Premod Thomas, ceo of Bayfront Infrastructure Management, answers SCI's questions

Q: Bayfront Infrastructure Management is seeking to help address an infrastructure financing gap in the Asia-Pacific region (SCI 29 April). Can you explain what you mean by this?
A: According to the Asian Development Bank, Asia will need approximately US$1.34trn annually in infrastructure financing between 2016 and 2020 to sustain economic growth. This represents approximately 6% of the region’s GDP from 2016 to 2030.

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. As there is a strong pipeline of projects expected in the ASEAN transport and energy sectors, developing Asia requires sufficient and affordable financing for future infrastructure development.

Currently, around 70% of infrastructure investment in Asia is financed by the public sector, which is unsustainable if the demand for infrastructure is to be met. As such, there are increasing requirements for private sector funding to address the significant gap in infrastructure financing needs in Asia Pacific. 

Q: Can you provide further detail on how Bayfront will address the infrastructure financing gap?
A: Bayfront’s objective is to address the infrastructure financing gap in the Asia-Pacific region by facilitating 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, which have traditionally been the largest lenders in this sector.

Q: Is there demand for this among investors? What sort of accounts are you hoping to attract?
A: 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), which was launched in Singapore in 2018 (SCI 18 July 2018). When BIC issued four classes of notes in July 2018, strong demand was witnessed across a variety of institutional investors, including insurance companies, pension funds, endowment funds, family offices and specialised asset managers, as well as individual sophisticated accredited investors.

Bayfront will acquire predominantly brownfield project and infrastructure loans from financial institutions. Bayfront is looking at a number of industries and sub-categories within the infrastructure sector, with a focus on Asia-Pacific and the Middle East, and to a smaller extent, Australia and Latin America.

Q: Bayfront has executed an MOU with 15 banks. How does the agreement work in practise?
A: Bayfront’s execution of MOUs with 15 banks serves to achieve alignment of understanding for future collaboration on the take-out mechanism for infrastructure loans, including the key principles and criteria for potential transfers of infrastructure loans from each bank to Bayfront. This will facilitate a steady pipeline of infrastructure and project finance loan acquisitions. Bayfront has already commenced loan acquisitions from a number of these banks and will continue to expand its network of banks going forward.

Q: How many more bank partnerships are you targeting?
A: Bayfront is targeting another five MOUs to be added in FY2020.

Q: Will the market see further CLO issuance from Bayfront?
A: Yes, future CLO issuances will be through Bayfront.

Q: What are your expectations regarding Bayfront’s issuance volumes?
A: Subject to market conditions, Bayfront will target to execute an issuance every 12-15 months.

Q: How does Bayfront see the APAC infrastructure financing market developing in the future?
A: Given wider implementation of Basel 3 regulatory requirements, we expect that this will tighten banking liquidity going forward for long-dated infrastructure financing, which necessitates banks to increase their velocity of distribution. We also expected to benefit from the trend that the volume of bankable projects in the region would increase as infrastructure demand ramps up and governments are more familiar with tapping private sector through PPP structures.

There is also a need to develop the capital markets in parallel while the above market transition takes place. BIM believes it is well positioned to bridge the current market gap and benefit from these market transitions in the medium to long term.

Q: Are there any other challenges that need to be addressed in the future from Bayfront’s perspective?
A: We are focused on creating a new asset class for institutional investors through Bayfront. In order to achieve that, we need to deepen the market liquidity, research and pricing benchmarks that investors can suitably use for this asset class.

Jasleen Mann