(MENAFNEditorial) CGIF and Surbana Jurong team up on greenfield project bonds Innovative partnership to boost infrastructure funding in Southeast Asia SINGAPORE - Media OutReach - 24 May 2017 - The Credit Guarantee &
Investment Facility (CGIF) and Surbana Jurong Private Limited (SJ) today
announced a collaboration to boost the use of local currency-denominated project
bonds to finance greenfield infrastructure projects in Southeast Asia.
CGIF is a multilateral facility
established by ASEAN+3 countries and the Asian Development Bank to develop and
strengthen local currency and regional bond markets in ASEAN.
Under this collaboration, SJ will
provide technical assessments to validate the time, cost and quality aspects of
identified greenfield infrastructure projects aiming to issue project bonds
with the support of CGIF's Construction Period Guarantee (CPG). CGIF will offer
irrevocable and unconditional guarantees to projects in ASEAN with robust
construction programmes, as screened by SJ. These guarantees can stretch up to
US$140 million equivalent per single greenfield infrastructure project to
facilitate the issuance of long term local currency bonds.
The CPG, launched in July last
year, is designed to frame risks associated with the construction period to
acceptable levels for conservative long term investors to consider greenfield project
bonds. (See Appendix I for more info on
CPG.)
This collaboration marks the first
partnership between CGIF and a urban,
industrial and infrastructure consulting firm. CGIF
has undertaken 13 corporate bond guarantee transactions since her establishment
in May 2012, and is actively looking to embark on her first infrastructure
project bond guarantee with SJ.
"For many conservative long term
investors, construction risk has been the key impediment keeping them from
supporting the build-up of infrastructure assets despite their natural appetite
for long term bonds. This collaboration
marks an innovative attempt to bring to the market high quality greenfield
project bonds where construction risks have been adequately appraised and
mitigated as guided by the engineering prowess of a firm like Surbana Jurong
and backed by CGIF's guarantees," said Mr Kiyoshi Nishimura, Chief Executive
Officer of CGIF.
He further added: "Many ASEAN
countries are witnessing rapid accumulation of domestic savings in the non-bank
sectors such as pension funds and insurance companies as their economies grow
and their income levels rise. However
these savings are not well tapped to finance critically needed infrastructure
assets. Catalyzing these institutional
investors' support for infrastructure projects perfectly fits the aspirations
of CGIF's Contributors which includes the Singapore Government to find new
methods to narrow the widening infrastructure gap in the region".
"For a country to develop and
grow, infrastructure development is key. However, perceived risks in such
projects in Developing Asia deter investors, and infrastructure development is,
in turn, often severely hampered. Surbana
Jurong is delighted to partner the CGIF to develop a robust
construction risk assessment and mitigation framework that will provide
assurance to new investors in greenfield infrastructure project bonds. This partnership aims to boost infrastructure
investment in ASEAN," said Mr Wong Heang Fine, Group Chief Executive Officer of
SJ.
He added: "As
one of the largest Asia-based urban, industrial and infrastructure consultancy
service providers, SJ is always keen to further value-add to our global clients
with a complete value-chain of services. This complementary partnership with
CGIF allows us to now offer a new dimension of financing solutions for our
infrastructure project pipeline. We believe we are the only player in our
industry to offer such a solution."
Stimulating local currency bonds
According to the Asian Development
Bank's latest forecasts, Developing Asia will need to invest US$26 trillion
from 2016 to 2030, or US$1.7 trillion per year, in order to maintain the
region's growth momentum, eradicate poverty, and respond to climate change. New
approaches will be required to stimulate private sector finance in
infrastructure investments and to prevent the region from falling further
behind.
One such approach is to facilitate
the channelling of domestic long term savings to finance infrastructure
directly via project bonds, particularly at the greenfield stage. Mobilising long
term savings to meet long term funding needs in matching currencies is the most
efficient model of financing infrastructure. However, only a few countries have
successfully pursued this capability. A critical impediment towards mobilising
long term savings is the low risk appetite of pension and insurance fund
managers and their aversion to construction risks.
How the CGIF-SJ collaboration helps
to boost funding
The collaboration between CGIF and
SJ aims to deliver the assurance needed by institutional investors to make
investments in greenfield project bonds. It marries CGIF's financial strength
as a guarantor, in particular via its new Construction Period Guarantee or CPG[1],
with the engineering and technical prowess of SJ to examine and validate
construction-related risks on projects. When
construction risks are expertly assessed, properly managed and mitigated,
CGIF's irrevocable and unconditional guarantee for project completion can
attract long term investors to invest in greenfield project bonds.
Initially, long term investors will
rely on expert assessments like those from SJ and CGIF's CPG risk assessment
framework to frame construction risks to acceptable levels. However, over time,
it is envisaged that this will ultimately aid infrastructure investors to gain
the necessary experience to evaluate future greenfield project bonds, and to
help narrow the region's substantial infrastructure gap.
About CGIF
CGIF
was established by the 10 members of the Association of Southeast Asian Nations
(ASEAN) together with China, Japan and Korea (ASEAN+3), and the Asian
Development Bank (ADB) in 2010 to develop ASEAN local currency bond
markets. It exists as a trust fund of
ADB and operates independently out of ADB's headquarters in Manila.
CGIF
is tasked to deploy credit guarantees to corporate, project and securitization
bonds to boost issuer and investor participation in ASEAN's current local
currency bond markets such as Indonesia Rupiah (IDR), Malaysian Ringgit (MYR),
Philippine Peso (PHP), Singapore Dollar (SGD), Thai Baht (THB) and Vietnamese
Dong (VND). Instigating the inaugural bond issuances in Brunei, Cambodia, Laos
and Myanmar is also part of its development mandate.
With
"AA" global scale from S & P and "AAA" local scale ratings in many of the
local currency markets in ASEAN, CGIF's guarantee has successfully mobilized
over USD 1 billion equivalent from local bond investors to new issuers as well
as new types of bonds since commencing its operations in May 2012.
Background
of CGIF
Before the Asian
Financial Crisis in the late nineties, many investments in the region were
financed by short-term foreign currency borrowing from commercial banks. This caused a "double mismatch" problem; a
mismatch in currency and a mismatch in tenor in financing investments. This double mismatch problem was considered
one of the causes of the crisis.
ASEAN+3, together
with ADB, started a regional cooperation initiative known as the Asian Bond
Market Initiative (ABMI) to address the double mismatch issue. ASEAN+3 has been
working together under the ABMI to develop local currency bond markets in the
region which companies in the region can tap. CGIF is one of the key elements
of this multilateral initiative.
Need
for Bond Market Development
Bonds
allow investors to directly lend money to finance corporations and
infrastructure assets; by-passing intermediation of funds by the banking
sector. For infrastructure projects,
long-term fixed rate project bonds in matching local currencies are the best
method of financing projects including those at the green-field stage. Therefore, building institutional capacity
amongst long-term investors to evaluate well developed projects is a key step
towards thriving bond markets to finance infrastructure in the region.
Use
of CGIF's Guarantees
Companies
and project companies can seek CGIF's irrevocable and unconditional guarantee
for the full tenure of the bonds to reach conservative long-term investors who
are less familiar with their business activities and risks. For projects under construction with robust
operational phase cash flows, CGIF can provide a guarantee just for the
construction period with its Construction Period Guarantee (CPG)[2]
to allow bond investors to earn higher returns by taking the operational phase
risks without the punitive construction risks associated with green-field
bonds. CGIF's CPG will require the
construction program to be well developed and analysed guided by expert
opinions from technical consultants as inputs to ensure construction risks are
well-framed within acceptable levels.
About Surbana Jurong
(SJ)
Surbana Jurong Private Limited (SJ) is one of the
largest Asia-based urban, industrial and infrastructure consulting firms.
Leveraging technology and creativity, SJ provides one-stop consultancy
solutions across the entire value chain of the urbanisation, industrialisation
and infrastructure domains.
Headquartered in Singapore, the SJ Group has a global
workforce of 13,000 employees in 113 offices across 44 countries in Asia,
Australia, the Middle East, Africa and the Americas, and an annual turnover of
around S$1.3 billion.
SJ has a track record of over 50 years, and has built
more than a million homes in Singapore, crafted master plans for more than 30
countries and developed over 50 industrial parks globally.
SJ's motto 'Building Cities, Shaping Lives' reflects its belief that
development is more than just steel and concrete. SJ creates spaces and
infrastructure serviceswhere people live, work and play, shaping cities
into homes with sustainable jobs where communities and businesses can flourish.
Appendix I: CGIF'S Construction Period Guarantee
What
is CGIF's Construction Period Guarantee or CPG?
CPG guarantees the completion of construction works
and commencement of operations for green-field project bonds. If the projects are not completed, CGIF will
pay bondholders all amounts owed by project companies. Behind CPG is a robust risk assessment
framework and boilerplate requirements that help CGIF frame construction risks
to acceptable levels.
Why
is CPG needed?
CPG is aimed at addressing misconceptions around
construction risks amongst long-term bond investors--the guardians of long term
savings. These risk-averse investors are
the only source of long-term, fixed rate debt funding in matching local
currencies that are best suited for infrastructure projects.
How
do projects benefit?
When funded by long-term, fixed rate, local
currency green-field bonds, projects benefit when financing risks are fully mitigated
for the life of the project. Without
exposures to interest rate, foreign exchange and refinancing risks, a project's
risk profile improves considerably.
Role
of Surbana Jurong
On identified projects, CGIF will rely on Surbana
Jurong's opinions on the robustness of the construction programme to address
risks including those related to technical complexity, timeline and budget.
Expectations
for Investors
While CPG affords investors to buy green-field
bonds by only focusing on the operational phase risks, following CGIF's pilot
implementation, investors will be able to rely on CGIF's framework to evaluate
and manage construction risks on their own without a guarantee.
Qualifying
Projects
CGIF seeks projects with robust construction
programs that are undertaken by experienced contractors with low operational
phase risk for a pilot implementation of CPG in ASEAN's 6 local bond markets
namely IDR, MYR, PHP, SGD, THB & VND.
[2] CPG: See Appendix I
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