Exclusive: IDB Invest chief seeks $3B-$4.5B capital increase

The private-sector wing of Latin America’s premier development bank will seek a capital increase from shareholders of $3 billion to $4.5 billion, its chief told Devex. This will allow IDB Invest to lend more, take on more risk, and design projects to combat climate change, according to the lender’s CEO James Scriven. “If I really want to have an impact on the region this is what I need,” Scriven said. It’s an “ambitious” model the bank has dubbed IDB Invest 2.0. IDB Invest lends to 26 countries in the Latin America-Caribbean region and is an arm of the Inter-American Development Bank. IDB held its annual meeting last month, where the capital increase was discussed with shareholders, though no numbers have been agreed. Scriven says IDB Invest can do about $5 billion-$7 billion of business per year at present but argues it needs to hit $15 billion-$20 billion. This would allow for a range of new investments, including in the renewable and cleaner energy demands of the future, such as green hydrogen and lithium, the latter of which is vital for electric vehicles. Currently, IDB Invest has $3 billion in paid-in capital from shareholders. But with progress on the U.N. Sustainable Development Goals so far behind, the lender argues it needs more “to make a dent in the SDGs.” IDB Invest makes loans and equity investments to companies and private-sector projects that further development. The last IDB Invest capital increase was in 2015 when the institution got $2 billion. About $1.3 billion came from new shareholder contributions and $725 million from IDB’s main wing. While it’s easy to think of a capital increase as directly translating into more lending, Scriven says it goes deeper. By having more equity on hand, the lender can also enter more risky investments without hurting its AAA credit rating. This includes additional lending to countries with subinvestment grade credit ratings and taking chances on nascent technology where traditional lenders are more wary, such as green hydrogen projects in Chile. “I need to be able to take more risk, and hence I need more capital,” is how he frames it to the board, he said. The new model aims to have a stronger focus on “crowding in” private investors through what is known as de-risking, which basically means that IDB Invest could take the hit in case something goes wrong. It could also mean investing in an asset but then selling it off to private investors once the project is stable, rather than keeping it on IDB Invest’s balance sheet. “Our concept of crowding in is creating instruments that help convince the world that Latin America and the Caribbean is not as risky as they perceive,” Scriven said. Scriven argues that with a capital increase, the bank would also be able to make more equity investments, and not just lend money. Currently, IDB Invest does about $50 million a year of these investments, in what the CEO admits is a “drop in the bucket.” He says he is aiming much higher. “I want to quadruple that,” he said, to more than $200 million a year. So far, the board has given the nod to explore a capital increase, but no word yet on money. “What has been agreed is let’s open up a discussion on a capital increase,” he said. Scriven and his team will deliver a more detailed proposal to the board by Sept. 30. IDB Invest aims to formally submit its capital increase request to the board by March, at the next annual meeting. IDB Invest is on track to formally submit to the board a capital increase request, with all the numbers finalized, by March, for the next annual meeting.