ADB: Healthy bond market crucial to funding Asia's infrastructure needs

Business & Markets 2013
Written by Surin Murugiah of theedgemalaysia.com
Tuesday, 07 May 2013 08:16
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KUALA LUMPUR (May 7): 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, said the Asian Development Bank’s
(ADB) Vice-President for Private Sector and Cofinancing Operations
Lakshmi Venkatachalam.
Speaking at the ADB’s 46th annual meeting in New Delhi,
Venkatachalam said 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.
“The problem right now is that the project risk profiles and investors’ risk
appetite are largely not matched,” she said.
In a statement on the ADB website May 5, she was cited as saying that
beyond a handful of active countries and sectors, infrastructure project financing in Asia remained 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 too focused on their own markets, and only for favored sectors such as oil, gas, and power.
“Banks in China and India are among the most active project finance players in their home markets,” she said.
She added that last year, ADB approved a first-of-a-kind US$128 million 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, she said.
Venkatachalam said the ADB would then assume part of that guarantee risk in the expectation that the initiative will free up
bank loans for redeployment into new projects, channeling 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,” she said.