By Nick Hedley
Singaporean investment giant Temasek and British financial services group HSBC recently launched Pentagreen Capital, a financier of sustainable infrastructure projects in Southeast Asia.
Temasek and HSBC have injected US$150 million of equity into the new business, which aims to disburse more than $1 billion of loans within five years.
Marat Zapparov, who has been appointed CEO of Pentagreen, recently spoke to Markets Group about the need for such a financier and the opportunities it sees in the region.
Markets Group: What is Pentagreen’s mandate?
Marat Zapparov: Pentagreen seeks to fill the funding gap for marginally bankable and innovative sustainable infrastructure projects that fall between the traditional financing options offered by commercial banks and the remit of development financiers, and other sources of commercial capital.
We will fill this gap by providing blended finance solutions and technical assistance, with support from our strategic partners – the Asian Development Bank (ADB) and Clifford Capital.
Initially, we’ll be focusing on sustainable infrastructure projects in Southeast Asia across renewable energy, energy storage, water and waste treatment, and sustainable transportation.
In the future, we could also look at other geographies and areas like land use and technology-led solutions.
MG: How significant is the funding gap for sustainable infrastructure projects? And which types of projects typically struggle to access traditional finance mechanisms?
MZ: First of all, the need for sustainable infrastructure investment in Asia is significant.
The ADB estimates that US$3.1 trillion of investment is required for climate-adjusted infrastructure in Southeast Asia alone by 2030. And there is a material gap between where commercial banks and development financiers operate – which is where we see opportunity.
We will channel capital to projects and situations which are considered “marginally bankable” by traditional sources of capital.
That can mean assets that might exhibit a degree of innovation not yet accepted by the market, or projects that adopt new structures not yet accepted by the market, as well as other sustainable infrastructure that is not adequately served by existing sources of finance.
Pentagreen will support projects like these by providing flexible debt financing along with technical assistance, which we believe can help to de-risk projects for commercial financiers.
MG: Beyond the initial capital injection, how will Pentagreen be funded going forward?
MZ: While we are starting with US$150 million of seed capital, our goal is to scale up quickly and make over US$1 billion of loans within five years.
Right now, we are focused on establishing our operations and beginning to deploy our existing resources.
As we evolve, we have different options available as and when we need additional capital.
We could boost our capital base through accepting additional equity investments by new partners, by borrowing, or by accessing other third-party capital from providers aligned to our objectives and mission.
MG: Is there growing competition for sustainable infrastructure assets in the region?
MZ: There is certainly growing interest in financing Asian infrastructure, but it’s also critical that the pipeline of sustainable infrastructure projects continues to grow if Asia is going to meet the goals of the Paris Agreement.
MG: Asia is seen as one of the regions most exposed to the climate crisis, as the floods in Pakistan show. Will Pentagreen consider financing adaptation-type projects, and can these projects be commercially viable?
MZ: We’re open to evaluating and financing climate change adaptation projects.
The floods in Pakistan, like many other extreme weather events in recent years, have brought home the human impact of Asia’s vulnerability to climate change. Over 57 million people in the region were severely affected by climate disasters last year, according to the International Federation of Red Cross and Red Crescent Societies.
Even if we meet the 1.5 degrees Centigrade Paris goal, Asia will still have to deal with increasingly serious consequences from climate change, which is why financing adaptation projects is so important.