‘Contrary to popular belief, Pakistan among our best-performing markets’

KARACHI: Philip Skinner, Managing Director, Global Execution Team at financial institution GuarantCo, has said the company has solutions up its sleeves to solve the problem of inaccessibility to financing for impact-creating infrastructural projects in countries such as Pakistan.

GuarantCo provides local currency guarantees to lenders investing in infrastructure projects in low income countries.

Skinner said the company’s portfolio in Pakistan has been among the top performing ones.

“Pakistan has been one of our best performing markets, against contrary belief,” Skinner told Business Recorder in an interview.

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“We have never had to pay out on a guarantee in Pakistan. Since 2013, we have not even had to restructure any loans.”

Since entering Pakistan’s market in 2013, GuarantCo has enabled six large transactions – Pakistan Mobile Communications Limited (Jazz), guaranteeing $9.3 million; Fatima Fertlizer $20.9 million; Cnergyico (formerly Byco) $30 million; K-Electric $50 million; InfraZamin $50 million; and Shams Power $9 million.

GuarantCo has also signed a seventh transaction this year, which will be announced in due course once financial close has been achieved.

GuarantCo is funded by the governments of the United Kingdom, Switzerland, Australia and Sweden through the Private Infrastructure Development Group (PIDG) Trust, the Netherlands through the FMO and PIDG Trust, France through a reserve facility and Canada through a repayable facility provided by Global Affairs Canada.

It has guaranteed bonds and loans enabling $6.2 billion of total investments and $5.2 billion of private sector investment giving 45.2 million people improved access to infrastructure and creating around 229,000 jobs in 22 countries, according to information posted on its website. It was established in 2005 to help close the infrastructure funding gap and alleviate poverty in lower income countries across Africa and Asia.

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Speaking about InfraZamin – the Karachi-based guarantee company GuarantCo set up with InfraCo Asia and Karandaaz in 2021 – Skinner said that since the entity has a local team with a local presence it will amplify what a guaranteed product can do.

“But that doesn’t mean that we’re leaving Pakistan,” said Skinner.

“We still very much want to be working in Pakistan, but through InfraZamin, so we can help them do bigger deals by supporting them at the backend as well as structures which have an offshore financing component,” he said.

GuarantCo’s outlook of Pakistan

There are over 90 countries that qualify as per GuarantCo’s rulebook where it can work.

“But there are only a handful of countries which have populations of over 200 million. And so, that makes Pakistan unique in many aspects,” Skinner said.

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“It gives you scale in terms of population size and a consumer base. It also means that you have a reasonably deep and sophisticated financial market, both on the banking side and the capital market side, which has a lot of potential that is yet untapped. So, whilst there are challenges, we recognize those challenges, the opportunity in Pakistan is of a scale that we don’t see in many other countries,” he explained.

“So, when we’re looking to achieve impact, and we’re an impact-driven organization – impact goals through poverty alleviation, climate, gender, health and safety etc – the scale that we can have in Pakistan is of a different magnitude.”

How GuarantCo operates to avoid currency risks

Skinner knows every outsider is wary of investing in Pakistan because of the currency risks.

However, he thinks that GuarantCo has just the right model needed to operate in a country such as Pakistan, especially enabling development of infrastructure.

“What GuarantCo does is we guarantee local currency debt. So we’re not actually putting dollars into Pakistan. What we’re doing is we are saying to local currency investors that you’re not going to lose your money.

“We’ll stand behind whatever portion of the debt that we’re guaranteeing. If things go wrong, we will fund. But as I say today, we have managed to avoid that.

“I think our business model is well suited to navigate the challenges that Pakistan brings.

“The model of GuarantCo is to guarantee financing for infrastructure development where banks don’t feel comfortable. But we hope that gradually banks would develop trust in that certain space. For instance, our guarantee for Shams Power is for financing rooftop solar plants for commercial and industrial offtakers. We hope gradually banks start developing trust in solar companies and we can move to something else, for instance, electric vehicles.”

Pakistan is better than it looks in the headlines

Skinner says that Pakistan has exceeded the company’s expectations.

“Pakistan exceeded most people’s expectations given the macroeconomic headlines that most people read internationally,” he said.

“And the point I’d be making is that it is due to the nature of our product. If we were a dollar lender and had lent dollars to Shams Power instead of mobilizing rupee debt, then we probably would find ourselves in a restructuring situation.

“Going back to my point about the scale of Pakistan, the country actually has a large capital market that can be mobilised.

“The perception, in terms of the opportunity here, I think, is quite different from the opportunity that we see having spent a significant amount of time in Pakistan.

“I am not saying that the risks aren’t real particularly if you’re investing in US dollars. But there are ways around those risks. In our opinion, it should be more actively explored and the guarantee product has proven to be resilient to the macroeconomic challenges that have been thrown at our investments.

“What we’re demonstrating is that we have shown there is a way of doing it. There is a way to use international sources of capital to promote more infrastructure investment in Pakistan. And it’s the guarantee product that allows you to do that.”