Mitsubishi UFJ Financial Group (MUFG) plans to expand Gaia, its $1.5 billion blended finance platform for climate projects co-led with FinDev Canada, to support more projects in developing countries.
This expansion builds on its success with transactions that effectively blend commercial and concessional capital in these markets, according to Ehsan Khoman, MUFG’s Head of Research for Commodities, ESG, and Emerging Markets. The Japanese financial institution is both the cornerstone investor and originating bank for Gaia.
Speaking at ADIPEC 2024 earlier this week, Khoman highlighted the success of over 15 credit-enhanced transactions completed in the Middle East and Africa, which have mobilised approximately $5 billion. The success stories included a $334.5 million, 19-year Green Project Bond that MUFG structured and executed in 2022 for refinancing 6 operational solar power plants in Egypt’s 1,800-megawatts (MW) Benban Solar Park, Africa’s largest and the world’s fourth largest PV solar power plant.
Credit enhancement for the bond’s $84.5 million tranche, targeted at international private institutional investors, was provided through risk mitigation instruments offered by the Multilateral Investment Guarantee Agency (MIGA) and the European Bank for Reconstruction and Development (EBRD).
“Our main effort with Gaia is to be able to scale that now to more projects,” he said, noting that 70 percent of the Gaia’s portfolio is allocated to adaptation projects.
Measured growth
According to Khoman, the fund’s relatively small size has allowed for a measured approach to building confidence among internal stakeholders and sharing of risks with the incoming private investors. Initial investments in Gaia, which will focus on 25 developing countries and island states, include a $152 million equity injection from the UN Green Climate Fund and a $440 co-investment commitment by MUFG and FinDev Canada, the fund’s manager CFM had said last year.
During the panel discussion, Khoman also highlighted the Green Guarantee Company (GGC), launched by MUFG in February 2024, as a complementary initiative to Gaia – both aim to mobilise private sector capital at scale to support climate projects across emerging markets.
GGC is the first global guarantor for climate bonds issued by private and sub-sovereign entities in developing countries.
“GGC is a truly innovative financing solution that tackle adaptation and mitigation projects in emerging markets using global capital markets,” he said.
MUFG, as an origination partner for GGC, helps identify and connect suitable climate projects with guarantee opportunities.
Khoman emphasised that the involvement of multilateral development banks (MDBs) in the financial instruments utilised by Gaia and GGC provides international investors with investment-grade-backed assurance, boosting confidence in lending to climate projects in emerging markets.
(Writing by Anoop Menon; Editing by SA Kader)
(anoop.menon@lseg.com)
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