Bonds a way for private firms to invest in infrastructure

At the panel discussion yesterday are (from left) IE Singapore CEO Lee Ark Boon, World Bank Group senior director Laurence Carter, ADB's Mr Barrow and Asian Infrastructure Investment Bank's Mr Haider.
At the panel discussion yesterday are (from left) IE Singapore CEO Lee Ark Boon, World Bank Group senior director Laurence Carter, ADB's Mr Barrow and Asian Infrastructure Investment Bank's Mr Haider.PHOTO: IE SINGAPORE

Establishing a bond market to help the private sector invest in infrastructure development in the region could help close the huge funding gap for such projects in Asia.

The idea was highlighted yesterday by Asian Development Bank executive Michael Barrow, who told a roundtable: "Savings in Asia have not been particularly interested in the risk profile of infrastructure.

"We need to see how we can intermediate between these savings and the slightly more exotic infrastructure assets that are out there looking for money."

Mr Barrow, the bank's director-general for private sector operations, wants to see "pension fund and insurance money coming into infrastructure development".

"This is the big missing piece in Asia, where the financing landscape has been quite simple compared to Europe or North America," he added.

He was speaking at the Asia-Singapore Infrastructure Roundtable at The Westin Singapore.

His view was backed by Mr Najeeb Haider, Asian Infrastructure Investment Bank's principal strategy officer. He said such a market could play a role in project refinancing at a time when commercial banks are not willing to take on the risk of long-term projects in the light of tightened capital requirements.

Regional banks and other institutions are looking at ways of structuring financial products so they can be used for infrastructure projects but the process is complex and challenging.

DBS project finance managing director Subash Narayanan told The Straits Times: "One of the issues is the mismatch of risk appetite and rating requirements in emerging markets. Regional investors are also not comfortable with the construction risks on infrastructure projects."

He added that this could be solved by major institutions like the World Bank or the Asian Development Bank backing the projects to give them investible ratings.

Meanwhile, policymakers here are looking at how Singapore as a regional financial hub can play a role in facilitating these deals, said Mr Kow Juan Tiang, director for the infrastructure solutions group at trade agency International Enterprise Singapore. "It takes a while for people to understand the risk and return involved, but infrastructure projects are actually a very good asset class for the long-term financing of pension funds and insurance funds," he added.

The roundtable was the sixth organised by IE Singapore since 2013.

More than $6 billion worth of projects have been arranged through the platform, with Singapore companies securing contracts worth over $800 million in Asia.

Senior Minister of State for Trade and Industry Sim Ann, who also spoke at the event, said Singapore-based banks now manage about 60 per cent of project finance transactions in South-east Asia.

"From now until 2030, Asia is estimated to require US$20 trillion (S$29 trillion) of additional infrastructure investments to meet growing demand", and Singapore is poised to tap this growth, she said.

"Singapore possesses a vibrant ecosystem of industry players who can offer advisory services in legal, financial, engineering and project execution." She added that local companies like urban development consultant Surbana Jurong are constantly looking to expand their expertise to meet the demand.

The firm's international operations chief executive, Mr Teo Eng Cheong, said business has slowed but the outlook is still bright.

"Like virtually all industries, we have had a slower year, but Surbana Jurong still has over 1,000 projects in the pipeline," he said.

A version of this article appeared in the print edition of The Straits Times on October 19, 2016, with the headline 'Bonds a way for private firms to invest in infrastructure'. Subscribe