Creating a Sustainable Capital Structure
OPIC’s Managing Director for Asia Pacific Geoffrey Tan on how business can access its facilities
By Yanuar Wibisana
Sunday, October 28, 2018
The Sidrap wind farm in South Sulawesi is the first wind power plant in Indonesia and the biggest in Southeast Asia. The 75 megawatt plant was built with an investment of more than Rp2 trillion ($130 million). This not-so-popular project in the eyes of commercial banks was financed mostly by the Overseas Private Investment Corporation (OPIC), a US government agency established to help US businesses invest in emerging markets. Although little known in Indonesia, OPIC has committed $2.2 billion in finance and insurance across 115 projects here since 1974.
Geoffrey Tan, OPIC’s Managing Director for Asia Pacific, visited AmCham Indonesia to re-introduce OPIC and share his views on recent global economic challenges.
AmCham: Could you give us some background on OPIC?
Geoffrey Tan: OPIC is the US Government’s development finance institution, facilitating economic growth in emerging markets through support for private sector investment with US company involvement. OPIC does that through providing debt financing, political risk insurance and a private equity program for eligible investors and investments. Our programs do not include any grants or concessional terms because OPIC supports investments that have strong economic and business fundamentals, as well as a viable financial profile.
Why should a borrower consider facilities from OPIC?
Debt financing is OPIC’s main activity by volume, but we offer political risk insurance and have a private equity fund program as well. In all cases where OPIC provides support, we are providing something that is not available from the private sector on terms that would create a sustainable capital structure for the borrower or address certain investment risks, such as those associated with the regulatory and political environment. OPIC does not compete with the private sector so participates only when its involvement helps catalyze the contemplated investment. While OPIC is happy to collaborate with other finance institutions in such investments, it is able to finance by itself up to 75 percent of total project costs, subject to a maximum of $350 million.
How do you see the current global economic dynamic affecting OPIC’s business around the world?
The current global trade and tariff issues in the media headlines are not expected to have a significant impact on OPIC’s activities, because we are not engaged in trade-related financing or insurance. It may affect the supply chain of a borrower or contemplated investment, but that would be on a specific case-by-case basis.
What are OPIC’s preferred sectors? Especially those considered main sectors in Indonesia?
Globally OPIC is very active supporting infrastructure and energy, as well as access to finance, but also supports investments in agriculture, health care, education, real estate, tourism and other sectors. OPIC is receptive to almost any opportunity to support US businesses investing in Indonesia in a manner and in a sector that would benefit the Indonesian people and economy. There is a preference, however, for infrastructure and energy investments - which help form the foundation for overall economic growth and activity - as well as those that are highly impactful and support women’s empowerment. These sectors are also highlighted in the MOUs [memorandum of understanding] OPIC recently signed with Japan and Australia for third country collaboration.
What are the sectors that OPIC avoids?
OPIC cannot support coal projects in Indonesia; palm oil and other extractive industries also tend to be challenging from an environmental and social perspective. In addition, OPIC does not support investments in gambling, tobacco, arms or nuclear power generation.
What is OPIC’s debt financing eligibility criteria?
For a potential borrower to be eligible for OPIC financing it must meet our credit and other policies alluded to elsewhere here, including substantial US private sector involvement. This involvement can be in the project’s capital structure - equity, debt, or grants - or through a service contract [US equipment and exports do not establish eligibility]. Such involvement must also be meaningful: that hurdle is based on a simple formula of 25 percent of project equity. Whatever the resulting value is for a given project, as long as the US participation - any form of capital or service contract - meets or exceeds that value, then it is eligible for OPIC financing.
What has been OPIC’s experience in Indonesia?
OPIC’s experience in Indonesia has been relatively positive, based on the transactions supported to date. It is a complicated, challenging, yet competitive environment, but once an investment is made the experience has been quite good.
OPIC is a key part of the US Government’ recently announced Indo Pacific initiative, so we are very focused on doing more in the region. One aspect of that is our partnerships with Japanese and Australian counterparts, as mentioned above. We are also closely watching the status of the proposed BUILD Act in the US Congress, which, if approved, would create a new US development finance institution that would have more resources and tools to support US private sector investment and private sector development in emerging markets.
How do people get more information about OPIC facilities?
The OPIC website provides a lot of information about our programs and policies: www.opic.gov. Our Commercial Service and Econ colleagues in country at the US Embassy also are good contacts for general information and guidance. And for additional information or a more f