The Asian Development Bank (ADB) has issued a loan of up to US$40 million and a B-loan and Political Risk Guarantee (PRG) of up to $15 million to Afghanistan’s leading cellular network, Roshan. The transaction will help accelerate the expansion of mobile telecommunications services in Afghanistan and builds on the success of Roshan’s first-phase expansion in 2004, which was also partly financed by an ADB private sector loan of $35 million.

Afghanistan continues to suffer from a critical lack of communications infrastructure, and cellular phones are seen as the only viable method of providing country-wide communications services. Roshan has significantly exceeded subscriber and traffic growth targets since 2004 and the company had to accelerate its capital expenditure program to meet strong demand. The loans and guarantee will enable Roshan to provide near country-wide coverage on an accelerated basis, additional network redundancy, and a network upgrade.

The primary sponsor of the Project is the Aga Khan Fund for Economic Development. Co-sponsors include a subsidiary of Cable & Wireless, and a US-based telecommunications company.

ADB’s participation helped catalyze additional financing for the second tranche of financing. Proparco, ADB’s financing partner for the Phase I financing, and DEG also participated in the Phase II financing. The financing package included loans from Standard Bank and the National Bank of Pakistan – the first international commercial bank financing in the country in some three decades.

“The commercial banks were willing to enter into this financing because of the existence of the PRG and B loan ADB issued to protect them from perceived Afghan country risk. The PRG was structured to cover only the last years of commercial bank exposure, which enabled them to provide longer tenors that would otherwise not have been possible,” noted Daniel Wagner, Senior Guarantees and Syndications Specialist in ADB’s Office of Cofinancing operations in Manila. By combining the B-loan with a PRG, ADB made it possible for the lenders to achieve two objectives: obtain a withholding tax exemption (from the B-loan) and an indemnity (from the PRG). The PRG included Expropriation (which included license cancellation) and Political Violence coverages (the lenders did not require Currency Inconvertibility/Non-Transfer coverage). Approximately half of the project cost will be covered by additional equity and cash flow from Roshan’s operations. ADB’s loan was made without a government guarantee and carries a 6-year term, including a grace period of 2 years.

The balance of funding will be met through loans from various lenders, including Standard Bank Plc, the French Societe de Promotion et de Participation Pour La Cooperation Economique (Proparco), and the German Investment and Development Company. ■