Moody's Investors Service, a global rating agency, has said that funding for infrastructure projects in Asia will demonstrate increasing diversity. "The large infrastructure investment needs in Asia will drive innovation in financing structures and lead to the increased use of different forms of credit enhancement," says Terry Fanous, a Moody's Managing Director. "In fact, funding diversity is key to delivering infrastructure investment in Asia," adds Fanous. Moody's report explains that infrastructure needs in Asia are large when compared to historical volumes of debt raised by state-owned and privately-owned infrastructure companies.
According to estimates from the Asian Development Bank, Asia will need to invest USD 1.7 trillion per year in infrastructure between 2016 and 2030. Meeting those investment needs will require the mobilization of diverse sources of private sector capital to supplement public sector expenditure. "Recent precedent transactions for Asian infrastructure projects indicate that institutional investors are strongly attracted to Asian infrastructure and project bond issuance, even those with long-term amortizing debt features," says Ray Tay, a Moody's Vice President and Senior Credit Officer.
"Favorable investor appetite and constraints on bank lending are likely to lead to more corporate infrastructure and project bond issuance," adds Tay. "Increased deal flow will enhance institutional investor familiarity with the infrastructure sector in Asia, and diversity by sector, geography and credit quality will result in a more robust market."
And, the involvement of multilateral development banks — including the provision of credit enhancements — can mitigate credit challenges such as political risks that constrain investor appetite. Moody's points that the infrastructure sector has attributes that are suited to institutional investors' strategic objectives, such as long tenors that facilitate asset/liability matching, portfolio diversification and credit characteristics that are attractive to long-term investors.