CGIF and Surbana Jurong team up on greenfield project bonds

Innovative partnership to boost infrastructure funding in

SINGAPORE – Media OutReach – 24 May 2017 – The Credit Guarantee & Investment Facility (CGIF) and Private Limited (SJ) today announced a collaboration to boost the use of local currency-denominated project bonds to finance greenfield infrastructure projects in Southeast Asia.

CGIF is a multilateral facility established by ASEAN+3 countries and the to develop and strengthen local currency and regional bond markets in ASEAN.

Under this 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 CGIF’s Construction Period Guarantee (CPG). CGIF will offer irrevocable and unconditional guarantees to projects in ASEAN 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.

The CPG, launched in July last year, is designed to frame risks associated with the construction period to acceptable levels for conservative long term investors to consider greenfield project bonds. (See Appendix I for more info on CPG.)

This collaboration marks the first partnership between CGIF and a urban, industrial and infrastructure consulting firm. CGIF has undertaken 13 corporate bond guarantee transactions since her establishment in May 2012, and is actively looking to embark on her first infrastructure project bond guarantee with SJ.

“For many conservative long term investors, construction risk has been the key impediment keeping them from supporting the build-up of infrastructure assets despite their natural appetite for long term bonds. 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,” said Mr Kiyoshi Nishimura, Chief Executive Officer of CGIF.

He further added: “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’s Contributors which includes the Singapore Government to find new methods to narrow the widening infrastructure gap in the region”.

“For a country to develop and grow, infrastructure development is key. However, perceived risks in such projects in Developing Asia deter investors, and infrastructure development is, in turn, often severely hampered. Surbana Jurong is delighted to partner the CGIF to develop a robust construction risk assessment and mitigation framework that will provide assurance to new investors in greenfield infrastructure project bonds. This partnership aims to boost infrastructure investment in ASEAN,” said Mr Wong Heang Fine, Group Chief Executive Officer of SJ.

He added: “As one of the largest Asia-based urban, industrial and infrastructure consultancy service providers, SJ is always keen to further value-add to our global clients with a complete value-chain of services. This complementary partnership with CGIF allows us to now offer a new dimension of financing solutions for our infrastructure project pipeline. We believe we are the only player in our industry to offer such a solution.”

Stimulating local currency bonds

According to the Asian Development Bank’s latest forecasts, Developing Asia will need to invest US$26 trillion from 2016 to 2030, or US$1.7 trillion per year, 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 channelling of domestic long term savings to finance infrastructure directly via project bonds, particularly at the greenfield stage. Mobilising long term savings to meet long term funding needs in matching currencies is the most efficient model of financing infrastructure. However, only a few countries have successfully pursued this capability. A critical impediment towards mobilising long term savings is the low risk appetite of pension and insurance fund managers and their aversion to construction risks.

How the CGIF-SJ collaboration helps to boost funding

The collaboration between CGIF and SJ aims to deliver the assurance needed by institutional investors to make investments in greenfield project bonds. It marries CGIF’s financial strength as a guarantor, in particular via its new Construction Period Guarantee or CPG[1], with the engineering and technical prowess of SJ to examine and validate construction-related risks on projects. When construction risks are expertly assessed, properly managed and mitigated, CGIF’s irrevocable and unconditional guarantee for project completion can attract long term investors to invest in greenfield project bonds.

Initially, long term investors will rely on expert assessments like those from SJ and CGIF’s CPG risk assessment framework to frame construction risks to acceptable levels. However, over time, it is envisaged that this will ultimately aid infrastructure investors to gain the necessary experience to evaluate future greenfield project bonds, and to help narrow the region’s substantial infrastructure gap.