Directory of Innovative Financing: Philippines

Philippines

Project Title: Private Sector Infrastructure Development Facility

Country: Philippines

Cost: Possible initial total capitalization of $500 million

Sector: Power generation, transport, water, telecommunications and others

Status: Philippine government in final stages of project design with the World Bank, Asian Development Bank, international credit rating agencies, and private investment banks.

Sponsors/Lead Manager: In July, 1995 the government received proposals from six private investment houses interested in structuring the facility and placing its debt and equity: Morgan Stanley, Lehman Brothers, Industrial Bank of Japan, Citicorp, Bank of Tokyo, and CS First Boston. It intends to select one from that group to structure the facility and underwrite the initial placement of debt and equity.

Purchaser: Sponsors of private infrastructure projects in the Philippines.

Financing Package: The current proposal calls for the facility to take the form of a private corporation, most of whose equity would be raised from private investors, with possible minority stakes from the Philippine government, ADB and IFC. The corporation would then issue two tranches of long-term debt: a hard currency portion that could carry World Bank and/or ADB foreign exchange convertibility guarantees, and a $200 million-equivalent peso portion to be raised in the Philippine capital markets. If successful, the corporation could access the markets frequently.

Innovation: The peso funding component of this facility will be assisted by proposed reforms of the investment guidelines applicable to Philippine institutional investors such as the social security system and life insurance companies. These reforms will help in the development of the long-term peso debt market.

The foreign currency funding component of the facility has been based from the outset on private investors' ideas for making the best use of the credit enhancement potential of multilateral participation. The objective is to leverage multilateral capital as a catalyst to raise long-term debt on the capital markets currently unavailable for the Philippines' ambitious $50 billion pipeline of proposed private infrastructure projects. With multilateral initiatives to back up the government or the central bank on foreign exchange availability, the facility may be able to exceed the Philippine sovereign credit rating and issue investment grade Eurobonds with maturities of perhaps 10-20 years initially and, in time, longer. The strengths of the pooled assets in the facility's portfolio of projects, and the equity base of the facility, will also contribute to the investment grade rating. It is envisaged that the facility will invest not only in the long-term debt of projects, but possibly also in equity and other products.

Brief: Although still an untested idea, the Philippine government sees the facility as an important step in its efforts to go beyond its initial group of privately financed power projects and attract a much larger pool of private capital for projects in several other infrastructure sectors. Lack of access to domestic and foreign long-term debt is currently considered a key obstacle to those plans.

Once the government awards a mandate for this project, the winning financial institution will begin raising equity for the sponsoring corporation from international developers, equipment suppliers, and funds and from Philippine institutional investors and commercial banks. It would then identify a pool of viable late-stage and greenfield projects in which it plans to invest, and begin issuing long-term onshore and local bonds to cover their debt components.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07