Exclusive: Philippines to host seminal Asian project bond

Asia will see its maiden local currency-denominated Asian project bond issuance in the next few months, Kiyoshi Nishimura, chief executive of the Manila-based Credit Guarantee and Investment Facility (CGIF), told Infrastructure Investor.

The Philippines, which ranks among Asia’s hottest infrastructure markets and whose credit rating has recently been upgraded to BBB, will be the host, according to Nishimura.

He said the bond will be issued in peso for an amount much larger than CGIF’s funding ceiling, which is set at $140 million. The debt will be raised to finance a power project.

“We are currently working on other project bonds, namely on a baht-denominated one in Thailand, but this transaction’s processing has come to fruition faster than the others. Hopefully in a few months we should see the first issuance of a local corporate project bond,” said Nishimura.

A number of institutions have recently attempted to achieve a similar feat in the region but the scarcity of bankable infrastructure projects, the lack of legal framework to support those transactions and the extensive internal capacity needed to monitor underlying assets has kept Asia aback with regards to developing a suitable deal pipeline.

“The problem for the Association of South East Asian Nations (ASEAN) region is that local banks can lend at very low rates and there is ample liquidity. So there is no real need for external borrowing, apart perhaps for countries like Vietnam and Indonesia. However when it comes to diversifying funding sources, corporate bonds can be interesting,” noted Nishimura.

With commercial banks limited by more stringent capital ratio requirements in the amount they can lend, he said corporate bonds were increasingly being seen as an attractive alternative to traditional loans.

“The potential to choose an opportune timing for loan interest rates – which can be fixed for this type of transaction, unlike in syndicated loans with project finance – enables a corporation to assess with more certainty the costs of a project. This also makes them an appealing instrument.”

A difficulty encountered by project bonds in the region is that they will hardly ever benefit from a rating above that of the sovereign, which in many Asian countries is not high enough to guarantee interest from American or European investors.

CGIF’s mandate is exclusively limited to local-currency project bond issuances in the ASEAN+ 3 region (Korea, Japan and Australia). The institution, which was set up by the ASEAN, China, Japan, Korea and the Asian Development Bank in November 2010, is rated AA+ by Standard & Poor’s.