MAS outlines next big investment flow

Infrastructure and property finance is the next big area identified for the country by the Monetary Authority of Singapore (MAS).

A senior MAS official has told BT that Singapore can act as a conduit for regional and global investors to access opportunities throughout Asia. In response to the growing demands for infrastructure finance, the Singapore bond market is already developing project bonds - instruments backed by the underlying cash flows of infrastructure projects instead of by an entire corporate body.

Kola Luu, executive director for financial markets strategy at MAS, told BT: ‘We believe that there is tremendous potential for both property and infrastructure finance in the region, fuelled by Asia’s strong and sustained economic growth as well as increasing urbanisation.’

The development of project bonds will allow infrastructure players access to more investors beyond just the bank market. ‘This will allow projects to better diversify their investor base and lower their cost of capital,’ said Mr Luu. ‘In particular, there is significant demand by global and regional fixed income funds and high net worth individuals for high-quality long-dated bond issuances, and they are the natural market for project bonds.’

Singapore is already a key infrastructure finance centre. More than a dozen local and international banks have project and infrastructure finance teams based here. Singapore’s developed financial markets, the strength of its regulatory framework and the existing pool of liquidity in the wealth management industry provide a gateway for global investors to access Asian infrastructure opportunities, MAS said.

According to World Bank estimates, Asian infrastructure projects will require US$250 billion to US$300 billion worth of financing every year for the next few years. While infrastructure requirements have in the past been financed largely by governments, the present big demand for new infrastructure means that private sector investment will also be required.

In property finance, much potential exists for the increased securitisation of Asian real estate assets, and for diversification beyond the conventional types of properties, said MAS.

Despite the fact that the market capitalisation of Asian real estate investment trusts (Reits) has grown substantially over the past five years, the existing Reit market represents only 4 per cent of investible-grade real estate in Asia, compared to 50-60 per cent in Australia.

One emerging trend - which is already benefiting Singapore - is that investors are increasingly viewing infrastructure as an asset class in its own right and giving the sector specialised focus. ‘We are increasingly seeing a trend of traditional project financing through bank debt becoming overtaken by capital market financing solutions like infrastructure funds and project bonds,’ said Mr Luu, noting that several specialist fund managers in real estate and infrastructure have or are in the process of setting up their offices in Singapore to serve the Asian region.

The steady pipeline of upcoming Public-Private Partnership projects has encouraged some project finance advisory teams to establish themselves in Singapore. The successful Reit market here also attracts investors - like pension funds and insurance companies - into ancillary markets such as infrastructure.

Singapore was the first in Asia ex-Japan to develop a Reit market, and it has grown to be the largest with 16 Reits listed on the Singapore Exchange with a total market capitalisation of S$25 billion - many of which comprise offshore real estate assets.

‘Invariably, the increasing capital market activities and business opportunities will bring about a vibrant value chain of infrastructure players, including financial intermediaries and project sponsors,’ Mr Luu said.

To support the development of a deeper infrastructure finance market, MAS introduced the Business Trust Act in 2004 and the infrastructure finance tax incentive last year.

The central bank said it will regularly review its regulatory regime to keep pace with market development while providing adequate safeguards for investors and issuers, in close consultation with the industry.

Source : Business Times - 16 May 2007