By Peter Cripps
The CEO of the newly launched partnership between Temasek and HSBC fields questions from Environmental Finance.
Read the story announcing the partnership here.
Environmental Finance: Why SE Asia? Why now? Why infrastructure debt?
Marat Zapparov: When you think about regions in the world that have the greatest infrastructure financing needs, Southeast Asia would be at the top of the list. The ADB estimates that US$3.1 trillion of investment is required for climate-adjusted infrastructure in Southeast Asia alone by 2030.
Our primary objective is to accelerate the development of sustainable infrastructure in Asia. We aim to address the barriers that prevent marginally bankable sustainable infrastructure projects from accessing capital.
We will channel capital to projects and situations which are considered "marginally bankable" by traditional sources of financing.
EF: Can you be more specific about what kind of debt will be provided?
MZ: Pentagreen expects to provide debt financing with flexibility around structure which can be adapted to a specific situation. We are not looking to invest in equity.
We are looking at providing individual loans of US$20-40 million and may participate as part of a club of lenders to a project.
EF: At what stage in the development of projects will the company lend?
MZ: We will channel capital to projects and situations which are considered "marginally bankable" by traditional sources of capital. That can mean assets that might exhibit a degree of innovation not yet accepted by the market, or projects that adopt new structures not yet accepted by the market, as well as other sustainable infrastructure that is not adequately served by existing sources of finance.
We see these situations arise in areas such as renewable energy, electric vehicles (EV) projects and the broader EV eco-system across South East Asian countries, waste recycling assets and other infrastructure supporting decarbonisation and circular economy.
We can consider funding along the full lifecycle of a project, from development through construction and to the operations phases.
EF: Why has it taken a year to get it off the ground?
MZ: It takes time to build a platform like this from scratch.
With the appointment of a CEO, we are now entering our first phase of operations. Over the coming months, we will be working intensively to establish our systems and processes, conduct due diligence on projects and begin deploying capital.
We will look to make our first financial commitment as soon as we are ready and have identified the right project.
EF: Has the US$150 million come equally from HSBC and Temasek? Which parts of the businesses allocated?
MZ: HSBC and Temasek agreed last September to form Pentagreen on a 50:50 basis.
EF: Where will the remainder of the targeted $1bn come from – these two or can other investors allocate capital?
MZ: Right now, we are focused on establishing our operations and beginning to deploy our existing resources.
As we evolve, we have different options available as and when we need additional capital. We could boost our capital base through accepting additional equity investment by new partners, by borrowing or by accessing other third-party capital from providers aligned to our objectives and mission.
EF: What are the return expectations? (And are these lower because of the blended finance nature of the investments?)
MZ: Although Pentagreen is a commercial venture, our shareholders' long term outlook means we are not focused on maximising returns in the short term.
Having this patient capital behind us allows us to deliver on our top priority: delivering blended finance at scale over time, and catalysing other sources of capital in order to fill the funding gap for marginally bankable projects, thereby accelerating the development of sustainable infrastructure in Asia.
EF: Will ADB be the main partner for blended finance or will it also look elsewhere? What will be the main blended finance structures considered?
MZ: We have the benefit of having ADB as a strategic partner and, being a development finance institution, ADB is well-placed to support us on the blended finance aspect of the Pentagreen platform.
Having said that, Pentagreen will work with all of its shareholders and partners and broader stakeholders on implementing blended finance approaches. These might take the form of blending catalytic capital with commercial capital using the Pentagreen platform, mobilising technical assistance where funds are used for project preparation leading up to a financing event, or other ways of utilising catalytic funding to accelerate the development and implementation of sustainable infrastructure.