Ifc Plans Bond Agency For Core Projects In Asia

The new agency, to be called the Global Guarantee Association (GGA), would be established in Singapore and could be up and running by the end of the year, the source told Reuter yesterday.

It would enhance the creditworthiness of projects that otherwise might have problems...especially things that are either asset backed or revenue backed like infrastructure projects, said the source, who declined to be identified.

The IFC helps private enterprises in developing nations and mobilises domestic and foreign capital, including its own, for this purpose.

Separately, the daily Business Times newspaper yesterday quoted an IFC official in Washington as saying the GGA would have some $200 million of capital behind it.

 

The GGA would have a double-A investment rating, it said.

The banking source said the GGA would be backed by up to eight Singapore institutions, which could include prominent local banks such as Oversea-Chinese Banking Corp (OCBC) and possibly Singapore's state investment company Temasek Holdings.

Officials at OCBC and Temasek were not immediately available for comment.

Bankers say such credit enhancement agencies are necessary in emerging financial markets because often would-be issuers of debt have a good but short track record or are operating in areas with which rating agencies are unfamiliar.

The source said there were a large number of worthy projects in Asia that could receive GGA backing in future. These might include, for example, a spin-off of credit-card receivables by a Philippines bank, or maybe an infrastructure project in Thailand.

That would need credit enhancement to bring it up to investment grade, he said.

All of these east Asian countries have huge capital needs. They have some access to international capital but they could do with some enhancement.

The source said most of the backing for the GGA would be provided by Asian financial institutions with the risk spread thinly across several institutions.

And although the upfront capital of the GGA would be relatively small, its effect would be powerful.

The idea is that, say, you put down a (few) hundred million US dollars and the leverage is many, many times greater than that, he said. The idea is to raise Asian capital. I don't think it matters where the bond is issued. The fact is that it is being mobilised for Asia and the underwriters are principally Asian.

The Asian Development Bank recently established its own credit enhancement agency, known as ASIA, in Singapore.