ASi" kUCTURE FlOR DEVELOPMENT

Box 52 Tapping international capital markets
Several channels exist for tapping international capital eign compaiies to raise equity on US. markets without
markets The larger private utilities in developing coun- the need for a listing on a.US. stock exchange and with-
--tries have direct access to debt and equity markets.. In -out comnplex settlement and transfer mechanisms. They
October 1993 Telecom Argentina placed much of its 5500 al issued by-a:US. depository bank, and the underlying
million, seven-year bond issue with U.S.. and Asian in- shares of the company are held in trust by a custodian
vestors; Argentina's Telefonika has also used bond mar- bank in the home country. In 1990 Compafifa de TelS
ket placements to raise . n- fonos de Chile (CTO raised $92 million on the New York
.:.'Foreign direct investment opens another route into Stock Exchange through an issue of equity in the form of
.international equity markets. General Electric Corpo- ADRs-the first major equity issue from Latin America
ration, an international conglomerate, has an active in- in three decades.
terest in developing infrastructure projects in develop-. In April 1990 the US. Securities and Exchange Com-
.ming countries. Its subsidiary, the General Electric mission approved rule 144a, facilitating private place-
DCapital Corporation (GECCQ, issues seurities on U.S. ment of securities, including those placed as ADRs. Be--
and European markets and invests the funds in se- fore then, privately placed securities held by qualified
lected projects. GECC has participated as an equity in- . buyers (Istitutions that manage assets worth at leastvestor,.for
instance, in the Northern Mindanao power $100 million) could be traded only after a two- or threeprojvect-a
108-megawatt diesel-fired power project in year holding period- Rule 144a allows trading to occrthe
Philippines. Backed by the* group's total opera- immediately, provided that the new buyer is also quali-.
tions, the placenient of securities-issued .by GECC is fied. Moreover after three years the secunities can be
- easier than it would-be for developing country power sold to all buyer Rule 144a was used in 1992 to enable a.
- projects alone- : t r $2075 million international bond issue for the Mexico
An instrument widely used to tap resources inCthe ity-Toluca Toll Road. Since then, offier MExican toll
US. capital market is the American depositary eceipt roads and the Subic Bay power plant in the Phiippines
(ADR). ADRs are certificates of deposit that enable for- haveraisedfindsusingrule][44a.
structure has been a significant beneficary of such tractive. As an example, electronic methods of idenflows
(Box 5.2). tifyg velchiles and chargng tolls could make roads
Aggregate private investmentin inifrstructure in more like a public utility service, and boost the
developing countries is currently about $15 billion a share of private finance in the highway sector.
year, or roughly 7 percent of the $200 billion being Even with the rising share of privately financed
spent annully on infrastructure in these countries, infrastructure, governments will continue to be an
-Although small, the fraction of private investment importantsource of financing. Often, they will need
in infhrstructure investment is much larger than it to be partners with private -entrepreneurs. Publicwas
some years ago, and there is a strong likelihood private partnerships in some ways represent a rethat
private investmentwillconinue to grow, possi- turn to the nineteenth century, when infrastructure
: -- .bly doubling its share of the total by the year 2000. projects were privately financed in much of the
One indication is the IFC's current infrastructure world while government support acted as a stimupipeline,
which is almost as large as all the projects lanL But the nineteenth century experince also offinanced
to date. . fers important waning signs (Box 53).
The smaIl overall share of private finance in infrstructure
obscures large. regional and sectoral dis- The spread of project finandng: achievements
parities. Private finance is proportionately greater in and lessons
Latin America than in other regions, and larger in
telecommunications and electric power generation Many new infrastructure projects in the private secthan
in other sectors. The diffusion of current expe- tor are built by "special-purpose corporations"
rnence across regions and sectors will raise the which bring together private sponsors and other eq-
- -- - global share of private sponsorship and finance. For uity holders. Despite their lack of credit histojr, sevexample,
telecommunications privatization and in- . eral such ventures have successfully attracted eqdcpendent
power generation are under discussion uity and loan finance-and a huge pipeline of such
in all regions, including Sub-Saharan Africa. And projects bears the promise of decisively shifdng the
continuing technological and financial innovations channels and instrumets of inastructure financwill
undoubtedly make private financng more at- ing in the-futurc
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