Singapore: Infrastructure Private Capital Mobilization Platform

OBJECTIVE

To help develop infrastructure as an asset class through the creation of debt securities for sale to institutional investors.

DESCRIPTION

AIIB has invested in a new platform business – Bayfront Infrastructure Management Pte. Ltd. (Bayfront, or the Platform) that purchases infrastructure debts from financial institutions and distributes them to institutional investors through securitization or other formats. This supports private capital mobilization and builds infrastructure as an asset class. The purchase of such debts is predicated on the hypothesis that financial institutions that currently originate and hold such debts to maturity will increasingly be constrained from doing so with the advent of Basel lll regulations.

ENVIRONMENTAL AND SOCIAL INFORMATION

The Project resulted in the establishment of a platform to purchase infrastructure debts from financial institutions, structure and distribute them to institutional investors through securitization or other distribution formats. In line with previous capital markets projects executed by AIIB, this platform has developed and maintains an appropriate environmental and social (“E&S”) framework. A summary of the framework can be found here.

In place of AIIB’s Environmental and Social Policy (“ESP”), the project team has required that the Platform put in place a robust E&S framework integrated with its due diligence process before any loan acquisition and through its asset management phase. The Framework entails screening debts against the Environmental and Social Exclusion List and other eligibility criteria, reviewing their original E&S categorization, available environmental and social assessment and monitoring documentation, and relevant loan covenants. An E&S risk rating is then attributed to all debts reflecting the original E&S categorization, E&S performance to date and the Platform’s exposure to residual E&S risks. The findings of this due diligence are discussed at the Platform’s Executive Committee or Board prior to making an investment decision. Debts are thereafter monitored for their E&S performance and controversies. The Platform provides to its shareholder AIIB regular insights into the E&S performance of the portfolio and E&S characteristics of the pipeline. The E&S framework was expanded to include not only project finance debts to single assets but also corporate debts.

The rationale for the proposed approach is as follow:

• The ESP is designed for lending to new projects and is not ‘fit for purpose’ for application to the capital markets or debt and equity security instruments;
• Debts are mostly purchased in the secondary market, and the management of environmental and social risks is only feasible through rules based ESG framework governing the selection of debts and the underlying projects.
• Debts to be acquired would generally be backed by existing assets that have reached or are shortly reaching completion; in this context, the environmental and social risks are better managed through robust ESG criteria governing debt selection.
• A key objective of the Project is also to encourage banks, through robust ESG criteria, to originate sustainable infrastructure projects that are eligible for purchase by the Platform.
• By taking an ESG framework approach, the Platform can provide greater transparency to investors on the overall ESG profile of the underlying assets, thereby helping to add sustainability as a key and value-adding the feature of this emerging new asset class.