Last week saw the latest edition of Infrastructure Investor’s Hong Kong Summit, but this was no ordinary time to be hosting our conference.
Outside the venue, protests rocked the streets, with the threat of serious disruption ever present. While it was surprising the extent to which life in Hong Kong continued almost as normal, masked protestors engaged in a stand-off with riot police were an unusual backdrop to our annual gathering.
The protests didn’t come up much on stage – other than the occasional piece of travel advice for delegates – but they were a hot topic during networking and conversations over coffee. We hope a safe resolution can be found soon.
Of the topics that were discussed on stage, here are four takeaways that should give investors food for thought:
Finding the right partner is key
Knowing the diverse Asia-Pacific markets and nurturing the right partnerships is key to success in the region. That was the consensus among GPs and LPs with a presence in the APAC economies. “Partnerships are a bit of an obsession for us – we see it as the best way to control risks and de-risk assets,” said John Faye, senior director of APAC infrastructure at Canada’s Caisse de dépôt et placement du Québec.
According to Faye, CDPQ can invest in greenfield assets, and will even consider entering frontier markets in the region as long as a reliable local partner helps them to de-risk assets.
Hans-Martin Aerts, managing director and head of APAC infrastructure investments at APG Asset Management, echoed these comments, saying that a top-down approach to APAC markets doesn’t work. “It’s important to combine it with a bottom-up approach – be down there to identify attractive projects and who the right partners are,” he argued.
Expect the red carpet in emerging markets
Global Infrastructure Partners’ vice-chairman and former World Bank president Jim Yong Kim assured attendees that governments from developing countries are willing to reward investors entering their markets. “One of the lessons that successful developing economies have learned is that they have to let investors make money,” he said.
According to Kim, all heads of state understand the benefits that private finance can bring to their economies. “[In the past] not every head of state was talking about the need of private sector finance, but now they are all doing it.”
Kim used the 2007 expansion of the Queen Amalia international airport, in Jordan, as an example of a successful PPP. “Rather than paying a huge debt service, [Jordan] has added $1 billion to their treasury, and has one of the best airports in the Middle East,” he said. “We believe that these opportunities can be created everywhere.”
The Asian renewables picture is mixed
Speakers at the Summit expressed optimism over some renewables markets in the APAC region, namely China and Taiwan. But there were also significant notes of caution expressed over two markets that investors have been targeting: Japan and India (the latter’s outlook downgraded from ‘stable’ to ‘negative’ the week before the conference).
“India is going through economic difficulties, and the liquidity crunch [on the financial sector] is having an effect on the industry,” said Rohit Nanda, head of Asia, principal investments – infrastructure at Sumitomo Mitsui Banking Corporation.
Vinod Giri, head of direct investment at India’s National Investment and Infrastructure Fund, noted that higher risk was also leading to financial institutions raising the cost of finance, which could act as a drag on renewables deployment. Still, NIIF maintained a positive outlook on the sector.
Hooked on the OECD
Much is made of the fact there is a huge infrastructure funding gap in Asia, estimated to be around $459 billion per year by the Asian Development Bank in 2017. But Ang Eng Seng, the head of infrastructure investment at Singapore’s sovereign wealth fund, GIC, suggested this gap might not be filled. That’s partly because, in spite of the weight of capital flowing into the asset class, funds are still primarily focused on OECD countries.
The hope is that the “deaflow gap” in developed markets, as Ang put it, combined with higher valuations and compressing returns, will lead smart managers to create deals outside of these traditional boxes that can still appeal to investors looking for similar risk-return levels.