Capital Markets Meet Emerging Market Investment Needs
MIGA is forging ahead in its efforts to harness the vast resources of the capital markets to meet the investment needs of emerging market economies, and the risk-return appetites of private investors. The agency’s recent $75 million guarantee contract with the First Kazakh Securitization Company, B.V., has been hailed by the financial press and industry pundits as a groundbreaking deal—the country’s first true-sale securitization of mortgages.
The deal involves the purchase of a portfolio of residential mortgages from BTA Ipoteka, the mortgage lending subsidiary of Bank TuranAlem, by First Kazakh Securitization Company—a special purpose vehicle funded by a multi-seller conduit sponsored by ABN Amro Bank of the Netherlands. The funds raised from investors who buy into these mortgage-backed securities will enable Bank TuranAlem to expand its mortgage lending, making the mortgage market in Kazakhstan more competitive and transparent.
MIGA supported this transaction by insuring a portion of the principal and interest payments generated by the mortgage portfolio against the risks of currency transfer restriction and expropriation for a period up to five years. MIGA’s latest pioneering deal shows the market how local borrowers can access sophisticated new forms of financing to match their funding needs. (See the press release for more information.)
Another emerging market project that raised funds from private capital sources with MIGA support is the Dominican Republic Toll Road project. MIGA has provided $108 million in political risk insurance to Grupo Odinsa S.A., Grodco S.C.A., Odinsa Holding Inc. and Grodco Panama for their $14 million equity investment in and $162 million bond issue for the project. MIGA’s coverage is for up to 20 years against the risks of transfer restriction, expropriation, war and civil disturbance, and breach of contract. This is a structured finance deal backed by future toll revenues and marks the first project finance bond issue covered by MIGA.
The project is expected to lower transportation costs by reducing distance and travel time from 220 kilometers and four hours to 120 kilometers and 1.5 hours respectively. Progress on the toll road has already led to investments in a free trade zone that is connected by the road to the international airport of Santo Domingo. Other development impacts include growth in agribusiness, as farmers will have faster and cheaper access to markets in the capital, and tax generation estimated at $50 million over the life of the project. In addition, revenues generated by the project above a specific threshold will be paid to the government. The project is expected to create 2,465 jobs during the construction phase, and about 1,300 once operational. (For more, see the press release.)
MIGA aims to improve access to financing options for developing countries by participating more and more in similar projects.