EBRD and World Bank’s MIGA develop innovative risk-mitigation instrument to attract investment in emerging market infrastructure
Demonstrating new ways to finance crucial infrastructure projects in emerging markets, the European Bank for Reconstruction and Development (EBRD) is backing the €288 million euro-denominated bond to finance a state-of-the-art hospital campus in the Turkish city of Elazig, in Eastern Anatolia. Turkey’s first-ever greenfield infrastructure project bond, it is raising funding as part of the government’s large scale hospital-building programme under a public-private model.
To boost the bond rating and increase its attractiveness to investors, the EBRD and the World Bank’s Multilateral Investment Guarantee Agency (MIGA) have developed an innovative credit-enhancement mechanism. As part of this scheme the AAA-rated EBRD is pledging to provide €89 million as interim liquidity to mitigate the risks of construction and operation.
This unfunded liquidity facility combined with MIGA political-risk insurance has enabled Moody’s to assign a rating of Baa2, two notches above the current rating of Turkey, enabling participation by a larger pool of investors and mobilising new sources of funding. The investment-grade portion of the bond is expected to be subscribed by international and local banks and institutional investors. The International Finance Corporation, a member of the World Bank Group, is expected to invest on a parallel basis in an unenhanced tranche of the bond.
Thomas Maier, Managing Director for Infrastructure at the EBRD, said: “We have developed this innovative credit-enhancement scheme as a risk mitigation instrument to attract much-needed investment in the infrastructure of emerging markets. We are pioneering the scheme in Turkey and we intend to roll it out across the countries where we invest. Joining forces with MIGA to boost the bond rating demonstrates an ever-closer cooperation between international financial institutions to scale up investment in environmentally friendly, sustainable infrastructure.”
The issuance has been certified as a “green and social bond” by Vigeo EIRIS, a leading global provider of environmental, social and governance research, indicating the environmental and social benefits of the project.
The issuer, ELZ Finance, a joint venture between the leading global infrastructure firm, Meridiam, and one of Turkey’s largest construction and infrastructure companies, Rönesans Holding, will on-lend the bond proceeds to its sister company ELZ Saglik Yatirim, which was awarded the 28-year concession by the Turkish Ministry of Health to design, build, finance, equip and maintain a 1,038-bed Elazig hospital campus.
To date, the EBRD has financed five hospital projects in Turkey and has also been working closely with the Turkish Ministry of Health over the past four years to enable greater private-sector involvement in the hospital sector.
The Bank started investing in Turkey in 2009 and currently operates from offices in Istanbul, Ankara and Gaziantep. To date the EBRD has invested over €8 billion in the country through more than 200 projects in infrastructure, energy, agribusiness, industry and finance. It has also mobilised nearly €20 billion for these ventures from other sources of financing. Some 98 per cent of the Bank’s investments in Turkey are in the private sector.