Asia needs a robust bond market - ADB
NEW DELHI, India: Asia needs a robust bond market that can match the
financing requirements of huge infrastructure projects in the region and
the growing appetite for long-term assets among local pension and
insurance companies, a seminar at the Asian Development Bank's (ADB)
46th Annual Meeting heard recently.
"Pension funds, insurers, sovereign wealth funds and other holders of
long-term money could provide a real shot-in-the-arm for private
infrastructure investment, particularly through bond markets," said ADB
Vice President for Private Sector and Co-financing Operations, Lakshmi
Venkatachalam. "The problem right now is that the project risk profiles
and investors' risk appetite are largely not matched."
Beyond a handful of active countries and sectors, infrastructure
project financing in Asia remains under-developed and under-served,
despite the region's significant savings.
The economic slowdown in Europe and pressure from Basel III have
curtailed the risk appetite of international banks, while banks in Asia
are focused on their own markets, and only for favoured sectors such as
oil, gas, and power. Banks in the People's Republic of China and India
are among the most active project finance players in their home markets.
Last year, ADB approved a first-of-a-kind $128 million (Indian Rs
7.168 billion) facility, developed with India Infrastructure Finance
Company Limited (IIFCL).
ADB and domestic finance companies will provide partial guarantees on
rupee-denominated bonds issued by Indian companies to finance
infrastructure projects. ADB will then assume part of that guarantee
risk in the expectation that the initiative will free bank loans for
redeployment into new projects, channelling more funds for public
infrastructure bonds in India, international bonds for Indian projects,
and even for projects beyond India in the near future.
Another encouraging sign for the public finance market is that Asian
governments are now more receptive to the concept of public-private
partnership and are lining up rigorously selected and better-designed
infrastructure projects for possible financing.
In the meantime, international financial institutions are expanding
their activities and products towards private infrastructure finance to
help fill the current gaps.