Andrew joined James Cameron of StanChart, Mike Collins of the UK High Commission in Singapore and Mark Rathbone of PWC in a timely discussion today hosted by Rod Morrison of Project Finance International magazine around Refinitiv’s latest data for infrastructure finance raised.
To listen to the recording, go here. Of the many points arising:
Post Covid, what is the need for private capital?
More than ever, of course.
Government money is currently going on keeping their economies afloat because of Covid. Institutional equity is allocating ever more funds to infra but is wary of construction risk yet alone development risk. Infra may well be long dated and inflation – linked but it can also bring an uncertain revenue line. That uncertainty is heightened right now especially in the mass transit, leisure and airport sectors (although there are some brave souls out there: a concession to develop the $9.4 billion U-Tapao airport at Pattaya was signed in June (see my opinion piece in July) and China Comms Construction Co is going ahead with expanding Sangley Pt, one of four Manila airports (see my opinion piece last December), despite being black listed by the US for dredging disputed islands in the South China Sea).
How are state actors responding under initiatives such as BRI?
According to Refinitiv’s latest numbers, China’s Belt and Road Initiative may have slowed but $137 billion of new projects were still announced in Q1, Not all of these will happen or happen well but even so, these numbers remain enormous (BRI has clocked up $4 trillion of investment to date).
As predicted, the rest of the World has responded. Japan, long the major state investor in the region, signed a Partnership on Sustainable Connectivity and Quality Infrastructure with the EU in September 2019 and joined the US DFC (ex OPIC) and Australia’s DFAT in the Blue Dot Network, both intended to promote best behaviour when investing into infra.
But the West has also put its money where its mouth is. In July, Total raised $14.9 billion for its Mozambique LNG project including a $4.7 billion direct loan from US DFC even though Anardako was no longer involved. In all, eight ECAs took on risk on a country rated only B+ by S&P (and one where armed police once tried to shake me down).
What are the most attractive sectors right now for private infrastructure capital – renewables, data centres / broadband etc….
Renewables, yes, especially in the archipelagos of Indonesia and the Philippines; plus Taiwan and Korea. PPAs will be more corporate / portfolio – based / shorter term than the asset life. There are some interesting new risk profiles being progressed such as Masdar’s floating solar in West Jawa; storage and enhanced grid infrastructure to manage intermittency need to be incorporated; and then there is Vestas / MacQuarie’s enormous A$22 billion Asia RE Hub (wind and solar) in the Pilbara for export to Indonesia and perhaps Singapore.
Yes, data centres / broadband will boom. Is there a separately identifiable revenue line? Does the technology work or does a project need some supplier support?
Other sectors will be driven by the renewed appetite for ESG such as Waste To Energy and waste management generally. The likes of Anaergia are making progress converting MSW to RDF, fertiliser, etc but, to be commercially viable, local government support may be needed, be this financial (e.g. the Waste Electrical and Electronic Equipment Treatment and Recycling Facility (WEEE·PARK) operated by ALBA-IWS in Hong Kong) or via assumption of unfamiliar risks (e.g. collecting the waste in the first place as for rice hull burners).
How can public and private actors bridge the infrastructure gap in sectors such as social infrastructure?
This sector has been difficult in Asia. It has been tried occasionally in Singapore and HK.
The key question is what risk can sensibly be transferred to the private sector so as to justify the inevitably higher cost of funds?
Then availability of the asset needs to be defined and linked to revenue earned in sometimes excruciating detail.
How can the supply chain for infrastructure construction projects be made sustainable?
Disruption to supply chains globally has been caused not by Covid but by government lock downs imposed because of Covid – which may well have not been anticipated when drafting force majeure, impossibility and frustration clauses. The response needs to be i) reschedule if temporary ii) address supplier and subcontractor liquidity iii) find alternative suppliers and subcontractors.
And on top of Covid, we have the impact of US sanctions on China. For example, China manufactures 70% of the World’s solar panels.
Like the rest of the World, the infra space may still be beset by heightened uncertainty but business is being done.
