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How HSBC is fuelling appetite for sustainable infrastructure bonds in Asia
HSBC Global Asset Management is working to bolster the local currency fixed income market for sustainable infrastructure in Asia
Bayani S Cruz 15 Oct 2018

HSBC Global Asset Management (HSBC AMG) is working to bolster the local currency fixed income market for sustainable infrastructure in Asia.

Sustainable infrastructure investment isn't new in the region with multilateral banks like ADB its major proponents. But it is the first local currency bond platform by a global asset management firm in Asia designed to address funding gaps in sustainable infrastructure. 

By gathering together enough local currency appetite from various insurance companies and involving arrangers and potential borrowers around sustainable infrastructure assets, HSBC AMG hopes to grow an Asian local currency debt market that is virtually non-existent for sustainable infrastructure.

The foreign currency debt financing for infrastructure projects traditionally have been US dollar-denominated including in Asia. For now, sustainable infrastructure is barely represented in the US$3.1 trillion global infrastructure market, according to Global Infrastructure Outlook, a G20 initiative.

"Our big strategic focus is on creating an institutional infrastructure debt investment market in Asia-Pacific," says Glenn Fox, head of infrastructure debt investment for HSBC AMG.

"We're on the verge of signing our first mandate specifically in our region with a regional insurance company and we're in discussions with three other significant players in Asia-Pacific," he adds.

HSBC AMG expects Asian currency debt market for sustainable infrastructure to grow as big as those in EU and the US.

"Where we're trying to position ourselves is by gathering together enough local currency appetite in different countries, from a variety of different insurance companies to be able to go with a bank arranger to a potential borrower and say, 'Look we can provide the whole of the investment that's required for the debt in this particular project'. We'll do it based on terms that are attractive both in terms of pricing and maturities," says Fox.

HSBC AMG launched early this year a global infrastructure debt platform designed for sustainable infrastructure bonds.

Fox, who joined HSBC AMG in the summer of 2015, spent the past three years along with his team designing the platform's business model, understanding the requirements of investors, and raising funding to launch the business.

"It took a while for us to get started, but we now have significant momentum both in terms of capital deployment and fundraising," Fox says.

Fox says the team has already raised more than US$1 billion in the past six months as it made initial investments in Australia, Latin America, and the US. Its portfolio of sustainable infrastructure projects includes solar photovoltaic (PV) projects, a container port, and liquified natural gas (LNG) projects.

In Asia, the plan is to provide regional and global insurance companies seeking sustainable infrastructure investment more opportunities to invest in local currency debt.

"Asian life insurance companies, in particular, would be very pleased to see a market develop that isn't just denominated in US dollars. That's where they're likely to start," Fox says.

HSBC AMG is looking at opportunities in Thailand, the Philippines, Indonesia, and Malaysia. Currently, there are few SRI-related green sukuk deals in Malaysia that fund solar power plants, enabling investors to gain exposure in local-currency-denominated infrastructure projects.

The asset firm's foray into local currency debt markets for sustainable infrastructure is not without challenges. Firstly, most of the infrastructure debt opportunities in Asia are currently being snapped up by the local banks. Secondly, investors have to contend with the differences in the credit quality of governments in Asia. Thirdly, there is the issue of political risk to which infrastructure projects are exposed to.

"Political risk is a big feature in any infrastructure market. If one is investing in a long-term asset with a 20-30 year life then it's inevitable that the investment is exposed to decisions that might be made by governments, for example, in how they approach creating a renewable energy sector, whether or not they make incentives available to investors to structure those sorts of projects, and how those incentives might change over time," Fox says.

Conversation
Andrew Jeffries
Andrew Jeffries
country director for Vietnam
Asian Development Bank
- JOINED THE EVENT -
Webinar
Fitch on Vietnam: Navigating a Post-Pandemic World
Session I: Macroeconomic overview and infrastructure
View Highlights
Conversation
Andrew Jeffries
Andrew Jeffries
country director for Vietnam
Asian Development Bank
- JOINED THE EVENT -
Webinar
Fitch on Vietnam: Navigating a Post-Pandemic World
Session I: Macroeconomic overview and infrastructure
View Highlights