The Credit Guarantee and Investment Facility (CGIF) and Singapore-based Surbana Jurong Private Limited (SJ) on May 24 announced a collaboration to boost the use of local currency-denominated project bonds to finance greenfield infrastructure projects in Southeast Asia.

Under the collaboration, SJ will provide technical assessments to validate the time, cost and quality aspects of identified greenfield infrastructure projects aiming to issue project bonds with the support of the construction period guarantee of the CGIF.

CGIF will offer irrevocable and unconditional guarantees to projects in Asean countries with robust construction programmes, as screened by SJ. These guarantees can stretch up to US$140 million equivalent per single greenfield infrastructure project to facilitate the issuance of long-term local currency bonds.

Launched in July 2016, the construction period guarantee is designed to frame risks associated with the construction period to acceptable levels for conservative long-term investors to consider greenfield project bonds. It assures investors of the completion of construction work as construction risk has long been an impediment for the use of project bonds to fund greenfield infrastructure projects.

Despite being suitable long-term investments for pension and life insurance funds in the region, exposure to greenfield infrastructure projects falls outside the risk appetite of their conservative investment strategies due to construction risks.

CGIF is a multilateral facility established by Asean+3 countries and the Asian Development Bank (ADB) to develop and strengthen local currency and regional bond markets in Asean countries. The CGIF-SJ collaboration represents the first partnership between CGIF and an urban, industrial and infrastructure consulting firm. CGIF has undertaken 13 corporate bond guarantee transactions since its establishment in May 2012, and is actively looking to embark on the first infrastructure project bond guarantee with SJ.

“This collaboration marks an innovative attempt to bring to the market high quality greenfield project bonds where construction risks have been adequately appraised and mitigated as guided by the engineering prowess of a firm like Surbana Jurong and backed by CGIF’s guarantees,” says CGIF CEO Kiyoshi Nishimura.

He adds: “Many Asean countries are witnessing rapid accumulation of domestic savings in the non-bank sectors, such as pension funds and insurance companies, as their economies grow and their income levels rise. However, these savings are not well tapped to finance critically-needed infrastructure assets. Catalyzing these institutional investors’ support for infrastructure projects perfectly fits the aspirations of CGIF contributors, which includes the Singapore government, to find new methods to narrow the widening infrastructure gap in the region.”

According to the latest ADB forecasts, developing Asia will need to invest US$26 trillion from 2016 to 2030, or US$1.7 trillion annually, in order to maintain the region’s growth momentum, eradicate poverty and respond to climate change.

New approaches will be required to stimulate private sector finance in infrastructure investments and to prevent the region from falling further behind. One such approach is to facilitate the channeling of domestic long-term savings to finance infrastructure directly via project bonds, particularly at the greenfield stage.

Photo courtesy of Surbana Jurong.