How third-party agencies enhance infrastructure financing

In light of the increasing financing needs of infrastructure projects under the One Belt, One Road initiative in Asia, third-party financial agencies are likely to play a key role in the credit enhancement and risk mitigation of project bonds.

“MIGA is willing to work with World Bank and AIIB,” says Zhang Wenhe, senior underwriter, infrastructure, at the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank, at The Asset 11th Asian Bond Markets Summit, at the Kempinski hotel in Shanghai. “We are already discussing collaboration opportunities under the One Belt, One Road initiative; there are a lot of opportunities.”

Zhang Wenhe, MIGA, at The Asset 11th Asian Bond Markets Summit

Third-party financial institutions, such as MIGA, are capable of better structuring infrastructure deals through credit enhancement and risk mitigation processes. In December 2016, MIGA helped Elazig Hospital PPP Project in Turkey obtain a Baa2 rating from Moody’s.

Infrastructure projects have taken off over the past few years as China further demonstrates its long-term commitment to the One Belt, One Road initiative. Despite direct financial support from Chinese investors, there is still a large financing gap for infrastructure projects within the region.

The Asian Development Bank recently increased its already high estimate for infrastructure requirements in the region to US$26 trillion over the next 15 years, or US$1.7 trillion per annum.

According to Zhang, MIGA has supported more than 800 projects in 110 countries. While it has only paid eight insurance claims, over 100 investment disputes with host governments have been successfully resolved. In 2016, MIGA recorded a historical high of active gross exposure of US$14.2 billion in infrastructure projects.