Infrastructure Bonds

Bonds have become a increasingly important financing instrument in the debt capital market for infrastructure projects. Until the early 2000s infrastructure finance mainly relied on equity from industrial sponsors (contracting parties that contribute to the establishment of the project) and the public sector. Since then banks and bank syndicates have become more interested in the debt side of large scale infrastructure projects. Since 2010 the share of bonds as part of total project finance has grown steadily to a 12-20%. Bonds can provide a stable long term cash flow over the lifecycle of a infrastructure project and are of interest to banks, pension funds and other investors with a long term horizon. Bonds for financing infrastructure are issued as part of Special Purpose Vehicles that are set up to finance, construct and maintain large scale infrastructure projects. Municipal bonds are debt securities that are issued by municipalities to finance its capital expenditures like highways bridges or schools. There is a bright future for bonds tapping into new capital markets to finance infrastructure for Smart Cities.
Sources: Bocconi/S.Gatti; financing infrastructure projects, Investopedia.
Picture: E class Melbourne Tram, Flickr, Bernard Spragg

Private Equity for Urban Services

One of the key drivers of growth and development in emerging markets is the private sector. Urbanisation comes with a growing private sector of SMEs and private firms providing services to the general public, industries and the public sector. Capital investment is key in these emerging urban economies and the International Finance Corporation (IFC), part of the World Bank Group has committed major investments in “diverse sectors of the Kenyan economy”. “Kenyan firms are increasingly taking debt and equity investments from the IFC and other global financiers, including European Investment Bank (EIB), Agence Française de Développement (AFD), Proparco and DEG to compensate for the limited funding opportunities in local capital markets.” According to Business Daily the global fund’s latest investment commitments include a Sh15.2 billion loan to Co-op Bank and a Sh2.7 billion debt and equity investment in a hospital to be built on Nairobi’s Kiambu Road. The financier says it intends to provide $22 million (Sh2.2 billion) in equity and $5 million (Sh505 million) in debt to an investment vehicle that is building the hospital. Owners of the hospital have acquired three acres on Kiambu Road for the facility.
Source: Businessdaily
Footage: Rogier van den Berg