Mobilising private capital to fill the infrastructure financing cap in AsiaChampioning Singapore as Asia’s leading infrastructure financing hub

Company Background

Bayfront Infrastructure Management (“Bayfront”) was established in 2019 in connection with the Infrastructure Take-Out Facility initiative, which was designed and structured by Clifford Capital to help mobilise institutional capital for infrastructure debt in Asia. The establishment of Bayfront builds on the successful issuance of Asia’s first securitisation of project finance and infrastructure loans through Bayfront Infrastructure Capital (“BIC”) in 2018.

Bayfront's objective is to address the infrastructure financing gap in the Asia-Pacific region. This will be achieved by creating a new investable asset class to facilitate the mobilisation of private institutional capital into the infrastructure financing market. It will unlock capital for infrastructure financing by facilitating the recycling of capital and liquidity by banks, who have traditionally been the largest lenders in this sector.

Bayfront is expected to be capitalised at US$1.98 billion, comprising US$180 million in equity and US$1.8 billion in debt issuance capacity. The Asian Infrastructure Investment Bank (“AIIB”) will invest US$54 million, representing 30% of Bayfront’s equity capital, with the remaining US$126 million contributed by a new holding company to be established by Clifford Capital.

Clifford Capital is a specialist provider of project and structured finance solutions established with support from the Government of Singapore to address gaps in project financing markets, assisting the internationalisation of Singapore-based companies in the infrastructure and maritime sectors. It also seeks to catalyse further development of a capital market in Singapore focused on the infrastructure sector. Clifford Capital’s shareholders comprise DBS Bank, John Hancock Life Insurance Company (Manulife), Prudential Assurance Company Singapore, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation and Temasek Holdings.

Management Team

Premod P. Thomas

Chief Executive Officer

Nicholas Tan

Chief Operating Officer

Saumitra Shrivastava

Head of Loan Acquisitions

Richard Desai

Chief Risk Officer

Mobilising Institutional Capital for Infrastructure in Asia

Significant gap in Asia’s infrastructure financing needs and increasing requirements for private sector funding have created a need for long-term institutional capital

According to the Asian Development Bank (“ADB”), Asia will need approximately US$1.34 trillion annually in infrastructure financing between 2016 and 2020 to sustain economic growth, of which the investment gap (including climate change-related expenditure) is approximately US$455 billion, equivalent to 2.4% of the region’s GDP from 2016 to 2020.

More investments are needed to sustain the high economic growth in Asia, as well as to address the increasing urgency of infrastructure-related climate change mitigation and adaptation. Developing Asia therefore requires sufficient and affordable financing for future infrastructure development.

Note: (1) Adjusted for expected increase in infrastructure funding due to climate change effects. (2) Selected countries only. South Asia: Afghanistan, Bangladesh, Bhutan, India, Pakistan, Sri Lanka, Maldives, Nepal; Southeast Asia: Brunei, Indonesia, Cambodia, Laos, Myanmar, Malaysia, Philippines, Singapore, Thailand, Vietnam; Central Asia: Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan. (3) For 24 selected ADB developing member countries: Armenia, Kazakhstan, Kyrgyz Republic, Mongolia, Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka, Brunei, Indonesia, Malaysia, Myanmar, Philippines, Thailand, Vietnam, Fiji, Kiribati, Marshall Islands, Micronesia, Papua New Guinea.

Source: Asian Development Bank (ADB), 2017 – Meeting Asia’s Infrastructure Needs. © ADB. (CC BY 3.0 IGO).

As of 2016/17, approximately 70% of infrastructure investment in Asia was financed by the public sector, which is unsustainable if the demand for infrastructure is to be met. In the private sector, infrastructure financing is currently dominated by commercial banks, export credit agencies (“ECAs”) and multilateral financial institutions (“MFIs”).

Unlocking and encouraging private sector involvement is the key to addressing the infrastructure financing gap in Asia

Private sector investment in infrastructure has not been constrained by a shortage of funds; in fact, of the estimated US$50 trillion in private capital managed globally by sovereign wealth funds, insurance companies, pension funds and other institutional investors, only 0.8% has been allocated to infrastructure in recent years. Moreover, the Asia-Pacific region is characterised by high saving rates which suggests an abundant and growing pool of capital to be deployed for investment.

There is significant potential for increasing private sector participation in infrastructure financing. Private investors stand to benefit from infrastructure as a separate asset class that improves portfolio diversification, stemming from its economic characteristics including high barriers to entry, economies of scale, inelastic demand for infrastructure-enabled services, high operating margins and the long tenors of concession agreements and leases. Infrastructure investments in turn offer value through attractive returns, low sensitivity to business cycles, low correlation of returns with other asset classes and stable and predictable long-term cashflows.

Nonetheless, private sector involvement in Asian infrastructure financing has been low relative to more advanced economies in North America and Europe. The ADB estimated that as of 2015, the public sector provided over 90% of Developing Asia’s overall infrastructure investment, which amounts to 5.1% of annual GDP, far above the 0.4% of GDP coming from the private sector.

Moreover, the split between public and private sector investment rates varies widely across subregions and economies.

While regional governments in Asia have increased their infrastructure expenditure and will likely continue to do so, for instance through fiscal reform on tax revenues and expenditures, there is still a substantial gap to be filled by the private sector. The ADB estimated that for 24 selected developing member countries, public sector fiscal reforms would be able to cover 39% of the US$308 billion financing gap (incorporating climate change induced funding requirements) over the period of 2016-2020, which leaves the remaining 61% to be filled by private sector finance in the absence of new avenues for generating additional public sector resources.

More private sector financing, beyond banks, is required to address the gap

Commercial banks have traditionally been, and still are the predominant source of private sector financing for infrastructure projects. However banks are increasingly facing constraints in their ability to bridge the financing gap, due to regulatory constraints such as risk exposure limits, more penal credit risk charges for longer tenor lending, specialised lending and pre-operational phase project finance lending under the Basel III framework.

Institutional non-bank investors are therefore best-placed to step in to fill the financing gap, particularly those seeking longer tenor assets to match their long-term liabilities. However many of such investors are reluctant or not ready to deploy their capital, mainly due to lack of familiarity with the infrastructure asset class especially in Asia, and limited ability to take project construction risk given their preference for stable returns.

The Infrastructure Take-Out Facility (“TOF”)

The TOF has been designed with a view to providing investors with exposure to a diversified portfolio of project and infrastructure loans across multiple geographies and sectors, and positioned to fulfil several strategic objectives, including:

  1. addressing Asia-Pacific’s infrastructure financing gap by mobilising a new pool of institutional capital;
  2. unlocking additional capital for Asia-Pacific infrastructure financing through facilitating capital recycling by banks
  3. creating a new asset class for institutional investors to access project and infrastructure loans in Asia-Pacific and the Middle East regions in a credit-enhanced structure; and
  4. addressing existing market frictions that prevent large scale mobilisation of institutional capital for infrastructure financings, thereby facilitating institutional participation in the project finance asset class in a readily accessible manner.

The TOF Value Proposition

What We Do

Bayfront’s policy mandate and corporate objective is to help address the infrastructure financing gap in the Asia-Pacific region through the creation of a new asset class that:

  • Facilitates the mobilisation of institutional capital into infrastructure financing by addressing existing market frictions; and
  • Unlocks additional capital for new infrastructure financing through facilitating capital recycling by banks and enabling banks to continue engaging in the project finance business.

Bayfront’s primary business activities involve:

  • acquisition, warehousing and management of a portfolio of project and infrastructure loans;
  • sponsoring, structuring and managing all future distributions (through securitisation or otherwise) of these loans to institutional investors; and
  • investing in the equity tranche or vertical slice of each securitisation issuance that we sponsor.

Business Model

The Take-Out Eligibility Framework

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Warehousing Facility

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Distribution Platforms

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Asia’s first infra loan securitisation platform
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Establishment of Bayfront Infrastructure Management as a new platform to provide institutional capital access to infrastructure debt financing in Asia
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