Blended finance deals in East Asia and the Pacific hit US$4 billion in 2024
[SINGAPORE] Blended finance deals in East Asia and the Pacific surged to US$4 billion in 2024 from US$1.1 billion the year before, an increase of almost four times, according to a Wednesday (May 21) report by blended-finance organisation, Convergence.
Most of the sum was channelled to South-east Asia, particularly Indonesia and Vietnam, said Ritesh Thakkar, senior adviser and head of Asia-Pacific at Convergence, who was speaking with The Business Times in a separate interview the same day.
This increase was primarily driven by the impact investing arm of private equity firm TPG, which had raised US$1.25 billion for its Global South Initiative.
On average, blended finance deals – featuring a mix of grants and concessional loans designed to lower the cost of capital and attract more commercial capital – have been averaging around US$3 billion annually in South-east Asia.
And volumes have been trending upwards, said Thakkar.
Deals in the region also have the highest median size at US$100 million, compared to US$46 million in sub-Saharan Africa, and US$91.5 million in Europe and Central Asia, stated the report.
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In total, blended finance volumes fell to US$18.3 billion in 2024, with 123 deals approaching their close, compared to US$23.1 billion the year before.
In the five-year period between 2020 and 2024, annual blended finance volumes rose by an average of US$1.7 billion every year, from US$11.5 billion to US$18.3 billion last year. This shows the market's resilience as a countercyclical tool for mobilising capital, even during periods of macroeconomic uncertainty, the report said.
Climate-related projects continue to dominate the blended finance landscape, accounting for 49 per cent of deals in 2024.
There was a rise in median ticket size of deals in 2024; three transactions exceeded US$1 billion.
But while deal sizes have been going up, the reported noted that scaling blended finance entails more than larger deal sizes.
'A lack of structural standardisation continues to slow the rollout and replication of blended structures; in many cases, concessional capital mobilises only sponsor equity or development finance institutions (DFI) and multi-lateral development banks (MDB) commercial funding, rather than attracting new third-party private investors,' read the report.
Among private investors, financial institutions are playing a bigger role in blended finance transactions in 2024.
The share of commitments from commercial banks and other financial players grew to 55 per cent in 2024, up from 45 per cent.
More than half (56 per cent) of the commitments from this investor class were driven by DFI and MDB efforts to support their on-lending activities; 15 per cent were the bank's direct investments in projects, and 14 per cent went to companies.
The majority of top private investors are financial institutions, with SMBC leading with 13 committed deals between 2022 and 2024. MUFG was second with eight.
Financial institutions accounted for a third of all deals – higher than project transactions (17 per cent) and funds (9 per cent), which have traditionally been the main capital providers.
Deals financial institutions are involved in support their own commercial portfolios. This enables them to increase lending to key underserved sectors and diversify their lending operations.
While local investors tended to account for only a small component of blended finance deals, the report noted that local capital investments are proportionally higher in East Asia and the Pacific.
Transactions in the region with regional investors typically include two or more local investors, signalling that local participation can instill confidence and attract other local investors, said the report.
It added that commercial investment from local public investors have been relatively high in South Asia (at 20 per cent) and East Asia (19 per cent).
This activity is highly influenced by government blended finance initiatives such as the Self Reliant India Fund in South Asia, and Indonesia's SMI, a state-owned enterprise focusing on infrastructure development.
Local investment in the region has also been enabled by the strong presence of public commercial actors, such as the Japan International Cooperation Agency and Singapore's state investor, Temasek.
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