New pathways for infrastructure finance in Vietnam
Nishant Kumar
Managing Director (Head of Asia), GuarantCo and Head of Coverage (Asia), PIDG
2024 marked several significant developments in Vietnam's infrastructure finance landscape, as new financing mechanisms helped unlock domestic capital for sustainable development. Through a series of transactions facilitated by PIDG, the market saw the emergence of innovative financing structures that could help address the country's substantial infrastructure needs while supporting its energy transition goals.
The need for both scale and urgency
The Global Infrastructure Outlook estimates that Vietnam needs nearly $600 billion in infrastructure investment through 2040, with a projected funding gap of $100 billion. This investment is particularly urgent given Vietnam's vulnerability to climate change, with over 3,200 km of coastline and a high proportion of its population and economic assets located in coastal lowlands and deltas. According to the World Bank's Country Climate and Development Report, without effective adaptation action, between six and twelve million people could be affected by coastal flooding by 2070-2100 [1].
The importance of addressing these challenges is heightened by Vietnam's environmental risks. According to a 2021 biodiversity impact assessment, the rapid growth of industrial, urban, and agricultural expansion has led to intense exploitation and degradation of the environment, with Vietnam having one of the highest proportions of threatened species globally [2]. Research published in 2021 shows that the combined effects of large-capacity hydropower development, large-scale deforestation, and overextraction of groundwater, alongside climate change, have resulted in reduced water availability and increased saline intrusion, with the Mekong Delta experiencing its worst saline intrusion event in 2020 [3].
Mobilising and multiplying finance
PIDG played a key role in several significant transactions in 2024 that demonstrated how blended finance structures can help address challenges related to infrastructure finance and climate change. These included the country's first verified green project bond in the water sector and the longest-tenor project bond to date for Hoa Binh – Xuan Mai Clean Water Limited Liability Company. As Vietnam's first 20-year project green bond, it was supported by a VND 1,192 billion (approximately USD 47 million) guarantee from GuarantCo, part of PIDG’s Guarantee Solution. Significantly, it was also the first project bond to receive an external credit rating from a local ratings agency.
The successful placement of these bonds with major institutional investors ?– ?including Chubb Life Vietnam, Hanwha Life, AIA, and Generali ?– ?suggests growing appetite among domestic institutions for infrastructure investment opportunities. This development is particularly relevant given that Vietnam's commercial banks currently allocate only 5-7% of their loan books to infrastructure projects.
PIDG also supported Asia's first green bond transaction in the aquaculture sector, with a VND 1,000 billion (40 million USD) guarantee supporting bonds issued by International Development and Investment Corporation, a subsidiary of Sao Mai Group and a leading sustainable fish export company in Vietnam. The IDI Sao Mai transaction demonstrated how infrastructure finance mechanisms can be adapted to support domestic companies seeking to access markets with robust sustainability requirements and meet the growing global demand for eco-friendly and responsibly sourced food products. The bonds received investments from Manulife and AIA.
In the renewable energy sector, a USD 20 million loan from the Emerging Africa & Asia Infrastructure Fund – part of PIDG’s Debt Solutions offer – ?in CME Solar, a prominent player in Vietnam’s commercial and industrial (C&I) solar energy sector, will support the development of over 260MWp of rooftop solar projects. This investment addresses a critical need, as coal-fired power still accounts for 45% of Vietnam's energy supply. ?The project will contribute to Vietnam's goal of increasing renewable energy share to c. 40% by 2030.
Vietnam’s growing demand for electric motorbikes means domestic manufacturers need capital to grow, and in August of last year PIDG, through its development capital solution arm, provided USD 4 million in funding to Dat Bike, the country’s fastest-growing electric motorbike producer. Dat Bike is Vietnam’s only vertically integrated electric motorbike manufacturer. The funding will allow Dat Bike to more than double its production capacity through facility expansion, tool optimisation, and increased automation. ?
The establishment of the IPEF Catalytic Capital Fund represents another source of critical infrastructure finance for the region. Administered by PIDG, through our Technical Assistance solution, IPEF is supported by the governments of the United States, Australia, Japan and the Republic of Korea. It will deploy concessional financing, technical assistance, and capacity-building support to expand the pipeline of quality, resilient, and inclusive clean economy infrastructure projects in emerging and upper-middle-income economies party to the IPEF Clean Economy Agreement. The fund aims to catalyse up to USD 3.3 billion in private sector investments across the Indo-Pacific region, of which Vietnam is a key partner country.
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Opening pathways for greater access to finance
PIDG’s progress shows that blended finance structures can play a key role in bridging the gap between infrastructure projects needing long-term, local currency finance and investors seeking to diversify their portfolios and create impact. By mobilising finance in effective and sustainable ways, market precedents come into place that open doors to greater private sector participation.
As Vietnam continues its development journey against a backdrop of mounting environmental challenges, an expanded set of pathways to securing infrastructure finance will be needed. A Credit Enhancement Facility (CEF), which would issue local currency credit guarantees to improve the credit ratings of projects and developers approaching lenders for debt, could help further mobilise the private debt necessary for development.? As a dedicated institution with a sole focus of providing guarantees and credit enhancement, a Vietnam CEF would focus exclusively on domestic financing needs. It would be able to optimise its activities for the local market, helping expand access to finance for Vietnam-based organisations.
Supporting Vietnam’s sustainable development
Financial innovation will be crucial in meeting the Vietnam’s development goals as the country works to close its infrastructure investment gap and address its environmental vulnerabilities.
PIDG will continue to work with local institutions, local partners and importantly with Vietnamese government and regulatory setup to not only help setup a CEF in Vietnam but also continue to innovate new but replicable solutions – in equity, debt, guarantees and technical assistance – thereby achieving measurable and tangible impact in financing landscape for sustainable infrastructure in Vietnam.
[1] Thinkhazard and Rankings // Notre Dame Global Adaptation Initiative