Speech by Seth Tan, Executive Director, Infrastructure Asia at the G20 Infrastructure Industry Networking Dinner on 30 January 2019
Infrastructure demand in Asia
1. The infrastructure demand in Asia is very huge. One estimate is that the need of USD1.7 trillion demand on annualized basis is currently only about half met. Hence there may be areas where international solutions are potentially relevant.
Introduction to Infrastructure Asia
2. Since our set-up last year, our office has met over 100 supply-side companies across the infrastructure life cycle, and we noticed many are best-in-class and many are interested to do business and contribute to regional infrastructure development. Other than corporate developers and investors, there is also a strong interest amongst banks, infrastructure funds, professional and technical service providers and also dispute resolution service providers to help in various aspects of regional infrastructure.
3. Infrastructure Asia is a public service, and we hope that through our efforts more companies and institutions can deliver good-fitting solutions to the region’s infrastructure projects. We were launched last year by Singapore’s Finance Minister Heng Swee Keat, and together with our partners like the World Bank Group, Singapore Business Federation and more partnerships that we will form, we hope to help catalyse more projects.
4. Our goal is to help smoothen the infrastructure development, financing and implementation journey, and we hope to do that via 7 things:
- improve access to financing across the infrastructure lifecycle;
- connection of good fitting solutions to infrastructure demand;
- where required, help with structuring and
- capacity building so more cases can become bankable and investable;
- we would form more partnerships so we can be more and more relevant;
- as we accumulate more knowledge of topical infrastructure pain points and knowledge of newer solutions, we would be prepared to share our knowledge with interested partners and countries; and
- for certain projects, it may make sense to team up with other countries’ sub-segment champions so more quality projects can result.
Financing support in Singapore
5. Today, I would like to briefly touch on “financing access” as financing is an important part of infrastructure development. We’ve identified 8 broad categories of sources of financing. The biggest and most commonly known to demand markets is banks and MDBs like World Bank, ADB, AIIB. In addition to that, there is strong runway for infrastructure funds to also be relevant. Bonds & asset securitization is increasingly important on the debt side as with stock exchange listing and potentially business trust listing on the equity side. The right type of insurance could also be an important enabler, and so is early stage financing like technical assistance and companies who are able to provide early stage capital. Infrastructure Asia has been in touch with the entire spectrum and for different needs we can enable different types of financing solutions.
6. Using renewables as an example, we had various chats with companies, banks and infrastructure funds. What we found is that everyone we spoke to have some successes in energy projects and wish to do more. However, the current terrain is not easy as there are multiple complexities like which counterparty can underpin the credit, FX risk, environmental considerations, upcoming disruptive technology etc. Infrastructure Asia believes it is important to embrace complexity so more quality solutions can be enabled.
Findings from mission trips
7. Today, we present 5 insights we gleaned regarding renewables market and also 1 broader base initiative IA is taking. If you like to have deeper discussions, we can set up separate meetings in the coming days.
8. Insights number 1 we got is regarding communications on energy mix. Most countries have announced their green plans. However, some countries may still need to rely on cleaner conventional power sources, hence it may be useful to convey the countries’ energy mix plan to the public more. This energy mix trajectory will help financial institutions better visualize and manage internal and external expectations.
9. Insights number 2 is it is important to achieve scale to attract international investors and financiers. To achieve scale for renewables, better grids and policies which are consistent and conducive is very important. This also feeds into point insights number 3 as renewables require long term certainty both on price and also on volume through priority of dispatch. Insights number 4 is that other risk allocation mechanisms that give international investors and financiers more certainty of the base case and downside also helps tremendously with ensuring the scheme is scalable and repeatable.
10. Insights number 5 is that renewables is a space where technology has and continues to improve very dramatically hence governments who are open to embrace new paradigms like combination of renewable energy + battery storage could increase energy accessibility in more remote places.
11. As the interest to support renewables is huge, being open to embrace new business and financing models may also help with greater adoption. Some examples are B2B PPAs (which need government support to be more successful, for example, through net metering), or phasing of capital (with banks supporting the construction phase and infra funds taking out post-COD). Renewables is an area where with the right policies, commercial structures and project specific conditions, we could have more sources of financing willing to support, like stock exchange listing, portfolio financings, infra funds financing and for assets located in better rated countries, external credit ratings open the asset class to more investor base. Greater breadth and depth of financing support in turn gives each of your country more choices to choose the best fitting solutions.
12. Some complexities are harder to deal with like FX risk, but even on that, we hear interesting ideas like local currency bonds, onshore-offshore loans, tranching hedgeable and non-hedgeable portions so downside risk is more manageable.
13. Other complexities are relatively easier to tackle, and one area in which IA will devote time this year is trying to harmonize project finance loan documentation. Today, it takes very long to get PF loans to financial close, and as each PF loan is unique, it is not very easy to refinance en masse, like through bonds, through take-out facilities like Clifford Capital’s Bayfront or even by infra funds. We hope through our efforts we can help create one alternative which standardizes 50-60% of PF loan docs, hence benefiting future end-users.
14. There is much scope where Infrastructure Asia can assist, and today we hope we gave you a quick flavour regarding financing.
15. With that, I thank you for your attention.