Moody's Investors Service says that funding diversity and a robust project pipeline that is mobilized by concerted efforts from policymakers and multilateral development banks (MDBs) are necessary to meet Asia's large infrastructure financing needs. In particular, increased participation by institutional investors-in view of their long investment horizons-could enhance funding diversity.
Institutional investors are ideally suited to providing longer-tenor debt, which matches the relatively long life of infrastructure assets, this channel of long-term financing can enhance funding diversity by supplementing bank debt and government funding.
At the same time, the emergence of a robust pipeline of well-structured and investable infrastructure projects is needed to create a virtuous circle that absorbs the incremental financing provided by institutional investors, while reinforcing familiarity with the asset class in Asia, thus incentivizing such investors to commit more capital and build further sector expertise.
''In Europe, substantial long-term debt capacity has been successfully mobilized from institutional investors to finance well-structured infrastructure projects, some of which benefitted from credit enhancements, such as subordinated credit facilities provided by the European Investment Bank'', says Andrew Davison, a Moody's senior vice president.
''Similarly, a transparent pipeline of projects with appropriate risk allocation and credit enhancement where necessary, would align investment opportunities in Asia with investable parameters for institutional investors'', adds Davison.
Moody's notes that the catalytic role of MDBs manifests itself in both direct lending for infrastructure and in the development of well-structured projects. For example, the World Bank's Global Infrastructure Facility is a platform that facilitates the preparation and structuring of complex infrastructure private public partnerships (PPPs) for the purpose of mobilizing capital from the private sector and institutional investors. The Global Infrastructure Facility also operates across MDBs, private-sector investors and financiers, and policy makers interested in infrastructure investment in emerging markets.
Moody's further notes that China's One Belt, One Road initiative entails massive infrastructure investment. While new institutions such as the AIIB will represent a new source of finance, the region will require funding much greater than the AIIB's USD 100 billion in authorized share capital to realize the plan's ambitious infrastructure goals. This situation opens a window of opportunity for collaboration with other MDBs and institutional investors which will benefit from the Chinese initiative.