InfraZamin to extend credit guarantees for Sindh projects

KARACHI: InfraZamin Pakistan Ltd, a credit guarantee provider backed by international financial institutions, will extend local-currency credit guarantees for infrastructure projects in Sindh under the public-private partnership mode.

Speaking to Dawn on Tuesday, InfraZamin Pakistan CEO Maheen Rahman said the company has signed a memorandum of understanding (MoU) with the Public-Private Partnership Unit (PPPU) of the Sindh government, which will remove the need for bank collaterals by reducing the implied credit risk.

Financing for infrastructure projects of the Sindh government is sometimes arranged through bank loans or capital market institutions. Banks often demand collateral or other kinds of assurances before lending to the Sindh government, a practice that’s consistent with the global norms of project and infrastructure financing.

“Once we extend the facility, banks will lend against our guarantee as the primary financial collateral. That’ll free up some of the collateral that the Sindh government can use elsewhere,” said Ms Rahman.

Credit guarantees by a private-sector player will help achieve a quicker financial close and project implementation while letting the government enhance its financial space, she added.

Established in 2010, the PPPU helps government departments in project preparation and execution through collaborations with private-sector stakeholders. It has delivered a number of projects worth Rs58 billion so far. It currently manages a portfolio of Rs700bn.

Even though governments and their associated departments are supposed to be risk-free or low-risk borrowers globally, no bank takes “clean risk” on any institution when it comes to long-term infrastructure financing, she said. “Banks always look for some collateral or arrangements to protect themselves. We’re a replacement for some of that. Banks are more comfortable in lending against our guarantees,” she said.

InfraZamin Pakistan currently can extend credit guarantees of up to Rs80bn. “This is our balance sheet exposure possibility. But we have international partners and sponsors who can also contribute. There’s a fair amount of financial muscle that we can put to use,” she said.

The private-sector firm is already evaluating “two to three projects” put forward by the PPPU. One of these projects deals with creating infrastructure for a state-of-the-art technology park while the other one is a water-recycling plant, Ms Rahman said.

The MoU signing ceremony was attended by Special Assistant to Sindh Chief Minister for Investment Department and PPP Projects Syed Qassim Naveed Qamar along with PPPU DG Assad Zamin.