Sustainable infrastructure was high on the agenda at this year’s Asian Development Bank annual meetings in Fiji, where climate change and ocean health have a pronounced impact on everyday life. The capital markets are also showing a growing interest in sustainable development, but Asia is still a long way from harnessing the market’s full potential.
IFR’s latest in a series of knowledge-sharing seminars with the ADB set out to look at the role of the capital markets in providing long-term financing for Asian infrastructure. Across the region, the vast majority of infrastructure projects are funded by local banks and local governments, leaving the growing pool of institutional capital untapped.
Efforts to connect institutional investors with long-term investment opportunities have led to a number of recent landmark financings, including project-related bond issues in US dollars and local currencies and Asia’s first securitisation of project finance loans.
Demand, however, still exceeds supply – by some distance. And with a growing range of institutional investors now looking for sustainable and socially responsible investments, the shortage of opportunities in Asia is set to continue.
The Climate Bonds Initiative, the main NGO tracking green capital markets, put the global green bond market at a size of US$521bn at the end of 2018. Asia was the fastest-growing market for issuance last year, rising 35% in 2018, with the ADB itself now among the world’s biggest green borrowers.
Asia’s capital markets are also growing. The ADB’s figures show total outstanding local currency bonds in ASEAN plus China and Korea have now reached US$12.7trn, on par with the entire euro market.
These dynamics give Asian infrastructure developers – in both the public and private sector – an opportunity to use the capital markets to match their long-term assets with long-term, fixed-rate funding. Creating structures that appeal to capital market investors, however, has been a challenge.
The panel discussed several initiatives to bring more infrastructure-related assets into the local and international bond markets. Notably, CGIF, the multilateral credit enhancement vehicle focusing on South-East Asia, is leading the development of a new facility specifically to support infrastructure financings in local currencies. The Infrastructure Investors Partnership also aims to raise part of its funding in Japan’s capital markets, giving investors there some sought-after regional exposure.
Singapore-based Clifford Capital is also looking to follow up last year’s groundbreaking project finance securitisation with a second deal, with future enhancements such as a warehousing facility in the works to give banks an easy way to recycle their capital.
ANZ is deeply involved in a push to develop sustainable finance across the region and especially in its home markets of Australia and New Zealand, where appetite for responsible investments is surging. The Australian market, in particular, is nearing the point where companies could soon be at risk of losing access to capital if they cannot demonstrate their commitment to a sustainable future.
Infrastructure financing – particularly for sustainable, climate-resilient assets – sits at the crossroads between the conventional capital markets and development finance. A smoother connection between the two would have an enormous impact.
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