Investment experts and investors have projected that the $1 billion synthetic Room2Run securitization instrument packaged by the African Development Bank (AfDB) and its partners would serve as a model for other lenders, help reduce costs, and shorten execution time.
Scores of finance experts and investors who spoke at a workshop on Saturday on the sidelines of the IMF/World Bank annual meetings and the 2018 Global Infrastructure Forum in Bali, Indonesia that the landmark securitization instrument, a first for any multilateral development bank, described the Room2Run facility as a “strong market fit.”
According to a news report distributed by the African Press Organisation (APO) Group on the facility, the instrument offers other multilateral development banks and investors a roadmap for innovative financing and new ways to explore the release of much-needed capital to impact financing and catalyze private capital in developing markets.
Commenting on the instrument, AfDB’s Vice President of Finance, Swazi Tshabalala, said: “This is particularly important as it opens the door for significant scale in the future, both in Africa and in other continents where your institutions are present and financing development projects.”
He described the Room2Run as a timely intervention in the light of new regulations in banking that would see more traditional commercial bank lenders scaling back some of their activities in the project finance and trade finance markets.
The development finance expert said: “These regulations will make investments in regions such as Africa more expensive and capital intensive, and this is why we have to find new avenues to crowd-in non-traditional sources of funding. ”
Describing Room2Run as the “crown jewel of our impact activity, Lead Portfolio Manager of the IIFC Strategy, Mariner Investment Group, Andrew Hohns, noted that there was a common misconception about the performance of MDB’s loans as unattractive; but that the risk perceptions were often unbalanced.
According to him, “these assets have performer pretty well,” based on Mariner’s global involvement with impact financing totalling nearly US$14 billion of infrastructure assets covering 1,250 projects world-wide.
Hohns said the investor’s decision to partner with the AfDB rested on its strong track record, adding that the bank is by far the most positioned of institutions on the continent to offer this kind of securitization, adding that synthetic securitization deals such as Room2Run are a “strong market fit.”
“The level of interest in taking exposure to the assets within the MDB’s is high,” Hohns said.
Similarly, Head of Unit Investment & Innovative Financing, European Commission, Kay Parplies, said that Room2Run was “catalytic” and hoped its involvement would attract other private investors and rating agencies to refine their approaches to African assets.
He disclosed that his company’s experience over two decades had shown many in the investor community that actual risks (in African investments) were often lower than the perceived risks.
Other presenters at the workshop included Co-Head of Structured Products Solutions, Mizuho International, Juan-Carlos Martorell and Director General, International Finance and Development, Finance Canada, Nicole Giles.
About 70 participants from the international finance community – investors, bankers and other financial institutions, attended the workshop titled ‘A Look at Optimizing MDB Balance Sheets Through Securitization’ organized by the African Development Bank and the Mariner Investment Group, LLC (Mariner), a key investor in the deal.
The participants heard presentations on the structure of the securitization, challenges and lessons learned, followed by a question and answer session.
The AfDB’s Chief Risk Officer, Tim Turner, said the meeting was convened in response to massive interest from sister development institutions following the announcement of Room2Run in September, 2018.
The Bank, the European Commission, Mariner Investment Group, LLC (Mariner), Africa50, and Mizuho International plc announced the pricing of Room2Run on 18 September in Ottawa, Canada.
The securitization instrument is the first-ever portfolio synthetic securitization between a Multilateral Development Bank (MDB) and private sector investors, pioneering the use of securitization and credit risk transfer technology to a new and previously unexplored segment of the financial markets.
