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 the Platform to implement a robust Environmental and Social (E&S) framework integrated into its due diligence process before any loan acquisition and throughout the asset management phase. This framework involves screening debts against the Environmental and Social Exclusion List and other eligibility criteria, reviewing their original E&S categorization, available environmental and social assessments, monitoring documentation, and relevant loan covenants. Each debt is then assigned an E&S risk rating, reflecting its original categorization, E&S performance to date, and the Platform's exposure to residual E&S risks.

The findings from this due diligence process are presented to the Platform’s Executive Committee or Board before any investment decision is made. The debts are thereafter monitored for their E&S performance and controversies. The Platform regularly provides AIIB, its shareholder, with insights into the E&S performance of the portfolio as well as the E&S characteristics of the project pipeline. The E&S framework has also been expanded to include not only project finance debts for 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 are typically backed by existing assets that are either complete or nearing completion; in this context, environmental and social risks are more effectively managed through robust ESG criteria that govern debt selection.
• A key objective of the Project is to encourage banks to originate sustainable infrastructure projects, eligible for purchase by the Platform, through the application of robust ESG criteria.
• By adopting an ESG framework, the Platform can offer investors greater transparency to investors on the overall ESG profile of the underlying assets, thereby helping to position sustainability as a key, value-enhancing feature of this emerging asset class.