Conference Presentation, Fireside Chat, Panel
Beyond the Belt and Road Initiative: Financing Asia's Needs
Milken InstituteWilliam Lee, Paul Gruenwald, Gerald Keefe, Lincoln Leong, Joachim von Amsberg, Faisal Syed
- Asian infrastructure investment opportunities are projected to reach a magnitude of $10 to $11 trillion.
- Institutional investors are expected to increase participation, with recent examples showing capacity to underwrite entire projects, though multilateral development banks and risk providers like SinoSure remain critical for comfort in the near term.
- The market is anticipated to evolve over approximately 10 years such that banks serve an intermediation role in the front end while institutional investors assume the long end.
- The gap between infrastructure supply and demand is forecast to accelerate if risks remain improperly priced and if the Chinese government does not intervene to assume specific risks.
- Private equity capital flow from the West depends on the creation of innovative structures that protect equity returns and offer transparency comparable to established markets like Hong Kong.
- A market for brownfield assets is expected to develop to provide clear exit paths, which will subsequently influence greenfield investor behavior.
- Regulatory headwinds from Basel rule changes have made long-dated, investment-grade exposures unattractive for multinational banks to hold.
- Countries with ratings in the triple B, double B, or split-rating categories will require credit uplift and pricing improvements to ensure project economics.
- Investor appetite for infrastructure exposure is increasing as market transparency issues dissipate, while issuer appreciation for accessing international capital repeatedly is also growing.
- Multilateral development banks are expected to assume specific refinancing risks at future years, such as 5, 7, or 10, and may assist governments in making credible long-term commitments.
- Future financing structures will likely require new actors or mechanically written guarantees to close the supply-demand gap, as current bank-based guarantees often fail to function effectively due to collection conditions.
- Investor participation will continue to insist on risk retention at every point of the capital structure, rejecting reliance on bank-centric systems that rely on family ties and private information.
- Persistent market failure is indicated by the Asian Development Bank's reports showing increasing unmet infrastructure needs every five years.
- The Asian financial crisis context underscores the necessity of moving from a bank-centric system to a market-based one to avoid massive global distortions and repeat past mistakes.
- Financing long-dated needs will require building an investor following over time rather than closing all deals immediately.