J.P. Morgan Launches Development Finance Institution

• J.P. Morgan has launched its Development Finance Institution (JPM DFI) to help grow the firm’s development finance activities and spur additional private investment into emerging markets.
• Development finance is broadly defined as leveraging sources of finance, expertise and solutions to support economic development and quality of life in developing countries, as outlined by the United Nations Sustainable Development Goals (SDGs) and the Human Development Index.
• The JPM DFI will use a methodical approach that combines objective rigor and subjective reasoning to analyze the anticipated development impact of financial transactions. This methodology was developed in collaboration with leading international DFIs and experts in the field. It will be reviewed on a periodic basis to reflect updated industry best practice as required.

• Two forces are at play. The global development community has stated the importance of private capital to cover an estimated $2.5 trillion annual funding gap to achieve the SDGs by 2030. There is also strong and growing demand from the investor community to attain both financial and developmental returns.
• J.P. Morgan believes it can play a key role as these forces converge. The JPM DFI will use J.P. Morgan’s global scale and resources to expand its efforts in development finance and mobilize private capital towards projects to support development in emerging markets.
  

• The JPM DFI will channel financing and strategic advisory to public and private sector clients that promote economic and social development in countries eligible to borrow from the World Bank under the IDA, Blend, and IBRD lending groups.

• J.P. Morgan is already a large player in development finance. In 2019 alone, J.P. Morgan served clients in 82 of the 144 World Bank-eligible borrowing countries. The DFI estimates that J.P. Morgan will be able to finance development activities valued at more than $100 billion annually from investment banking transactions alone, with additional contributions from its markets businesses.
• The JPM DFI will operate on a commercial basis and assist clients in structuring products with various risk/return profiles aimed at meeting return hurdles and other financial and credit criteria of our investor/lender clients.

• A dedicated team, headed by Faheen Allibhoy, will be managing the DFI. She will work with J.P. Morgan’s bankers and sales leads, along with the relevant risk teams, to identify eligible transactions and interested global investors.
  
• Daniel Zelikow, Global Head of J.P. Morgan’s Public Sector Group and Co-Head of the Infrastructure Finance and Advisory practice, will chair the DFI’s governing board. The DFI sits within J.P. Morgan’s Corporate and Investment Bank.

• Building off an already strong emerging markets business, J.P. Morgan expects the DFI to provide increased focus to its business in these growing markets.
• All lending or investment activity in emerging markets will continue to be evaluated in accordance with J.P. Morgan’s existing rigorous risk frameworks, including those related to credit, market and regulatory risk and know-your-customer (KYC) processes.

• J.P. Morgan is currently active in financing activities that contribute to development. The newly created DFI will seek to enhance this business line and apply a robust framework for qualifying and originating development finance business. These aspects include:

Anticipated impact measurement:

• Seek to apply the JPM DFI methodology to identify and qualify eligible deals and assess their anticipated impact
• Enhance dialogue with issuers/borrowers and investors/lenders around the development impact of each transaction

Deal origination and distribution:

• Expand outreach efforts for development finance transactions with current and new issuers/borrowers and sponsors
• Increase collaboration and seek partnerships with existing development finance institutions to become a partner of choice
• Identify sources of capital that want to invest in global development and improve the distribution of assets to these investors/lenders
• Identify sources of concessional funding for technical assistance (such as legal or consulting advice) to support clients in their efforts to work on transactions with development impact

DFI knowledge contribution:

• Advance best practices in development finance and collaborate with the DFI community to mobilize private capital towards economic development in emerging markets

• J.P. Morgan will publish regular reports that summarize the DFI’s activities and anticipated impact of its transactions. The JPM DFI published its methodology, which will be updated as needed to reflect industry best practices.

• While the business model of traditional development banks typically involves holding assets until maturity on their balance sheets, the JPM DFI will seek to originate assets for the purpose of distribution to market participants with the aim of mobilizing capital and formalizing development finance as a traded asset class.
• Many bilateral and multilateral development banks (MDBs) are focused on countries that do not fall in the current scope of J.P. Morgan’s business and product criteria. In geographies where there is overlap, we believe our products may complement the risk mitigation products provided by the multilateral development banks to deliver sustainable solutions for clients in those developing markets.
• The JPM DFI aims to collaborate with various constituencies in development finance, including multilateral, regional and national development banks, to harmonize and advance best practices. The JPM DFI aims to demonstrate that development finance can be done commercially and sustainably, so as to encourage other private sector financiers to increase their participation in emerging markets.

J.P. Morgan has led multiple innovative financings for existing clients in developing countries. Examples include:

Colombia’s Rumichaca Highway
J.P. Morgan’s Infrastructure Finance and Advisory Group led the financing for construction of the Rumichaca Highway and Bridge to respond to an infrastructure challenge typically addressed by Colombia’s domestic capital markets. Part of a nationwide $30 billion infrastructure initiative, the project, which is expected to be completed by 2022, has created ~2,000 jobs and enhanced the country’s transportation network.

Microfinance in Emerging Markets
Looking to strengthen ties between impact investors and global capital markets, J.P. Morgan worked with Swiss impact investor responsAbility to increase lending to entrepreneurs in developing countries. The $175 million securitization of loans will enable 26 microfinance organizations across 17 developing countries to boost lending to 30,000 small businesses and 5.6 million microfinance borrowers—most of whom are women—who do not have access to traditional banking providers. The first securitization of its kind since the financial crisis, this deal opened up the development finance market to mainstream investors.

Ukrainian Windfarms
J.P. Morgan acted as the mandated lead arranger and bookrunner for the project financing to build Phase 1 of the 250MW Syvash wind farm in Ukraine. The financing will fund the first phase of construction including 133MW of grid-tied generation capacity (34 turbines) and the substation, located in the Kherson region in the south of Ukraine. Syvash is the first internationally financed large-scale wind farm in the Ukraine and is expected to become the country’s largest renewable energy project upon completion.

A Currency-Swap for a Public Utility in Africa J.P. Morgan delivered a unique structure to refinance a swap for a state-owned public power utility in Sub-Saharan Africa. The refinancing of the swap reduced the enterprise’s cost by ~110bps while reducing its liability in the case of a credit event. The solution required complex structuring, overlaying a contingent CDS with the currency swap and is a first-of a-kind structure that can be replicated in multiple emerging markets.

IFC Local-Currency Bond Issuance in India J.P. Morgan underwrote a series of offshore Indian rupee ('Masala') bonds for the IFC. J.P. Morgan created an innovative swap-hedging structure to meet IFC’s investment objective and priced the issue at an attractive level for diverse investors. The transaction helped attract foreign investors to the off-shore Indian Rupee market and provided an alternative source of local financing for investment in the country.