Singapore fosters infra hub status with new debt facility and benchmarks

The Lion City is stepping up efforts to ‘crowd-in’ private capital on Asian infrastructure projects with a debt distribution scheme and the creation of investment standards.

Singapore is driving the “take-off of Asian infrastructure financing” through two initiatives, which will launch an infrastructure debt distribution facility and create investment benchmarks, according to Ravi Menon, managing director of the Monetary Authority of Singapore.

“We are working with industry partners to securitise a pool of brownfield regional project finance loans from banks into a collateralised loan obligation that institutional investors, including insurance companies and pension funds, can invest in,” said Menon at an investor forum in Singapore on Tuesday, adding that the facility is expected to help “crowd-in” institutional investors.

He also said creating investment benchmarks will allow investors to compare the returns of privately held infrastructure debt and equity with other asset classes, making infrastructure an investable asset class.

The Singaporean central bank declined to disclose further information on the above initiatives.

The Lion City has been making efforts to become Asia’s infrastructure financing hub. In its 2018 budget released in February, finance minister Heng Swee Keat said the government agency Enterprise Singapore and MAS will establish an infrastructure office to forge partnerships among businesses.

The office, dubbed Infrastructure Asia, is now in operation as a “go-to” knowledge centre for infrastructure players and investors, according to Menon. As stated on Enterprise Singapore’s website, the new entity is mandated to “match the unique requirements of foreign firms and governments with the expertise of Singapore players”.

Menon said Singapore is well placed as a gateway to investment opportunities in Asia, with a “compelling” asset management ecosystem and a treasury centre with a suite of risk-management solutions.

He noted assets under management in Singapore have grown by an average 15 percent each year over the past five years, reaching $1.9 trillion in 2016. About 80 percent of funds are sourced outside Singapore and two-thirds are invested in Asia. He observed there has been a growing diversity of institutional investors from Asia, Europe and the Americas as they flock to participate in Asia’s growth story.

For example, in 2017, Canadian pension OMERS and South Korean sovereign wealth fund Korea Investment Corporation set up outposts in Singapore.

“Interestingly, we have seen faster growth in alternative AUM at 17 percent, compared with a 3 percent growth in traditional AUM,” Menon added.

The Singapore government will introduce by next year a new corporate structure for investment funds to help co-locate their management and domiciliation activities for greater synergies, and it has simplified regulations for venture capital and private equity managers to facilitate investment activities, including in infrastructure, according to Menon.

In addition, it is building platforms to facilitate bond issuance and infrastructure financing in Asia, he said. Asia will require around $1.7 trillion every year in infrastructure financing between now and 2030, according to Asian Development Bank estimates.

Currently, more than 90 percent of infrastructure investment is financed by governments, Menon said. “This is not sustainable if the demand for infrastructure is to be met,” he concluded.