The Hong Kong Monetary Authority (HKMA) wants to stimulate more global investor funding into infrastructure financing with its $1 billion commitment to a World-Bank associated programme, as part of its broader strategic efforts in the infrastructure space.
The de facto central bank of Hong Kong announced on Tuesday (September 19) that it would invest the money into the Managed Co-lending Portfolio Progamme (MCPP), a financing initiative focused primarily on emerging market infrastructure. The MCPP is run by the International Finance Corporation (IFC), the private sector arm of the World Bank.
An HKMA spokesman told AsianInvestor that the $1 billion investment will support IFC’s financing projects in the telecom, manufacturing, agri-business and services sectors as well as infrastructure. He argued that the de facto central bank’s participation would attract more private sector involvement into emerging market financing and investment across multiple sectors.
"Emerging markets present a broad array of untapped investment opportunities with good long-term growth potential,” said Norman Chan, chief executive of HKMA, in an announcement about the investment. He noted the HKMA has been using the Exchange Fund, its pool of foreign currency reserves, to increase investments into infrastructure to take advantage of steady long term returns.
The HKMA has already demonstrated a strong desire to become a hub for infrastructure financing, opening the Hong Kong Infrastructure Financing Facilitation Office last year. The office is designed to help source funding for China's Belt & Road Initiative projects in particular, and it has gained more than 70 partners across the world, according to financial secretary Paul Chan Mo-po.
However, it’s unclear whether the HKMA will directly provide funds for Belt and Road projects in addition to its commitment to the MCPP. The spokesman would only say that the recipient countries under the MCPP overlap with those being financed by Belt and Road, and declined to elaborate.
The HKMA is the latest major investor to have committed assets to the MCPP. The State Administration for Foreign Exchange (Safe), pledged $3 billion to the programme in 2013, while Allianz Global Investors and Eastspring Investments supplied $500 million apiece in 2016 and 2017, respectively. Their investments have an infrastructure focus.
Eastspring Investments, the Asian asset management business of Prudential, said in a press release that MCPP is effectively a syndicated loan platform that mirrors the IFC’s own loan portfolio into emerging market projects. The agency can use the MCPP to extend larger financing to projects, while providing co-lending opportunities for institutional investors.
The IFC is targeting more funding support for the MCPP. It wants to get commitments to infrastructure financing in the MCPP to $5 billion by 2021. Currently it has $6 billion in total committed assets, but this covers projects in many ‘real sectors’, an IFC spokesman told AsianInvestor in an emailed reply to questions.
AsianInvestor’s attempts to call and email Ram Mahidhara, the chief investment officer for infrastructure and natural resources at the IFC, were not responded to by press time.
Eastspring Investments claimed to be upbeat about its participation in with the IFC programme.
“This partnership enables us to make a significant contribution to the economies and communities of developing countries while investing in infrastructure projects that deliver compelling returns for our clients,” said Virginie Maisonneuve, chief investment officer of the Singapore-based fund manager in the Eastspring press release.
Allianz’s Latam focus
Allianz GI, meanwhile, told AsianInvestor there were practical reasons for teaming up the with IFC.
Emerging markets have some of the largest infrastructure investment needs, but institutional investors were previously unable to invest into the infrastructure debt in these markets. This is largely due to a combination of the difficulty of sourcing projects and the risk associated with such investments, Claus Fintzen, CIO and head of Infrastructure Debt, told AsianInvestor in an email reply.
But by partnering with the IFC, Allianz GI can ensure a risk and reward profile that is more akin to that required by institutional investors, he said.
The organisation appears unlikely to focus its infrastructure investing efforts on Asia, even though its partnership with the IFC allows for such financing in the region. Instead, Latin America is seen to be a more tempting area of investment for a European investor like Allianz GI, Fintzen said.
Asia’s markets appear to have ample liquidity in the infrastructure market, which typically causes credit and pricing terms to deteriorate over time—to a point that they are sometimes less attractive than options in some developed markets, he explained.
Latin America has several investment grade countries that have a consistent pipeline of infrastructure projects that require funding, such as Chile, Peru and Colombia. These countries also appeal because they have contractual frameworks which resemble those in western Europe and North America, he said.
Additionally, nations in the continent typically have limited local funding options, which offers room for other investors to support the projects.