Learning from the project finance leaders

Seth Tan has a piece in OMFIF:

In the 1990s, the market considered project finance as one of the more rigorous areas of bank financing. If any project failed, lenders would not get their loans repaid. Project finance loan documentation had to be detailed and comprehensive, addressing various risks that a project could face. This made loan documentation a costly and bespoke process. Infrastructure debt was less tradeable, contributing to the large gap in Asian infrastructure financing.

The situation has since changed. In 2018, the US, Australia and the UK, the traditional leaders, accounted for 40% of total global project finance transactions. Asia can learn from at least two features of these markets: homogeneity and streamlined origination. With 60% of project finance loans in southeast Asia originated by banks in Singapore, these financial institutions can initiate some level of homogeneity.

The institutional bond market can help refinance banks, as banks may be more suited to finance the construction stage of projects. Private sector participants have indicated the importance of appropriate collateralisation and securitisation platforms. Such platforms help to establish a market for infrastructure securitisation in specific collateralised loan obligations. This allows an efficient liability structure and asset seniority attracting investors of varying risk appetites. The bond market alone could provide $1tn-$1.5tn annually of additional private capital for infrastructure projects.

The emphasis is on standardisation of contracts:

Financial standardisation creates standard funding contracts. This leaves more time to negotiate bespoke clauses, helping simpler refinancing and securitisation. This in turn can open the market to pension funds, mutual funds and family offices.

Heng Swee Keat, Singapore’s finance minister, has called for greater standardisation in infrastructure finance documents. Kok Chee Wai, partner at law firm Allen and Gledhill, has stated that ‘standardised documentation allows parties to focus on areas which are specific or bespoke to the transaction in question.’ Nicholas Wong, partner and co-head of the Worldwide Projects Group at Clifford Chance, another law firm, speaks of ‘the transition of global capital towards Asian infrastructure projects.’ Projects in Asia need to be more bankable and investible, he says. ‘The underlying documentation must be drafted in a manner that facilitates widespread adoption.’

3 Responses to “Learning from the project finance leaders”

  1. sumilkumaryadav Says:

    Nice blog thanks for sharing this useful information about the India history keep wring more . Why India history is so complicated?

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    Learning from the project finance leaders | Mostly Economics

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