IFR ASIA: The deal we’ve just been talking about from Clifford Capital was in US dollars. If you try to bring project financings to the local capital markets, who are the investors there? Where does the money come from? KYOSHI NISHIMURA, CGIF: As I said earlier, project bonds are not so common in developing countries or ASEAN bond markets, except for Malaysia. However, in the last few years actually we have also seen some good examples of project bonds in other ASEAN countries. In Indonesia there have been a number of project bonds issued in the rupiah bond market. We did the project bond transaction I mentioned in Philippine pesos, and that was followed by a project bond for a hydro power company. Also in Thailand we see a number of project bonds, so it’s coming but still limited. I think Clive made a very good point about single asset project bonds. If you look at the global project bond market, the total size even including developed markets is about US$40bn–$50bn per year. That means, of all the projects financed in the world, only 10%–15% are done by project bonds and 85%–90% are by banks. This ratio hasn’t really changed in many years. One reason is that you cannot expect normal bond investors to become project finance experts; they don’t have the internal capability to analyse project finance risk and manage these risks. Some global institutional investors, insurance companies or big pension funds have set up special teams for project finance, hiring project finance bankers from commercial banks, but those are very limited examples. If you look at the range of investments these institutions manage, you cannot really expect them to become project finance bankers. The portfolio approach that Clive has explained really takes project finance risk and structures it in a way that a wider group of institutional investors can invest in infrastructure projects. I think it makes a lot of sense. This may also be applicable in emerging bond markets, where institutional investors may not be as experienced or – I don’t want to use this word – sophisticated as bond investors in more developed markets. We’ve also seen some ASEAN infrastructure companies issue normal corporate bonds, after their projects are completed. If the project is stable and their rating is high enough, local institutional investors can invest in normal corporate bonds issued by project companies, sometimes even on an unsecured basis. The two major toll road companies in the Philippines are good examples. We also this year saw a very similar example in Thailand, where power projects of B Grimm also issued normal corporate bonds after originally using project finance from the bank market. So that’s maybe another way to develop the capital markets for infrastructure. IFR ASIA: Question to you on that, Katharine: if I’m an investor, how do I know that my money is going towards sustainable development, and not a company’s next coal plant? KATHARINE TAPLEY, ANZ: That’s a good question, because money is fungible, so it does all go into one pot. The principles around green and sustainability bonds are very clear in making a very strong recommendation to provide regular reporting and transparency on how the money has been used. Certainly our experience is that investors are pretty demanding on this. Investors are not just sitting back and getting themselves into green bonds and then not following up on the reporting. They will want to see reporting at least annually, sometimes twice a year, not on just how proceeds have been used but also what the impact of that money has been. The concept of understanding the impact of their investment is gaining a lot of currency. “There is an increasing role for structured finance in terms of facilitating the transfer of project finance loans from bank balance sheets into the capital markets and thereby crowding in institutional debt.” Actually the sustainable development goals are increasingly becoming a framework, if you li
