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Moody's: Institutional debt to enhance funding diversity for Asian infrastructure

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Moody's Investors Service says that the increasing participation by institutional investors in financing Asia's substantial infrastructure requirements will diversify the funding sources available, complementing government-sourced finance and bank loans.

"The development of a robust pipeline of investable projects will encourage further participation by institutional debt investors, attracting more private capital to meet Asia's infrastructure needs, including those related to China's One Belt, One Road initiative," says Ray Tay, a Moody's Vice President and Senior Analyst.

"However, the development of such a pipeline will require a concerted effort by policymakers and multilateral development banks (MDBs) to mobilize creditworthy projects by offering a combination of direct funding, credit enhancement and technical advice," adds Tay.

Moody's report notes that institutional debt investors are increasing their portfolio allocations to infrastructure because these long-term investments match their long-dated liabilities. In addition, the asset class offers portfolio diversification and favorable risk-adjusted returns.

Institutional funds are an especially important fresh source of capital, because bank limits on lending to individual countries, sectors or borrowers, will over time restrict their ability to increase funding to the sector.

A robust pipeline of investable Asian infrastructure projects would encourage institutional debt investors to devote more resources to assessing infrastructure investment opportunities in the region.

Such a development in turn could create a virtuous circle in which the investors' improved familiarity with the asset class in Asia will incentivize them to commit more capital, and build further sector expertise.

Moody's says MDBs can play a crucial role in catalyzing private capital for infrastructure investment.

Specifically, MDBs can offer -- in addition to direct funding and providing credit enhancement -- policy guidance and technical assistance, including support for project separation. MDB's can also facilitate coordination between development banks, other public-sector entities, and private-sector entities.

Also, the creation of new multilateral lenders, such as the Asian Infrastructure Investment Bank (AIIB), is a positive development for potential borrowers in Asia.

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First Published: Thu, November 12 2015. 15:58 IST