GuarantCo, part of the Private Infrastructure Development Group, and Axis Bank, the third largest private sector bank in India, have signed a framework guarantee agreement to provide the latter with an USD 200 million INR equivalent guarantee, allowing mobilisation of funds between USD 300 and 400 million in local currency to finance the e-mobility ecosystem in India.
The climate mitigation guarantee will be utilised to accelerate the Electric Vehicle (EV) eco-system in India through capex financing of a wide range of entities engaged in manufacturing, distribution and servicing of electric vehicles, batteries and charging infrastructure.
This guarantee-backed debt funding is a first of its kind initiative in India which is expected to accelerate the development of the EV ecosystem in the country. Each qualified loan made by Axis Bank to the underlying borrowers will be partially credit guaranteed with a maximum tenure of up to 10 years. Loan proceeds within the framework agreement will be used for greenfield capital expenditure in EV infrastructure under three categories:
- Manufacturing and distribution of EVs, batteries, components and charging infrastructure
- Services based on EV usage and/or to the EV sector
- Finance companies providing financing for the purchase of electric vehicles by consumers
The transaction is Paris-aligned and will contribute to SDG 13 (Climate Mitigation) and SDG 11 (Make cities inclusive, safe, resilient and sustainable) and reduction of emissions and improving of air quality SDG 9 as well (Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation). EV adoption in India is crucial to addressing multiple challenges, including urban air pollution but the progress has hitherto been constrained, with less than 1 percent penetration by a range of other factors including lack of financing. The agreement can help improve the efficiency of the EV infrastructure sector by supporting the entry and expansion of private sector players into the market and the introduction of innovative technology.
Through the provision of financing for EVs across the value chain, it is anticipated that a larger range and volume of EV models will be produced and made accessible. In turn, this will mean better offerings based on EVs being positioned at attractive prices. Lower prices and better net fuel economy are expected to make EV’s commercially more viable than internal combustion engines, thus driving demand amongst both consumers and service providers. These benefits supported by longer-term government plans and subsidies to push EV growth will help developing the Indian market, thereby ensuring significant climate change mitigation.
The collaboration between Axis Bank and GuarantCo was first announced by the UK Prime Minister Boris Johnson during COP 26 in Glasgow in November 2021 as part of the UK Clean and Green Initiative and is of considerable political importance. The signing of the transaction has also been included in the UK India joint statement issued Friday 22nd April 2022, following the UK PM’s visit to India (refer to paragraph 22).
Layth Al-Falaki, CEO of GuarantCo, said:
“We are very excited to have closed this transaction with Axis Bank and will utilise this climate mitigation guarantee capacity to increase our clean green initiatives in line with PIDG’s climate strategy. This guarantee framework is our largest transaction since our inception in 2005 and we are confident that it will make a significant contribution in accelerating Electric Vehicle usage in India and as a result significantly reduce carbon emissions.”
Philippe Valahu, CEO of PIDG, said:
“The urgency of climate action requires innovative solutions that enable the private sector to invest, and following on from the commitments delivered at COP26, we are delighted that that this agreement with Axis Bank has been signed.”
Amitabh Chaudhry, MD and CEO of Axis Bank, said:
“The e-mobility framework with GuarantCo re-affirms our commitment towards achieving the Sustainable Development Goals, by providing an enabling environment to plug-in the funding gaps for capacity building in the sunrise sector of e-mobility. This will help players tackle challenges, harness the great potential and numerous opportunities in this space. This partnership, underpinned with a focus on creating a more inclusive, equitable economy and a healthier planet, strengthens our position as an ESG leader and also helps achieve an important milestone in our sustainability journey.”
