Hong Kong’s de facto central bank, the Hong Kong Monetary Authority, has launched an initiative to develop the city as a financing hub for infrastructure projects under the “One Belt One Road” policy.
The Infrastructure Financing Facilitation Office (IFFO), chaired by HKMA’s deputy Chief Executive Eddie Yue, was set up to provide a platform for knowledge sharing and facilitate financing flows into infrastructure.
The office has received support from more than 40 partners from public and private sectors. Its backers include some of China's and Hong Kong's biggest banks, multilateral development banks, infrastructure companies and institutional investors including the likes of BlackRock, the Blackstone Group and the Canadian Pension Plan Investment Board, as well as advisory professionals and services.
The International Finance Corporation and the Global Infrastructure Hub, a G20 initiative, have signed memoranda of understanding with HKMA to facilitate further cooperation.
The IFFO chaired its first gathering earlier last week, hosting the Boao Forum Financial Cooperation Conference in Hong Kong.
Asia's infrastructure funding gap over the next five years could be much more than implied by the current estimate of $8 trillion for 2010-2020, said Stephen Groff, vice president of ADB, during a panel discussion at the conference.
Developing the domestic capital market and bond solutions was essential to provide more financing options, Groff remarked, adding that banks remain the main providers of financing for infrastructure projects in the region.
Other panellists from development and policy banks appeared well aware of the challenges of developing infrastructure in OBOR countries.
Zheng Zhijie, vice chairman and president of China Development Bank, acknowledged that peripheral support to infrastructure projects may not be well thought out in Asia, often leading to over-expenditure, while chairman of Export-Import Bank of China Hu Xiaolian suggested that investing in the OBOR countries required long-term investment horizons, taking the prospect of the region’s economic growth into consideration.
Jin Liqun, president of the Asian Infrastructure Investment Bank, said that the macroeconomic environment, institutions’ capacity for project implementation and resettlement concerns were some of the many constrains facing project finance in developing countries. That created much room for cooperation among development banks, he added.
While these have been working hard on pushing forwards market reforms and improving investment environments, the private sector remained cautious – as exemplified by the words of Mark Machin, president and chief executive of CPPIB.
“Investing in greenfield projects in emerging markets is like getting an Olympic gold medal,” he said, adding that the pension has invested more than $20 billion in equity in infrastructure and is likely to keep growing its dedicated portfolio. Local governments were better positioned to handle development risks, he argued, making expansions of existing assets preferable to pure greenfield projects.
“The financing for infrastructure projects from banks has been very available, but private investors are cautious in making equity investments due to the high-risk profile,” said Samir Assaf, chief executive of Global Banking and Markets of HSBC. Mitigating refinancing risks was an important issue for those investing in project equity, he pointed out.
Ben Way, CEO of Macquarie Group Asia, suggested that reforms on pension and banking rules could direct pension capital and savings to support refinancings. He also took China as an example of how project bonds could help get some projects out of the impasse when sponsors have failed to refinance an asset in other ways.