to attract public and private sector participation,
  • preparing invitations and soliciting financing offers from public and private market sources,
  • evaluating offers received for commercial cofinancing, and
  • arranging, negotiating, executing, documenting, and monitoring of commercial cofinancing instruments.

Direct participation requirement

ADB's commercial cofinancing products are, in general, only used to support projects or sectors in which ADB has some direct participation. Any ADB financing instrument can be used to fulfill this requirement, including project loans, program loans, multitranche facilities, sector loans, sector development programs, equity investments (for private sector projects), project grants, and technical assistance grants. For ADB’s B Loan, a direct ADB loan is required in the project to fulfill ADB’s direct participation requirement.