With the Asian Development Bank estimating an annual financing gap of US$459 billion, senior government leaders, policy makers and industry practitioners gathered at the Asia Singapore Infrastructure Roundtable on 23 October 2018 to share ideas for innovative solutions for Asia’s ‘infrastructure gap’. (1)
Bankability has become a key buzzword in infrastructure financing. Creating projects that are structured to attract capital, be it in public or private form, is crucial. Right now, local banks bear the brunt of most infrastructure financing through local currency loans.
“The problem with this is that it creates issues of concentration risks as well as asset and liability mismatches at these institutions,” said Kiyoshi Nishimura, Chief Executive Officer at Credit Guarantee and Investment Facility, a Trust Fund of Asian Development Bank. What is needed is a recycling of capital, he continued, whereby the capital markets are used to remove some of this debt burden, so that banks free up their balance sheet to reinvest in new projects.
On a panel featuring senior government ministers from Singapore, Indonesia, Brunei and Thailand, Rini Mariani Soemarno, Indonesia’s Minister of State-owned Enterprises, said her government is in the process of doing just that.
“What we are trying to do this year is to shift the financing from brownfield projects into securitisations and long-term bonds,” she said. “We are also inviting investors to become equity partners in brownfield projects, when the risks of not getting land acquisition rights and overruns are over.”
Dato Suhaimi Gafar, Brunei’s Minister of Development, said that infrastructure development requires huge investment. “We believe there is a lot of opportunity for collaboration and partnerships from private sector and other countries …But one thing that is important, is that it has to be tailored to local conditions and requirements.”
In order to set the stage for the most efficient way to reuse capital, however, infrastructure projects need to be well thought out in terms of policies, law and structures.
“Right from the start, projects need to be properly structured,” said Heng Swee Keat, Singapore’s Finance Minister, in his speech as Guest of Honour. “Not just at the initial launch but at the execution, construction and operation stages. Risks need to be allocated, throughout the project cycle and assumed by the proper players to ensure its viability. To ensure this, we need standard documentation, proper planning and structuring.”
Amy Lee, Consultant for Infrastructure and Projects, Tan Kok Quan Partnership, seconded the notion that governments need to be cohesive and forthright about their policies.
“Governments need a one-government approach,” she said. “It’s important for governments to have clear and transparent policies on which areas of infrastructure finance they want to focus on. Because when the private sector comes and there are too many projects, it doesn’t quite work.”
On the legal side, standardisation of infrastructure contracts between countries and between agents is imperative for ease and for investors to be able to make comparisons.
“Many terms and conditions are not standardised,” said Yeo Hiok Hyen, Head of Corporate Banking/Trade Finance Department at China Construction Bank, Singapore branch. “Even simple terms like interest coverage ratios can be different for different contracts making them difficult to compare.”
Yeo went on to say that without an apple to apple comparison, it is difficult to garner enough liquidity for banks to trade the debt.
While financing and structures are important, as we look towards the future, projects need to be increasingly focused on sustainability and resilience.
Listen to the interview with Vivek Pathak, Regional Director for East Asia and the Pacific, International Finance Corporation.
“Infrastructure projects are intended to provide a stream of services for many years in the future and that presents many challenges,” said Singapore’s Minister Heng. “Our society’s needs will change, new technologies will evolve, and the long-term cost of maintaining infrastructure will form a large part of the costs in the years ahead. So, we need to make infrastructure as ready for the future as possible, to maximise its benefits over costs.”
Infrastructure affects everyone and is a key determinant in the economic growth of a nation, which is why no country can afford to wait.
“Everybody knows that Asia is probably the most exciting growth centre in the global economy,” said Thailand’s Dr Uttama Savanayana, Minister of Industry. “But the question is how do we capitalise on that?”
“It’s all about connectivity and collaboration, connectivity is where infrastructure comes in and infrastructure is the key enabler of what we, as a country want to establish,” he said.
With this in mind, the launch of Infrastructure Asia at the Asia Singapore Infrastructure Roundtable in 2018, was especially fitting. The initiative seeks to be the definitive Asian marketplace to catalyse infrastructure projects in the region.
“Different countries have different experiences, which you can learn from each other,” said Indranee Rajah, Minister in the Prime Minister’s Office in Singapore. “That was the thinking behind Infrastructure Asia, as a platform to connect.”
“In Singapore, we are fortunate to have many different types of professional services on offer from consulting and law firms to being a financial and asset management centre,” continued Minister Indranee. “Having this ecosystem to share with the rest of the region, means they can tap on what’s available here and we ourselves can learn from other countries.”
Creating this global exchange is imperative as nations work together to alleviate poverty by addressing each nation’s infrastructure needs.
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