In a move that could inject fresh energy into the Lion City's debt market and be studied elsewhere, the Singapore government is hoping debt guarantees will help it attract international funding for its infrastructure development, starting with its flagship Changi East project.
As part of a “differentiated fiscal strategy”, Singapore Finance Minister Heng Swee Keat announced in his budget speech this week that it will guarantee debt for the project, which includes the development of a fifth airport terminal and a new runway.
“This policy will act as a catalyst to deepen our debt markets given the different issuers and tenors, and, hence, will potentially attract stronger global and regional institutional players into the fray,” Sharad Somani, Singapore head of infrastructure advisory in KPMG told FinanceAsia.
The aim of the guarantees is to lower the cost of borrowing by leaning on the innate strength of the government's balance sheet, said Heng, who is widely tipped to become Singapore's next prime minister in a few years' time.
Thanks to the government's high level of foreign exchange reserves, strong current account surplus and consistently prudent fiscal policy, Singapore is the only Asian country with a clean sweep of AAA ratings from Standard & Poor’s, Moody’s and Fitch.
“There should not be any uncertainty surrounding the Singapore government’s guarantee since Singapore’s has AAA credit rating accorded by various international credit ratings agencies,” a UOB report said on Thursday.
BONDS BUILDUP
With the Singapore government also mulling issuing government debt directly as part of the infrastructure financing mix, the initiatives announced by Heng are seen dovetailing with the Monetary Authority of Singapore’s (MAS) longer-term objective to foster a vibrant debt market.
That includes opening up opportunities for other countries to also tap the Singapore market for infrastructure-debt funding, Somani said.
A UOB report in 2018 forecast that as much as S$24 billion ($17.7 billion) in infrastructure bonds could be issued by the Singapore government, although none have been issued to date.
It also noted consistent demand from life insurers and asset-management companies for high-quality Singapore dollar-denominated local bonds.
The use of government guarantees to encourage market-financing should also provide the accountability needed for such a high-profile project by ensuring greater transparency and scrutiny, Somani said.
“Project delivery and quality must be maintained to the highest standards to ensure continued market interest,” he said.
The company developing the Changi East project that will rely on the government guarantees is the Changi Airport Group (CAG), which also manages the existing Changi airport and invests in airports elsewhere in the world.
Singapore’s Ministry of Transport, CAG and the Civil Aviation Authority of Singapore have described the Changi East project as “Singapore’s bold strategy to sustain the aviation sector’s competitive edge.” With its Terminal 5 scheduled to open in 2030, the endeavour also includes the building of a third runway.
