Where debt is still about banks

In Asia, non-traditional lenders to infrastructure are not making the same impact as in Western markets.

Panelists at PDI sister publication Infrastructure Investor’s recent Global Investment Forum in Hong Kong challenged the notion that banks were retreating from lending to infrastructure in Asia. 

That's certainly the case in some markets. In Europe in particular, banks are scrambling to make adjustments to their balance sheets in the face of regulations such as Basel III which mitigate against long-term exposure to certain types of assets – including infrastructure assets. This has paved the way for non-traditional lenders such as institutional investors and debt funds to try and fill the gap.

But in Asia, we were reminded at the conference that the picture is very different. Richard Dawson of KPMG told delegates that the “very liquid” Asian banks – buoyed by vast savings (Southeast Asians alone have saved some $6 trillion with banks over the past five years) – remain the dominant players in infrastructure debt in Asia’s emerging economies.

Along with a desire to expand rather than contract balance sheets, banks in certain markets – Japan and Korea were cited at the Forum – tend to support (whether voluntarily or through state encouragement) domestic companies. They are highly motivated to keep foreign and non-traditional lenders on the outside peering in.

Added to which, even those non-banks thinking about testing the waters in Asia often find the investing environment problematic. “Japan needs to learn to manage its infrastructure properly before we can provide infrastructure debt,” was the stark opinion of a pension fund representative.

Whether the main reason is the difficulty of investing in Asia or the fact that – for the time being at least – there appears to be plenty of opportunity in Western markets, debt financing for Asian infrastructure appears to be the preserve of Asian banks.

It will not always be that way though. Ross Pritchard of Hastings Funds Management predicted that Asian markets will become more comfortable places for institutional investors over time.

As Asian regulation matures, and Western markets see competition pushed to new levels, the status quo may eventually give way.