Opportunity highlighted in Greater Mekong

Ratings agency Fitch Ratings (Fitch) discussed the potential and challenges of investing in infrastructure projects in the Greater Mekong region at its semi-annual investor briefing in Bangkok last week.

A natural economic area bound together by the Mekong River, the region includes Cambodia, Laos, Myanmar, Thailand, Vietnam, and the Yunnan Province of China, while covering 2.6 million square kilometres and a combined population of around 326 million.

Fitch suggested that infrastructure investment in water, power, transport and telecommunications in that area should increase substantially over the next several years. It offers long-term investors, such as insurance companies and pension funds, opportunities for yield enhancement and diversification.

According to Fitch, there have been only limited issuances of bonds for alternative assets, such as property and infrastructure projects, in Thailand to date.

It is expected that Thailand’s bond markets will continue to develop with a diversity of products like real estate investment trusts (REITs) and infrastructure bonds, as well as a broad range of entities accessing capital market funding in the longer term.

Fitch commented that infrastructure can be particularly attractive to life insurers with limited long-tenor assets to match their long-tail liabilities as such investments are well protected against inflation and less correlated with the financial market cycle.

However, there are challenges as well. Insurers may need to deal with possible higher risk charges and lack of experience with infrastructure investment.

During the briefing, Fitch’s senior analysts also discussed the agency’s approach and key rating factors in assessing infrastructure projects with the participants.

The key rating factors include the project’s rationale, sponsors, legal structure, completion process, technology, operational and maintenance risk, as well as the risk to the project’s gross revenues due to price, volume and availability.