Hong Kong company confirms entry into infrastructure debt market

Last month Hong Kong Monetary Authority chief executive Norman T L Chan announced that the HKMC would pursue "the securitisation of infrastructure loans in order to facilitate a more efficient flow of capital into infrastructure investments".

The HKMC confirmed to Out-Law.com that it is preparing "to embark on the infrastructure financing and securitisation business in 2019 based on a prudent and incremental approach".

It will "acquire infrastructure loan assets from market participants, including from multilateral development financial institutions and commercial banks," a spokesperson said. "As the loan asset portfolio reaches a good diversity and after having accumulated sufficient experience, securitisation of infrastructure loan assets will be explored to promote and facilitate participation of long-term institutional investors in infrastructure financing."

The spokesperson said that the business scope of the project "covers greenfield and brownfield projects globally, and will not be confined to 'belt and road' projects".

Project finance expert Richard Feller of Pinsent Masons, the law firm behind Outlaw.com, said, "This will give traditional lenders  such as Chinese banks the ability to recycle their lending rapidly. They will be able to offload their loans and effectively be repaid in a much shorter timeframe compared to relying on repayment under the financing agreements for specific projects, which could take up to 20 years. It will increase the attractiveness for more risk-adverse lenders to get involved in lending for infra projects if they see a market under which their loans can be securitized. "

In terms of belt and road initiative, Feller said, "this will help Chinese lenders effectively share some of the risk of infra projects to which they are lending. It is a diversification of market participants. More diversified participants involved in belt and road projects will also help improve global perceptions of the financing involved and required for the belt and road initiative. "

"Development banks and development funds might be interested in initially buying debt from the top of the rank bankable projects. There will be a positive impact on projects because they will have greater exposure to global players who will bring diversified experience and practices," Feller said.

A report in The East African said that the purchase, repackaging and sale of debt to investors would be focused on Africa-related debt.

This September China announced it would provide $60 billion in financial support to Africa at 2018 China-Africa Forum for Cooperation (FOCAC) summit. According to Business Insider, there are $10 million-worth of projects in Africa that are under construction, including railways and new city development.