Infrastructure fund scheme wins cautious support

05/05/2009 | Anthony Rowley, Steve Garton

Private sector specialists added their backing yesterday to a proposed infrastructure fund designed to help finance $8 trillion worth of Asian projects over the next ten years – but warned that implementation will be tough

Private sector specialists added their backing yesterday to a proposed infrastructure fund designed to help finance $8 trillion worth of Asian projects over the next ten years – but warned that implementation will be tough.
A fund dedicated to providing long-term capital for projects would be “most welcome at a time when commercial banks are reluctant to commit liquidity,” said Conor McCoole, head of project and export finance for Asia at Standard Chartered in Singapore.
A joint report published on Sunday by the ADB and the ADB Institute called for the formation of a new Asian Infrastructure Fund (AIF) – and argues that 44 Asia and Pacific region countries would need to spend $7.9 trillion up to 2020 on projects including installing or upgrading transport networks, energy networks and communications systems.
It also called for another $287 billion to be spent on “specific regional projects”, with the combined investment to add $1.6 trillion or 10% to developing Asia’s GDP by 2020.
The report’s projections for spending needs are far higher than previous estimates, while it also proposed a new range of financing solutions.
But the report is issued at a time when Asian projects are being derailed by a lack of financing. Singapore’s plans for a national stadium complex, which required over $1 billion of long-term debt have been delayed, raising big questions over the ability of the planned AIF to attract private sector capital.
The ADB and ADBI propose that the new Fund would mobilize resources from governments, development banks and the private sector in order to finance what it calls “bankable” regional infrastructure projects. The AIF would be a separate legal entity capable of issuing bonds and investing through its own resources.
It is not yet clear whether any capital raised by the fund would be guaranteed by the ADB or any other institution, which bankers said may be necessary if it was to attract private sector support.
Bankers cautioned that the issue of respective contributions from public and private sectors needs to be resolved. Rajeev Kannan, head of project finance for Asia at SMBC in Singapore, said: “Government agencies have to re-think how they structure projects. The quantum of funds available from international banks has been affected [by the crisis].”
Projects in China, Thailand and India are still able to access funding from domestic banks, but developments in other countries such as Indonesia are more at risk because of their dependence on international investment, Kannan said.
The ADB/ADBI report also proposes a Pan-Asian Infrastructure Forum (PAIF), bringing together Asian governments and other “key stakeholders” in a grand coalition to plan and implement regional projects – a traditional sticking point for private sector backers.
Ashley Wilkins, head of capital raising and financing for Asia Pacific at Societe Generale, said: “Cross-border projects are the most difficult you can ever do. The issue is always how to make these bankable.”
The United Nations Economic and Social Commission for Asia and the Pacific (Escap) several years ago came up with a grand design for a Pan-Asian Highway and a Pan-Asian Railway Network. “But what they did was just a vision”, says Masahiro Kawai, Dean of the Tokyo-based ADBI. “This sort of vision was very useful, but how to make it happen is an important question.”
The ADB/ADBI report envisages cooperation among numerous agencies, including Escap. Escap Under-Secretary General Noeleen Heyzer told Emerging Markets: “This a partnership that works, with the comparative advantages of each institution being leveraged in the best possible way.”

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