Interview with Keiko Honda: Executive VP & CEO, MIGA

Executive VP & CEO, MIGA

“MIGA expects to invest around $2 billion in India in the coming years”

Set up about 30 years ago, the primary objective of the Multilateral Investment Guarantee Agency (MIGA) is to promote foreign direct investment (FDI) in developing countries. The agency has extended support to around 850 projects spread across 110 countries. In an interview with Indian Infrastructure, Keiko Honda, executive vice-president and chief executive officer, and Sarvesh Suri, acting chief operating officer, MIGA, talk about the agency’s global presence, key risks faced, and opportunities in the Indian market…’’

What has been the response of the credit enhancement product from Indian industry?

Among the 110 countries being covered by MIGA, India is a relatively lower-risk country and has huge potential. Our credit enhancement product, introduced seven years ago, has been positively received by the Indian government. MIGA can support creditworthy state governments and municipalities in obtaining long-term loans (for example, 10-15 years covering the construction and operations periods of a project) at competitive terms. Therefore, MIGA plays an important role in supporting the central and state governments’ agenda in financing long-gestation infrastructure projects.

What are the key risks faced by the infrastructure sector (such as power and transportation) in India?

There are multiple risks involved in infrastructure projects in India such as construction delays, time and cost overruns, and operational challenges. The consequence of these is the risk of potential delays in payment of debt obligations, a risk which is covered by MIGA.

How different is the Indian market from other countries where MIGA has a presence?

MIGA has been actively helping drive cross-border investment to several countries. For instance, it has supported close to $2 billion of infrastructure development in Turkey, $500 million in Vietnam, and around $500 million of power infrastructure development in Bangladesh. All three countries have a lower credit rating than India. In India, some states that have strong balance sheets are encouraged to use their finances to carry out projects without a sovereign credit guarantee. We did a similar thing in Turkey, where we enhanced the credit of Istanbul City without having the sovereign guarantee. So, this is an area where MIGA will be able to provide support.

What kind of arrangements are you entering into with Indian states?

MIGA is exploring opportunities in sectors such as power, renewable energy and transport where longer-tenor loans of, say, 15 years, are needed. In other countries, the agency is providing support to a number of wastewater treatment projects. Many development financial institutions are willing to work with the Indian government, both at the central level, and in some states. Therefore, MIGA has to identify and select important projects in the country where it can play a key role in attracting foreign private sector investors, so that the agency can help create a strong development impact.

What are the factors being considered by private investors while investing in a project? What are some of the challenges that they are likely to face in India?

Investors while investing funds in capital-intensive infrastructure projects take into consideration the stability and reliability of revenue streams for the next 25-30 years. This is where MIGA has a role to play, providing what’s called a breach-of-contract insurance cover. This means that if the government is unable to honour a contract or resolve disputes, then MIGA provides insurance against that risk, thereby reducing the risk perception of foreign investors in emerging markets. This product can be utilised in various sectors in India. Another factor which foreign investors consider is project cash flows, which are generated in terms of the local currency, have to be converted into foreign currency, and repatriated. Since the Indian economy is strong and has bright future prospects, this risk is perceived to be low by investors.

What are MIGA’s future plans for India?

First, it is pertinent to note that MIGA is not well known in India, in the sense that state-level understanding of the agency and its offerings is lower than at the centre. Therefore, the agency needs to create awareness of its presence and the contributions it has made in other countries such as in Indonesia, Vietnam, Bangladesh and Turkey. The next step is to identify the sectors and regions in the country where MIGA can have a significant impact. Then, MIGA can finalise discussions for supporting these projects with the central and state governments. Meanwhile, many foreign investors are willing to invest in India. Since they understand the workings of MIGA, it is relatively easier to crowd them in so they can compete and propose the best terms for projects. So, private participation is what MIGA is seeking right now.

Globally, FDI in developing countries has been decreasing for the past six years. However, India has been an attractive destination for foreign investors and has recently climbed up in the ease of doing business rating. Looking at demographics, India is a young country as compared to its Asian peers. Therefore, MIGA would like to accelerate its activities in the country and expects to invest around $2 billion in the coming years.