Clifford Capital, a Singapore government-backed infrastructure financier, has launched Asia’s first securitisation of project finance loans, sourced from five commercial banks.
The portfolio, worth US$458mn, comprises 37 infrastructure loans, covering 30 projects spread across 16 Asian and Middle Eastern countries. They have been bundled into three notes and are to be listed on the Singapore Exchange.
The notes were issued by Bayfront Infrastructure Capital, a company sponsored by Clifford Capital. The banks providing the loans are DBS, HSBC, MUFG, SMBC and Standard Chartered.
The model was conceived by the Monetary Authority of Singapore (MAS) between 2015 and 2016, with Clifford Capital subsequently chosen to execute the transaction. Work on the deal began in 2017, with Moody’s required to rate each loan individually due to the fact that the project finance markets in these regions are unrated. This is essentially a new asset class.
Clifford Capital CEO Clive Kerner tells GTR that the company has earmarked some assets which, for various reasons – such as concentration and stage of construction– were not suitable for the first transaction, but could be suitable in future issuances.
In terms of pipeline, he adds that the size of the project finance markets in Asia and the Middle East, estimated to be up to US$40bn by Dealogic, give an indication as to the size of the asset pool the company can tap into.
The projects are at a range of stages, with 75.6% being operational with “stable and predictable cash flows” and the remaining 24.4% at the advanced construction stage. More than one-third are covered by export credit agencies, insurers or multilateral financial institutions.
They cover a range of sectors, with 33% coming in the conventional power and water industry, 2% in integrated LNG, 13% in renewables and 12% in metals and mining.
The investors involved include insurance companies, asset managers, pension funds, endowment funds and bank treasuries, Kerner says.
The majority of investors (65%) are Asian, but the 23% that comes from Europe is indicative of a growing trend across the trade and project finance space of western investors looking to pump capital into Asian markets.
“These are investors that are currently not actively engaged in the project and infrastructure finance space. Each of the classes of notes were comfortably oversubscribed prior to pricing. We feel the deal marked a major milestone in helping to create a new asset class for these institutional investors,” he adds.
Much is made of the trade finance gap in Asia Pacific, estimated to be around US$600bn by the Asian Development Bank (ADB). However, the same agency estimates the infrastructure finance deficit to be much more significant: the ADB estimates that by 2030, US$26tn needs to be invested in Asia’s infrastructure to keep pace with demand spurred by economic growth.
This equates to US$1.7tn a year, a figure which could swell as the effects of climate change become more manifest.
Clifford Capital’s strong financial backing is surely a draw for investors. The company’s shareholders include DBS, Standard Chartered, SMBC and Temasek – the sovereign wealth arm of the Singaporean government, which manages some S$308bn in assets. Indeed, the Singapore ministry of finance guarantees all of the company’s debt issuances.
It has also been a significant lender in its own right. Last year, for example, it was part of a syndicate that lent US$409mn to Singapore utility company Sembcorp for a power plant in Bangladesh.
However, the size of the Asian infrastructure market has also been attracting smaller players too. Boutique trade finance provider Bachmann & Welser announced plans to launch a US$2bn project finance fund targeting Asia, Africa and parts of the Middle East.
At the time of the announcement, company director Jeremy Brown told GTR that they are looking at energy projects in Thailand and Vietnam.
Commenting on the Clifford Capital securitisation, Alan Yeo, head of financial markets development at the MAS, says: “This transaction is a good example of how infrastructure can be developed as a mainstream, investible asset class to help crowd in institutional capital. It also showcases the role that Singapore can play as a full-service Asian infrastructure financing hub, by bringing together the right mix of industry expertise and networks.”