Description
Blended finance debt funds are vehicles that follow the blended finance structuring approach: leveraging catalytic capital from public or philanthropic sources to increase private sector investment in sustainable development. They aim to mitigate specific investment risks through the use of debt instruments and help to balance the risk/return profile of their investments. They are structured to overcome market barriers and leverage other investments to make otherwise commercially unviable projects viable.
Benefits
Blended finance debt funds help fill financing gaps, address market failures and leverage private sector capital for strategic projects. By reducing perceived risk, these funds improve the creditworthiness of projects and encourage further investment. Blended debt funds can also help create markets by demonstrating the viability of certain investments. This disciplined and focused approach ensures that funds are used effectively, efficiently and transparently.
Due to the nature of the financial instrument (i.e. debt), these funds are typically dedicated to less risky investments than blended finance equity funds.
Case Study
Pentagreen Capital, HSBC and Temasek’s blended finance debt fund
Pentagreen Capital, launched by HSBC and Temasek in 2022 with USD 150 million in initial capital, aims to catalyze over USD 1 billion in loans within five years for sustainable infrastructure in Southeast Asia. It combines technical assistance and blended finance debt investment to unlock capital for marginally bankable projects in clean transport, renewable energy, energy storage, and water and waste management. Key strategic partners include the Asian Development Bank and Clifford Capital Holdings, providing technical and financial expertise.
In 2023, it partnered with Citicore Solar Energy Corporation to accelerate new solar power projects in the Philippines. Pentagreen structured a USD 100 million Mezzanine Construction Green Loan Facility, committing an initial USD 30 million for six solar projects with a total capacity of 490MW. This funding aimed to mobilize additional debt to support ready-to-build projects, with a greenshoe option to increase the amount to USD 100 million for further expansion.
In 2024, Clifford Capital and Pentagreen Capital announced a joint USD 30 million green loan with BECIS, an Energy as a Service (EaaS) provider, to finance 14 bioenergy projects in Southeast Asia and India. These projects will convert agricultural waste into renewable steam. The financing structure included a USD 30 million Secured Green Loan Facility, with Pentagreen’s tranche subordinated to Clifford Capital’s, and a potential increase to USD 50 million.
Additional Sources
- https://www.ifc.org/en/what-we-do/sector-expertise/blended-finance/how-blended-finance-works
- https://www.convergence.finance/blended-finance
- https://www.pentagreen.com/pentagreen-capital-a-sustainable-infrastructure-debt-financing-company-established-by-hsbc-and-temasek-offically-launched.html
- https://www.pentagreen.com/pentagreen-capital-citicore-renewables-structure-100-million-usd-financing-to-accelerate-rollout-of-philippines-solar-projects.html
- https://www.pentagreen.com/clifford-capital-and-pentagreen-capital-announce-30-million-green-loan-collaboration-with-becis-to-support-bioenergy-projects-in-southeast-asia-and-india.html
- Presentation at the virtual meeting of the Deputies (Network to Mobilize Investment for Clean Energy in the Global South), 20 August 2024