Temasek- and HSBC-backed Pentagreen Capital has committed a $30-million mezzanine loan to Citicore Solar Energy Corporation (CSEC) in the Philippines, making it the first investment from its $150-million debut fund.
CSEC is the solar development vehicle of Citicore Renewable Energy Corporation, an integrated renewable energy platform based in the Philippines.
Pentagreen’s $30-million commitment represents an initial tranche which will support CSEC’s six solar power projects with gross capacity of 490 megawatts across the island of Luzon. It also comes with a greenshoe option to increase the amount to $100 million to support the expansion of CSEC’s solar project portfolio to over 1 gigawatt.
According to Pentagreen’s CEO, Marat Zapparov, CSEC will likely raise the full $100 million in the next 12 months due to the project’s strong pipeline. As such, Pentagreen will likely partner with other lenders in the market to meet demand. CSEC’s parent company, Citicore Renewable Energy Corporation, has also injected extra equity capital into the project as part of this deal.
“The company has got a very strong pipeline of projects. Once the early development work is done, those projects become ready to construct and ready to finance and at that point, additional capital is needed. Our initial commitment will finance a specific project pool, and we have worked with the company to identify an additional project pool that the company will need to finance over the coming 12 months or so. So as these projects become ready, additional debt amounts can be mobilised under this facility very efficiently,” shared Zapparov in an interview with DealStreetAsia.
The transaction marks Pentagreen’s first deal since it was set up in 2022.
Pentagreen Capital is backed by two shareholders — Temasek and HSBC — and aims to disburse loans of $20-40 million in sustainable infrastructure projects across Southeast Asia and South Asia. Some sectors it looks at includes renewable energy and energy storage, transport, water and waste management.
The Singapore-based lender also focuses on providing subordinated or mezzanine debt financing to infrastructure projects — a sub-niche which large commercial banks have historically shunned due to “greenfield risk”.
Traditional project finance lenders are typically comfortable with taking on greenfield risk when there are assets involved, but since subordinated debt isn’t secured by assets, doing this requires additional flexibility and specialisation from the lender, explained Zapparov.
Such expertise is still rare in Asia where there are few mezzanine debt providers and infrastructure specialists.
“We are infrastructure project finance specialists who are very comfortable with greenfield risk and how to structure the right mitigants around it. Working with construction risk on such assets is routine for us. Yet you still need a more flexible balance sheet which can look at mezzanine, subordinated situations, and different types of financing,” added Zapparov.
Private credit has taken off in Asia in recent times, driven by the rising cost of equity since the Fed began its quantitative tightening last year. Meanwhile, the lack of credit options for traditional and tech companies in Asia has also led to a growing number of funds launching debt funds across mid-market private credit, mezzanine financing, venture debt, and distressed debt.
Green loans have typically been dominated by the world’s development funds and foundations like IFC; Asian Development Bank (ADB); and DEG, the investment arm of German state-owned development bank KfW.
Global private equity (PE) giants have also been active in the space. Just last month, Blackstone announced that it was raising $7.1 billion for its new energy transition credit fund, Blackstone Green Private Credit Fund III (BGREEN III), which it calls the largest energy transition private credit vehicle ever raised, providing loans to the renewable energy, infrastructure, and energy transition marketplace.