Published July 3, 2009

Developing Asian nations to get financing

Jointly sponsored by ADB and IDB, fund aims to help build infrastructure

By PAULINE NG
IN KUALA LUMPUR

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Developing Asian and Central Asian nations looking to get Shariah-compliant infrastructure projects off the ground could soon find financing from a US$500 million Islamic private equity fund, jointly sponsored by the Asian Development Bank (ADB) and Islamic Development Bank (IDB).

Mr Razak: He says CIMB is currently working on a pipeline of deals

Both banks have committed to an initial combined total of US$250 million to the Islamic Infrastructure Fund (IIF), which would be managed and advised by CIMB Standard Strategic Asset Advisors, a joint venture between Malaysia's CIMB group and the African banking group Standard Bank.

IIF plans to raise the balance capital from global private investors, primarily from the Middle East. The fund has identified Indonesia, Kazakhstan, Malaysia and Pakistan as the main focus markets, but would also consider investments in eight other nations: Afghanistan, Azerbaijan, Bangladesh, Kyrgyz Republic, Maldives, Tajikistan, Turkmenistan, and Uzbekistan - all common member countries of the ADB and IDB.

At the launch of the fund in Kuala Lumpur yesterday, CIMB Group chief executive Nazir Razak said he was confident of appetite for the new fund, given Asian infrastructure development needs are expected to exceed US$8 trillion in the coming decade. 'The majority of private equity funds are focused on large markets such as China and India, creating a gap which we intend to fulfil by leveraging on our expertise as a focused regional player.'

The fund's indicative investment size in the equity portion of a project is between US$25 million and US$75 million, and it intends to focus on sectors such as transport, communications, utilities, water supply, sanitation and waste management, and education.

CIMB Standard is targeting to give investors returns of 10-14 per cent net. Its stated exit strategy in investee projects is four to eight years.

Mr Nazir said that CIMB Standard was currently working on a pipeline of deals, as well as on extending its physical presence to Central Asia.

Another of its private equity funds - The South East Asian Strategic Assets Fund (Seasaf) - had already invested nearly half or US$70 million of its US$150 million capital, in six investments - tolled roads, health care and resources - in Malaysia, Indonesia and The Philippines. It expects the rest to be invested in six to eight months.

The bulk of it could be in Babcock & Brown's portfolio of assets in Southeast Asia worth about US$50 million. Last week, CIMB's parent company Bumiputra-Commerce Holdings informed the stock exchange that its subsidiary, CIMB Standard Strategic Asset Advisors, had entered into an exclusivity agreement with Babcock & Brown Falcon Investment to discuss the sale of its interests in Asia Infrastructure Fund GP.

ADB's director of capital markets & financial sector division, Robert van Zweiten, noted many member countries of the IDB and ADB had less developed infrastructure than the Asian average. 'We expect the fund to help channel investments into critical infrastructure projects in the region which will in turn improve the prospects for economic growth and poverty reduction.'