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Make ASEAN Infrastructure Financing an asset class: Heng Swee Keat

06 Apr 2018


Asean infrastructure projects also need to be more visible and improve their bankability to attract funding, he says




ASEAN finance ministers came together on Thursday to pitch their respective countries' infrastructure projects and the steps their governments have taken to cushion the risks for investors.


Led by Singapore's Finance Minister Heng Swee Keat, they called for a collective effort which would be more efficient in meeting international investors' concerns.


Asean countries have been successful in tapping the private capital market for infrastructure financing, but it is time to step this up, said Mr Heng, who delivered the keynote speech at the World Bank Singapore Infrastructure Finance Summit.


Last year, Indonesia's second biggest power-producer PT Paiton Energy's US$2 billion project finance bond attracted some US$9 billion orders.


"The opportunity set is large but much work is needed to mainstream Asean infrastructure financing as an asset class," he said.


The Asian Development Bank estimates that, for the 15 years between 2016 and 2030, Asean's infrastructure investment needs will total US$2.8 trillion, or US$184 billion a year.


Asean needs to increase the visibility of its investment opportunities and projects, he said.


"We need to showcase the good projects available in each country, as well as promote Asean as an investment bloc."


Asean's energy sector has 77 renewable-energy projects in hydro, solar, wind, geothermal and biomass, geographically spread out across the region.


This sector has tremendous opportunities, given that demand for electricity in Asean is expected to grow at a compound annual growth rate of 4 per cent a year from 2014 to 2025.


In transport, rapid urbanisation and increased mobility have raised demand for transport infrastructure and more efficient transport networks. There are 219 road and bridge projects in the pipeline in Asean.


Mr Heng said Asean has to improve the bankability of its infrastructure projects at the individual project level.


"The goal is to draw in private-sector participation on projects that provide reasonable returns with reduced project volatility," he said.


Where the expected revenue may not cover costs fully, governments can step in to increase the projects' bankability by providing co-funding, raising user charges or extracting additional funding from value created from the project.


Where there are sufficient revenues to cover cost but exposure to certain risks remain high, risk-mitigating measures such as government guarantees and credit enhancements can help reduce the risk premium.


Multilateral development banks can play a role too, said Mr Heng, citing the World Bank International Finance Corporation (IFC) managed co-lending portfolio programme. This programme facilitates the participation of institutional investors in infrastructure by allowing institutional investors to invest in infrastructure loans originated by the IFC with some first-loss protection, and to enjoy benefits of scale and diversification through investing on a portfolio basis.


Mr Heng also called for standardised documentation; appropriately drafted public-private partnership (PPP) contractual provisions will provide investors with greater assurance.


Singapore's Infrastructure Asia office, which will be launched this month, will harness the collective capabilities of public-sector agencies and private-sector firms, and partner with key stakeholders across the region to facilitate more project opportunities that meet Asia's infrastructure needs, he said.


One of its key initiatives will be to develop a multi-year capacity-building programme for regional government officials.


Brunei Minister of Finance II Mohd Amin Liew Abdullah said his government has teamed up with the private sector to set up a holding company, operating it commercially to raise funds for the country's seaport, telco and transportation projects.


Indonesian Finance Minister Sri Mulyani Indrawati said her country has 245 projects in the pipeline costing US$327 billion, but that the government can cover under 20 per cent of the cost; another 20 per cent will come from state enterprises.


"The private participation is really necessary," she said.


The government has taken steps to allay investors' concerns on land acquisition risks, construction risks and government-policy risks, she said.


Ms Indrawati also said it is inefficient for a country's finance minister to contact each institutional investor and called for an Asean institution to showcase the region's infrastructure projects.


"I have to travel and be in Parliament, " she quipped to an appreciative audience.


Thailand's Finance Minister Apisak Tantivorawong said the country's law on PPP has been amended to make it more "promotional" and to allow for the fast-tracking of projects.


The previous PPP had focused on procedures, and some transactions used to take up to 24 months.


The revised PPP law also sets out certain returns for investors, he said. If the returns fall below target, the government will step in with subsidies; if they surpass expectations, there will be profit sharing, he said.


Thailand will also launch an infrastructure fund later this year, he said.


Surya Bagchi, Standard Chartered Bank global head, project and export finance said there is an increasing trend of private-sector investors interested in funding infrastructure projects.


"This ranges from commercial banks who are skilled in assessing projects during their construction phase to infrastructure and pension funds and insurance companies who prefer the long-term stable yields and good credit ratings of completed projects.


"In order to unlock the potential for private funding into infrastructure, projects in the region need to be structured to be bankable so that they can meet the credit-rating guidelines of the private sector," he said.