Temasek-backed Pentagreen sees rapid progress in blended finance
Singapore-based lender Pentagreen Capital is pinning high hopes on the growing momentum in blended finance.
Such expectations echo a market that has been experimenting with various techniques and mechanisms to optimise blended finance structures and is now geared up to apply these methods to provide debt financing for marginally bankable projects.
“Blended finance has been using a lot of blending techniques over the last few years, iterating and discovering what works best, and now is moving into the direction of applying these techniques to address the various debt financing challenges,” Marat Zapparov, chief executive officer of Pentagreen Capital, told AsianInvestor.
Founded in 2022, Pentagreen Capital aims to deploy $1 billion in loans to projects lacking adequate access to mainstream finance, backed by its two shareholders, Temasek and HSBC, in a 50:50 venture.
Pentagreen
Blended finance involves marrying concessional funds from development banks or philanthropic organisations with commercial finance.
This often requires a concessional tranche to accept more risk or lower returns than the private sector tranche. It can include concessional loans, guarantees, or equity and bond investment.
“Discussions are moving towards tiered capital structure at the funding vehicle level. Some blended finance funds have come up primarily focused on equity investments,” Zapparov elaborated on the evolving techniques and market maturity.
Typically, these funds often use a "senior-junior" capital structure, where different layers of investors take on varying levels of risk and reward.
Pentagreen Capital sealed its first deal in September 2023 with Citicore Renewables, providing $100 million in financing to accelerate solar project rollouts in the Philippines.
In July 2024, it announced a joint green loan collaboration worth $30 million with BE C&I Solutions (BECIS) to catalyse the construction of distributed sustainable bioenergy projects across Southeast Asia and India.
This initiative was carried out in partnership with the infrastructure financing platform Clifford Capital.
COLLABORATIVE BLENDING
Besides new techniques and mechanisms, collaborations are crucial for Pentagreen Capital to drive more blended finance structures in the region.
Zapparov explained, “When a commercial lender can handle one part of the financing and Pentagreen or another blended lender can handle a different part, together, this financing package helps to make the deal happen.”
“The broader objective is to have this type of blending happen more at the funding vehicle level,” he added.
Blending at the funding vehicle level involves combining concessional and commercial capital within structured investment vehicles, such as funds or financial platforms, rather than merely applying it to individual projects.
This approach aims to standardise and scale the blending process, facilitating support for a wider range of projects with mixed funding sources. It improves availability of capital and has what it takes to attract more investors.
“The deal-by-deal blending will continue and needs to continue,” Zapparov emphasised, noting that a one-size-fits-all approach does not work in blended finance.
“Blending at the vehicle level is not yet a complete toolkit or a mainstream product. We're still in the early stages of ideation and design, figuring out how it should look,” he said.
However, the industry has now reached a point where there is no shortage of precedents demonstrating how it can be done. According to Zapparov, it is now a matter of refining the structure to address specific problem sets.
“In a few years, we may see this approach become much more mainstream," he said.
Also read: Temasek-backed Pentagreen eyes zero-carbon infra projects
CATALYTIC EFFECT
For Pentagreen Capital, catalysing the full impact of its investments is essential as it looks to implement sustainable infrastructure projects across Asia, with eyes initially set on Southeast Asia.
“We help these projects get off the ground and for companies with portfolios of these projects, the goal is to reach a point where the portfolio is mature enough to support additional and more commercial capital," Zapparov said.
Also read: Rockefeller Foundation champions catalytic capital's impact
Since its investment in Citicore Renewables in the Philippines last year, Pentagreen Capital has garnered significant interest.
Project owners and developers facing similar capital constraints have approached Pentagreen, seeking to replicate the successful deal.
Additionally, funding providers who noted the success of this transaction have expressed strong interest in collaboration on similar projects in the future, according to the Singapore-based executive.
The market gap Pentagreen Capital is addressing lies in emerging Asia, particularly within the infrastructure and renewable sectors.
“The current landscape features many ‘emerging developers’ or ‘emerging champions’—companies with experience and capital but whose portfolios are still too Greenfield to attract large-scale, mainstream financing,” Zapparov noted.
This is where catalytic capital comes into play. It is intended to effectively tackle the challenges of scaling up promising projects that are still “a bit too young” and “a bit too greenfield” for traditional financing, he said.