IDB Invest is undertaking a transformation of its business model at the same time as negotiations with shareholders are underway for a significant capital increase. Even in this state of flux, the private sector arm of the Inter-American Development Bank (IDB) has had its hand in some of the most noteworthy transactions in Latin America and the Caribbean over the past year.
The Washington-based lender, which wins the award for Multilateral Development Bank of the Year, has been shifting its approach away from simply pouring its own funds into development projects; instead, it is increasingly focused on helping mobilize private capital into region.
“Mobilization has become an obsession for us,” says James Scriven, the CEO of IDB Invest. “Crowding in private sector investments is the only thing that will take us from billions to trillions (in investment].”
This effort involves, among other things, forging partnerships with private investors and other financial institutions, while introducing new financial tools aimed at addressing some of the funding challenges typically encountered by development finance in the region.
“As an institution, we have the flexibility to go well beyond traditional financial products,” Scriven points out.
In the seven years since IDB Invest was carved out from the IDB, it has channelled $42 billion in development finance to the region. Scriven expects this number to grow ever faster in the coming years.
The evolution of the bank is a logical consequence of the changes Latin American economies went through in the past decade, Scriven says. “The world is very different from seven years ago. The continent has radically challenged, and there has been an increasing acknowledgement of the emerging of impact investors,” he says. “Our levels of ambition have grown significantly higher.”
The bank’s new approach to enabling private capital takes many guises, but it’s been most apparent across a number of landmark deals over the past year.
One such example was the financing last March of Mendubim, a solar plant in Brazil – the first renewable energy project in that country where funding is based on a dollar-denominated power purchase agreement. IDB Invest put $130 million into the project but also provided the guarantees that opened the door to two commercial banks to extend $245 million in project financing.
Another example was in the financing package the $1.25 billion project finance for the expansion of the Jorge Chávez International Airport, in Peru, along with German ECA KfW and five commercial banks.”
Meanwhile in Chile, IDB Invest used an innovative B-Bond solution to make possible a $1.8 billion electricity stabilization tariff fund along with Goldman Sachs, Itaú BBA and JP Morgan. The same structure was also deployed to place a $400 million sustainability-linked bond for Liberty Costa Rica, the telecommunications company.
Scriven says the bank aims to increase the number of transactions it approves by 200% once its shareholders approve a capital increase next year. “Today, we are doing 100 deals a year, and our idea is to do 300 deals a year,” he says.
“The whole idea behind the capital increase is to put a few more zeroes to what we are doing, and also to de-risk foreign investments that could come into the region,” he says
In order to achieve that, Scriven says IDB Invest also plans to continue introducing new financial instruments and to use its balance sheet to promote innovative solutions. “Our goal is to put together impact assets with impact investors,” he said. “In some cases, we can provide guarantees, in some cases we can provide financing, in others we can take first loss. The instruments are centered on how to solve a problem.”
The bank provided approximately $8.3 billion in financing in 2022, which included $3.1 billion in resources mobilized from investors. A capital increase could allow the super-sized entity to deploy an additional $15 billion to $17 billion in financing in the region from “resources mobilized from investors and third-party resources.” The additional resources would allow IDB Invest to expand equity investments, provide more financing in local currency and offer advisory services for the private sector in Latin America and the Caribbean.