French private sector financing institute Proparco looking to increase investment in Sri Lanka

By AsnahAnver    

Proparco, the private sector financing arm of AgenceFrançaise de Développement (AFD), France’s bilateral development agency, is interested in investing in Sri Lanka’s private sector in loans and equities. 

Proparco, which places a strong emphasis on sustainable and inclusive finance, will be focusing on renewable energy and energy efficiency projects, food processing and agribusiness, financial institutions such as microfinance institutes and banks, healthcare, education, urban development and social inclusion in Sri Lanka. 

Proparco Senior Investment Officer YatinKundra, speaking at an interactive meeting organised by the Sri Lanka-France Business Council, stated that in line with the institution’s mandate to promote sustainable and inclusive growth, Proparco was willing to invest in renewable energy, energy efficiency, energy efficient projects and agri-business value chains while keeping the best environmental and social practices in mind.

In order to promote inclusive growth, the institution will be looking to invest in microfinance and other institutions that contribute to access to finance and employment generation. It would also like to see the company’s that it invests in optimise the impacts on employment, social practices and gender equality.

In terms of its mandate for Sri Lanka, Proparco will focus on climate change mitigation through renewable energy and energy efficiency projects, food processing and agribusiness, and for the financial inclusion aspect microfinance institutions and banks. Apart from these, Proparco will also focus on healthcare, education, urban development and social inclusion.

In 2016, Proparco had a balance sheet of approximately 5.5 billionEuros.The institute offers both loans and equities.However the loan portfolio is higher than the equity portfolio at 88% with the equities portfolio at 11% as of now. Kundra stated that the company is looking to increase its equity: “Going forward we are willing to expand our equity portfolio to about 20% and bring down the loan portfolio to 80%.”

Speaking on the growth criteria for loans and equity investment, Kundra stated: “On the loan side we are willing to provide loans starting from 10 million to 100 million dollars.”

However he added that they can go down on the ticket size to even five million dollars if the project is making an impact on the ground. Meanwhile maturity begins at five years for a standard agri-business project but can go on for as much as 20 years, in the case of infrastructure projects.

Proparco offers loans in dollars, euros and in local currency with a swap option, including long term swaps. While Kundra stated that the swap option is a little more expensive, it will take care of the interest rate risk. In terms of securities, Kundra stated that the institution functions “like any other bank,” adding that “what we bring to the table is long tenures which the local banks are not willing or able to offer”.

In terms of equities, the equities offered can be straight, indirect, convertible, debentures, etc. depending on what the organisation requires. 

“We are very passive investors; we don’t take more than a 20% stake in the company. We would rather have one director sitting on the board and managing the operation for us,” Kundra stated. 

Further, the institute would require a clear exit strategy when investing, with exits starting from five years and possibly going on to eight years. “We are very patient investors, not in a hurry to exit. We want to grow with the company and help promote it to grow the business,” Kundra stated. 

Apart from this, Proparco also invests in funds. The process to secure loans and equity would go through three committees and takes approximately four to five months, though this can be as long as one year for equities. 

Proparco has 11 offices in New Delhi, Bangkok, Sub Saharan Africa and Latin America and is willing to act as a bridge for companies which aspire to grow outside their native place. “If you have any business interests in any of these regions we are more than willing and happy to introduce you to these offices and can always act as a bridge,” Kundra said. 

In the South Asian region more than 51% of the portfolio is dedicated to clean energy and energy efficiency, with the balance split between agri-business, micro finance, education and SMEs. In Sri Lanka Proparco has been actively investing for over seven years and has marquee clients such as HNB, Sampath Bank, NDB Bank and the LOLC group.

AFD Country Director Martin Parent speaking on AFD stated that the development agency is a key stakeholderin the fight against climate change, working to promote green and inclusive growth and share French expertise in the region. 

AFD provides official development assistance such as grants and soft loans. It also offers support in public policy and capacity building. Its beneficiaries include the central governments, local governments, NGOs, banks, public institutions and public and private enterprises. Last year AFD increased its financing by 13% to 9.3 billion Euros and as per the French Government request, aims to reach 12 billion Euros of loans per annum by 2020.  “More than half of this financing has an impact on fighting climate change,” Parent stated. In terms of Asia, “last year AFD committed 1.2 billion Euros for Asia which represents roughly one-fifth of AFD financing activities,” Parent stated.

AFD, which began work in Sri Lanka in 2005 in the aftermath of the tsunami, has a current portfolio of Rs. 28 million in Sri Lanka and has ongoing projects in water supply (in greater Colombo), sewerage (in Negombo and including policy), power (renewable energy and transmission), urban development (in Anuradhapura), and sexual and reproductive health (through Doctors of the World). In consultation with the Government of Sri Lanka, AFD has identified new areas in the irrigation and water resource management, fisheries and transport sectors to implement projects. In terms of irrigation AFD is already appraising a project in the Eastern Province.

Present at the event was the Ambassador of France to Sri Lanka and the Maldives Jean-Marin Schuh, who highlighted the increased diplomatic ties that Sri Lanka and France have witnessed in the first quarter of 2017. Ambassador Schuh noted that while the trade figures between France and Sri Lanka for the year 2016 were not ideal, there were good prospects for 2017 particularly with the French interest in the sectors of urban development, water and urban transportation.

Pix by Lasantha Kumara