Where debt is still about banks

In Asia, non-traditional lenders to infrastructure are not making the same impact as in Western markets.

The assumption is that banks are retreating from long-term lending to infrastructure – an assumption that was challenged at Infrastructure Investor’s recent Global Investment Forum in Hong Kong.

In Europe in particular, banks are scrambling to make adjustments to their balance sheets in the face of regulations such as Basel III which mitigate against long-term exposure to certain types of assets – including infrastructure assets. This has paved the way for non-traditional lenders such as institutional investors and debt funds to try and fill the gap.

In Asia, however, we were reminded that the picture is very different. Richard Dawson of KPMG told delegates that the “very liquid” Asian banks – buoyed by vast savings (Southeast Asians alone have saved some $6 trillion with banks over the past five years) – remain the dominant players in infrastructure debt in Asia’s emerging economies.

Along with a desire to expand rather than contract balance sheets, banks in certain markets – Japan and Korea were cited at the Forum – tend to support (whether voluntarily or through state encouragement) domestic companies. They are highly motivated to keep foreign and non-traditional lenders on the outside peering in.

Added to which, even those non-banks thinking about testing the waters in Asia often find the investing environment problematic. “Japan needs to learn to manage its infrastructure properly before we can provide infrastructure debt,” was the stark opinion of a pension fund representative.

Whether the main reason is the difficulty of investing in Asia or the fact that – for the time being at least – there appears to be plenty of opportunity in Western markets, debt financing for Asian infrastructure appears to be the preserve of Asian banks for the time being.

But, having started with a wrong assumption, let’s not end with the assumption that it will always be that way. Ross Pritchard of Hastings Funds Management predicted that Asian markets will become more comfortable places for institutional investors over time.

As Asian regulation matures, and Western markets see competition pushed to new levels, the status quo may eventually give way.

*Banks, institutional investors, debt funds and many others will be among the contenders in the Infrastructure Investor annual awards for 2013. Our poll will be up and running imminently, allowing you to vote for the outstanding performers since January 1. We’ll be sure to let you know when the starting gun is fired.