British International Investment (BII), the UK’s £5.6-billion ($7.2 billion) foreign development finance institution, has up to £485 million to invest in Southeast Asia between now and 2026.
Srini Nagarajan, head of Asia at BII, told AsianInvestor that the investments in Southeast Asia will focus on infrastructure, including water infrastructure; and renewables, including waste-to-energy, waste management, and EVs and related EV ecosystems.
While there was lots of money flowing into Southeast Asian countries, there was still a problem of scale, he added.
“Southeast Asia is short of bankable opportunities. The policies and regulatory environments are still evolving in these markets,” he said, adding the institution’s focus in the region is Indonesia, the Philippines, and Vietnam, with smaller allocations for the Mekong area, including Laos and Cambodia.
“We are in South Asia to help solve some of the biggest development challenges, providing patient capital to address issues through innovation,” he said.
BII has allocated up to £500 million for Southeast Asia in its current investment strategy period (2022-2026), of which $15 million has so far been deployed in a commitment to the SUSI Asia Energy Transition Fund (SAETF), a South-East Asia-focused energy transition infrastructure fund managed by Swiss-based firm SUSI Partners.
It invests between £1.5 and £2 billion per year in Asia, Africa, and the Caribbean, providing project finance and pre-construction finance, including mezzanine finance and equity to help attract private capital to projects. Its £500-million target Southeast Asian investment forms part of its overall goal of 30 percent of total new commitments to climate finance between 2022 and 2026.
Nagarajan emphasised that the institution is a long-term investor, but noted that the timescale varied based on the type of investment products.
EQUITY OVER DEBT
The institution has been active in South Asia since the 1980s; the regional breakdown of BII's entire portfolio at the end of 2021 was 34% invested in South Asia, 57% in Africa, and 9% in rest of the world.
Unlike the many development institutions that focus on debt, 68% of BII’s balance sheet was in equity investments as of end 2021.
Nagarajan said improving standards of business integrity, corporate governance, and environmental and social impact are crucial objectives underpinning BII’s investments.
It is actively having conversations with sovereign funds in Asia as co-investors. “As we speak, there are lots of conversations going on,” he said.
Other multi-lateral development banks and development finance institutions are also popular partners for BII. Recent projects include a greenfield solar power project in India by Enel, the Italian multinational power company, in which BII is a co-investor alongside the World Bank’s International Finance Corporation.
Nagarajan pointed to the dominance of oligarchs in Southeast Asian countries, contrasting it with the lack of first-generation entrepreneurs.
“Venture and growth capital are still lacking. We have the ability to identify and work with first-generation entrepreneurs to create the platforms they need,” he said.
BII invests across three areas: infrastructure and climate; financial services; and Industries, Technology and Services (ITS), an area spanning innovative and start-up businesses in the technology, industrial, and service sectors.
Nagarajan pointed to specific challenges in southeast Asia in the renewables and energy generation space. For example, there are more than 17,000 islands in Indonesia, 6,000 of which are inhabited. “Many of these are still burning diesel. You need a distributed energy solution that is not dependent on the grid. That means catalytic capital and blended finance,” he said.
The BII’s investment strategy must balance commercial returns with development objectives it sets in agreement with the UK government, he noted.
“We have to run a commercially sustainable balance sheet, and we are operating in fragile markets. The development objectives are crucial for us,” he said.
The institution’s dry powder comes from a combination of government contributions and capital recycled via exits from existing funds and direct investments. Periodically, the institution sets strategy periods for which funding and development goals are agreed between BII and its sole shareholder, the Foreign, Commonwealth & Development Office.
In South Asia, the majority of BII’s current investment portfolio spans across three countries: 73% in India, 10% in Bangladesh, and 7% in Pakistan.