Inter-American Investment Corporation is looking to boost its ability to structure investment-grade debt deals for its clients in a bid to lure institutional investors to finance sustainable projects in Latin America and the Caribbean.
(Bloomberg) — Inter-American Investment Corporation is looking to boost its ability to structure investment-grade debt deals for its clients in a bid to lure institutional investors to finance sustainable projects in Latin America and the Caribbean.
IDB Invest is seeking approval from its shareholders — including the US and China — for a new business model enabling it to be more active in reducing transaction risk by using tools such as extending guarantees or funding equity and subordinated portions of financings, Gema Sacristan, chief investment officer for the multilateral lender, said in an interview. Doing so would allow the lender to improve the credit quality of the senior debt in deals, making them potentially eligible for investment-grade ratings even as most countries in the region don’t have that status.
“We really want to encourage the market to join forces with us and to co-invest with us. In order to do that, we need to take more risk,” said Sacristan. “For the BlackRocks, the Allianz, MetLife, Prudentials — for these big institutional investors, that are increasingly interested in sustainability — it is very important for them to have investment-grade transactions.”
IDB Invest, which is part of the Inter-American Development Bank group (IDB), provides financing and advisory services to private sector companies. It’s seeking to increase its ability to mobilize capital as Latin America and the Caribbean region faces $2.2 trillion of spending by 2030 on new and existing projects from water and sanitation efforts to highways and electricity grids to meet the United Nations’ sustainable development goals, according to an IDB report.
That’s equivalent to investing an average of 3.1% of its gross domestic product during the current decade, up from average of 1.8% between 2008 and 2019.
Should the new business model be approved, IDB Invest will aim to raise additional equity, allowing it to expand some areas of the bank and also better handle higher regulatory reserves required to take on such risks, said Sacristan. The board of governors’ annual meeting is scheduled to take place in Panama City next month, where the proposal for the new model will be presented, she said.
IDB Invest, which holds the second highest investment-grade ratings from S&P Global Ratings and Moody’s Investors Service, earlier this month sold $1 billion of five-year sustainable bonds. The transaction, which was arranged by investment banks including Goldman Sachs Group Inc., was quoted at a bid yield of about 4.3% Monday, Bloomberg data show. For context, a similar duration bond issued by Mexico, one of the few investment-grade countries in the region, yields around 5%.
The US has 14.9% of IDB’s voting power — more than any other country — followed by Argentina, Brazil and Mexico, according to the lender’s investor presentation. China holds 5.3% of voting power. IDB Invest provided approximately $8.3 billion in financing in 2022, which included $3.1 billion in resources mobilized from investors so volumes could increase significantly under the potential new model, Sacristan said.
“The main objective is to de-risk transactions to encourage different types of investors, especially institutional investors, to invest in the region,” said Sacristan. “For a long time we’ve been a buy-and-hold or structure-to-hold bank.”
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