The 2023 Bayfront Infrastructure Capital IV (BIC IV) securitisation transaction aims to mobilise private capital at scale, expand the lending capacity of both commercial banks and MDBs, and build markets by demonstrating a replicable model for financial innovation in development finance.
Bayfront Infrastructure Capital IV
Abstract
Balance sheet constraints faced by multilateral development banks (MDBs) and commercial banks restrict their ability to scale lending. At the same time there is a lack of access for institutional investors to diversified, investible assets originated in emerging markets and developing economies (EMDEs) by MDBs and commercial banks, and the perceived risk in EMDEs is high which further deter private investors. The challenges are compounded by the underdevelopment of securitisation markets and the need for robust risk-sharing mechanisms. By addressing and overcoming these barriers, the 2023 Bayfront Infrastructure Capital IV (BIC IV) securitisation transaction aims to mobilise private capital at scale, expand the lending capacity of both commercial banks and MDBs, and build markets by demonstrating a replicable model for financial innovation in development finance.
In 2023, Bayfront Infrastructure Management, supported by the United Kingdom's MOBILIST programme, executed an innovative securitisation of infrastructure loans and bonds to address the financing gap in developing regions. The transaction, BIC IV, involved the issuance of USD 410.3 million in infrastructure asset-backed securities. These securities, listed on the Singapore Stock Exchange, provided investors with exposure to a diversified portfolio of infrastructure projects across Asia-Pacific, the Middle East, Africa and the Americas.
The MOBILIST programme made an equity investment in the transaction, acquiring USD 5 million in preference shares as part of its goal to catalyse private sector capital for sustainable development. The securitisation included a sustainability tranche backed by green and social assets, and GuarantCo provided a guarantee for subordinated Class D notes which ensured enhanced creditworthiness. Institutional investors invested in the senior and mezzanine notes, Apollo Global Management in the Class D notes, and as part of the MOBILIST programme, the FCDO acquired a 19.5% equity stake in the unrated preference shares of BIC IV invested pari passu with Bayfront's own investment. MOBILIST thus invested in a higher risk, higher return position in the capital structure, demonstrating how direct external equity provision on a commercial basis into a private sector securitisation vehicle was able to enhance the listed notes’ rating to attract institutional investors.
The securitisation included a diversified portfolio of project and infrastructure loans and bonds sourced from across multiple regions, including Asia-Pacific, the Middle East, Africa and the Americas. The loans supported various large-scale infrastructure projects, such as energy projects, transportation, utilities, and green and social assets. The loans were primarily originated by commercial banks, but the portfolio also included loans originated or co-financed by MDBs, such as the Asian Development Bank (ADB) or the World Bank Group, as well as other development finance institutions (DFIs).
The securitisation helped the originating banks, MDBs and DFIs free up their balance sheets for new infrastructure financing opportunities and enabled institutional investors to access a diversified portfolio of infrastructure-related debt in emerging and frontier markets. Notes are listed so investors have access to publicly available prices, returns and default risks for assets that are otherwise in private markets making them more complicated to trade and difficult to value.
The BIC IV transaction holds significant strategic importance that reaches beyond the immediate financial impact. It mobilises institutional capital, enhances secondary market liquidity, introduces sustainable investment opportunities and sends a strong signal to the market that infrastructure assets in EMDEs are investible. The transaction is an example of market creation through demonstration. It uses an innovative financial model that can be replicated for mobilising private capital through securitisation. It exemplifies how public funds can mobilise institutional investment at scale while investing pari passu with private capital, particularly for climate-resilient infrastructure. It also illustrates how a collaborative approach involving commercial banks, MDBs, and DFIs as originators of the loans, Bayfront as the sponsor of the transaction, MOBILIST as the provider of catalysing development finance, and GuarantCo as guarantee-provider were successful in mobilising institutional capital for sustainable and impactful infrastructure projects in emerging markets and developing economies.
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