The Hong Kong Mortgage Corporation (HKMC) plans to get into the infrastructure financing and securitisation business in 2019 to help Hong Kong in its quest to become a regional hub for infrastructure investment.
With a bevy of support services critical to infrastructure investment already, including an abundance of experienced financial resources and talent, it is something the Hong Kong government is keen to build on.
The infrastructure financing and securitisation programme, slated to begin in 2019, will start by purchasing global infrastructure loan assets, both greenfield and brownfield projects, from multilateral financial institutions and commercial banks, an HKMC spokesman told AsianInvestor.
The aim of the programme is to help banks recycle their capital, freeing up resources to create new capital for infrastructure investment across the region, Eddie Yue, deputy chief executive of the Hong Kong Monetary Authority (HKMA) said at the FT-AIIB Summit in October.
Freeing up capital for infrastructure is especially important given the amount of infrastructure investment that is expected to be needed. In a report last year, the Asian Development Bank (ADB) estimated that Asia would need to invest about $26 trillion in infrastructure by 2030 -- some $1.7 trillion per year -- just to maintain the region's growth momentum.
The HKMC is not alone in the region in pursuing an infrastructure loan recycling initiative.
India’s National Investment and Infrastructure Fund (NIIF) has also started an asset recycling programme with the purchase of IDFC Infrastructure Finance in October. IDFC helps infrastructure financiers to refinance their capital once projects become operational by taking over existing debt and releasing funds for fresh bank lending for new projects.
Yue noted that the HKMA is also open to creating or using new capital to co-finance or co-lend together with multilateral development banks or commercial banks because of their experience at sourcing and developing projects.
In the long term the HKMC hopes to eventually repackage the loans into securities that can be sold to investors.
“As the loan asset portfolio reaches a good diversity and after [accumulating] sufficient experience, the securitisation of infrastructure loan assets will be explored to promote and facilitate the participation of long-term institutional investors in infrastructure financing,” the HKMC spokesman said.
We hope that the HKMC will be able to use that pool of infrastructure loans and repackage them into bonds and infrastructure loan bank securities for sale on capital markets, Yue elaborated at the conference.
There’s definitely an appetite among institutional investors for repackaged infrastructure loan securities, an Asian Infrastructure Investment Bank (AIIB) spokeswoman said, noting that asset recycling is something that the AIIB is also considering.
“You’ve got the commercial banks that are interested in the greenfield [projects], and so they like to get in at that stage, but then once the projects develop it’s already demonstrating that its revenue is positive, then you’ve got the institutional investors who are a little bit more interested in looking at it from a longer term,” the spokeswoman told AsianInvestor.
The AIIB is targeting institutional investors who prioritise stable yields and long tenures, like insurance companies and pension funds, in particular, the spokeswoman added.