Infrastructure spending is ramping up fast across Asia, and multilateral lenders are playing a crucial role.
Loans from institutions including the Asian Development Bank and the China-backed Asian Infrastructure Investment Bank are helping drive a $1.7 trillion per year infrastructure boom in the region. But the ADB estimates this still leaves a shortfall of $900 billion a year – and the private sector will have to help bridge the gap.
Among the multilateral institutions looking to work with the private sector is the Shanghai-headquartered New Development Bank (NDB), created by the Brics bloc of countries — Brazil, Russia, India, China and South Africa — in 2015.
The bank, set up with $50 billion in funding from its five member countries, is now evolving how it lends, its chief financial officer, Leslie Maasdorp, told FinanceAsia in an exclusive interview.
“If you look at our project list, the vast majority of loans have been at a sovereign level so far” Maasdorp said. “However, in addition to our traditional business lending to governments or sovereign entities for sustainable projects, the bank has also started to lend to the private sector."
Its first such project, Maasdorp said, was a $200 million loan to South African state-owned company Transnet to support the expansion of the port of Durban. The loans will cover almost a third of the cost of the eight-year expansion project. And Maasdorp says the project reflects the
“The bank has now set a target of 70 – 30, where 70% of projects will be in the public sector, and 30% of projects will be in the private sector,” Maasdorp said.
JOINING THE PACK
NDB's move into private sector lending brings it into line with other, larger multilateral lenders. For example in 2017 the ADB budgeted $15.8 billion (145 projects) for sovereign operations and $2.9 billion (34 projects) for non-sovereign operations.
The hope is that the expertise and superior credit rating will draw in more private sector support.
“What’s happening now though is we are working with the private sector to try to find ways to use the superior credit rating of the multilateral banks to improve the risk profile”, Maasdorp said.
“The multilateral banks are trying to crowd in more private sector capital into infrastructure financing by offering guarantees to investors for the duration of the project loan, which can be as long as 20 years.”
Such guarantees from the likes of NDB and the World Bank are starting to entice the private sector into infrastructure financing.
“The private sector is now willing to take on the kind of risks associated with large infrastructure projects. The private sector is able to take on these risks and able to have a risk return profile that they are comfortable with” he added.
Of course, providing loans to the private sector brings its own set of risks to the bank.
“For most projects with sovereign backing the timeframe from project conception to the loan being approved is around six months” Maasdorp said.
“However, for private sector loans the process is more complicated and that can take more time."
Still, Maasdorp says the bank's streamlined procedures can be an advantage in this respect.
“Being a new institution, we are very nimble. We have a five-person investment committee, and despite the time differences, we can make a decision very quickly” he said.
And this could be another step to bridging the $900 billion funding gap.
