TF1 : Guarantees and Bond financing

1. Recourse to a Guarantee adviser 2. Promoting cost sharing facilities to lower

guarantee costs 3. Developing public credit enhancement

facilities for the bond financing of infrastructure projects

4. Developing refinancing vehicles and project bonds

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1. Recourse to a Guarantee adviser

• Guarantees schemes are as important as technical assistance

for the success of infrastructure projects • A Guarantee Adviser would address this issue at the earliest

stage of the projects • Will design, negotiate and if needed provide guarantees • Task could be performed by existing institutions, public or

private, if not conflicted • Hired and paid by the purchasing authority • Guarantee term sheet provided to the project bidders • Bidders remain free to propose their own guarantee scheme,

if demonstrating a better VfM

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2. Promoting cost sharing facilities to lower guarantee costs

• Guarantee adviser could be co-financed by

technical assistance facilities • The cost of guarantees itself could be co-

financed • Would lower global acquisition costs of the

project

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3. Developing public credit enhancement facilities for the bond financing of infrastructure projects

• Banks can provide construction loans but are increasingly reluctant to deliver long term loans

• Alternative is to attract institutional investors into infrastructure financing

• Credit enhancement is the key for providing them investment grade bonds

• All private monoline insurers wiped out by the financial crisis

• Only public institutions could today provide such facilities • Attractive leverage effect for public funding (x5, increased if

provided by a pool of institutions) • Bond issuance compatible with ESG principles and Islamic

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4. Developing refinancing vehicles and project bonds

• Mid-size infra projects are less attractive for bank financing • Bond financing is mostly associated with big projects, due to

transaction cost • A financing gap may hamper mid-size project financing • A vehicle refinancing a portfolio of mid-size projects could

allow for a competitive bond issuance • Project selection by independent team and investment

committee • Investment thesis compatible with Islamic finance principles • Public sponsors taking a credit enhancement tranche • Institutional investors underwriting project bonds

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