The infrastructure sector has seen an influx of new funding choices in recent years, which have established a firm foundation for infrastructure funding, particularly in emerging markets. Two parameters, namely, increased domestic demand due to the reopening of markets and borders, and decreased external demand due to rising global uncertainties, are shaping Southeast Asia’s growth. The economic recovery in Southeast Asia, which began in 2021-22 (post Covid-19), has continued in 2022-23.
Significant steps have been taken to encourage the long-term growth of ASEAN economies. Diverse industries have made breakthrough advances, including cyber security, finance, and digital banking integration, as well as recycling, renewable energy, waste management, and autonomous vehicles. Investments have continued to flood in during the year, specifically, in infrastructure and transit growth. A series of high-profile initial public offerings (IPOs) by regional unicorns will pave the way for blockbuster IPOs in 2023. These infrastructural investments are required to keep this region competitive on a global scale. Most of this might be sourced internationally.
During 2022-23, the emphasis on environmental, social and governance (ESG) practices has increased as the region becomes more conscious of the imminent hazards of climate change. In order to improve ESG performance and promote sustainable finance, ASEAN countries have taken significant steps to build sustainability rules, impact assessment frameworks, green taxonomies, sustainable financing models and overall governance standards in recent years. This includes the establishment of ASEAN’s green taxonomy, SGX’s implementation of ESG-focused listing standards, and the incorporation of ESG investing strategies by sovereign funds in countries such as Malaysia and Thailand.
Green and sustainable finance in Southeast Asia is still in its infancy, but the sector is expanding at a record rate, driven by issuers eager to diversify their funding sources to demonstrate their devotion to ESG commitments and sustainability. On the investor side, according to an ASEAN investment report, 63 per cent of ASEAN investors are interested in investing in sustainable infrastructure projects, with 20 per cent currently doing so. Among the numerous investment opportunities available to ASEAN investors in infrastructure, the top five most appealing projects are water and wastewater infrastructure, solar power, wind power, electric vehicles and transport, and tidal and hydroelectric power.
In May 2022, a blockchain-based platform named ESGpedia was established in an effort to make organisations’ sustainability data more accessible to financial institutions via a centralised registry containing global verified sources. ESGpedia supports Greenprint ESG Registry, one of the four digital utility platforms housed under Project Greenprint that is being developed by the Monetary Authority of Singapore (MAS).
The capital needed just to build climate resilient infrastructure is exceedingly difficult to find from government budgets alone. In addition to increasing capital, the bond market can help stimulate regional economic growth. To boost the economy in 2022, local governments expedited the issue of infrastructure-related debt. Treasury and policy bank bonds also contributed to the expansion of government bonds. Additionally, new investors are likely to flock towards infrastructure vehicles that generate secure long-term annuity returns, particularly if interest rates are low.
Land value capture
Given the escalating problems posed by growing urbanisation, ageing infrastructure and climate change, land value capture (LVC) as a source of revenue has never been more vital to the survival of Southeast Asian cities. During the year, LVC has been gaining traction as an emerging landscape. Singapore has placed strong emphasis on strategic land use planning and management. In Indonesia, implementation has been limited due to the absence of municipal legislation and regulations. In the Philippines, the government has been using a “beneficiary pays” approach to infrastructure throughout the year that comprises a variety of initiatives that capitalise on the higher property prices often found around transport infrastructure, such as urban transit stations, corridors, integration hubs and roads.
Key strategic collaborations
The collaboration among multiple countries and ASEAN has generated possibilities for tackling the challenge of climate action, financing for sustainable development, addressing emerging regional and global concerns of common interest and the establishment of cooperation policies. A key collaboration is the conferment of the ASEAN Dialogue Partnership to the UK, which is expected to complement ongoing efforts to deepen relationships between ASEAN and the UK. Furthermore, recently, ASEAN-UK launched an infrastructure capacity building project, ASEAN Sustainable Leadership in Infrastructure Programme (ASLIP), to enhance government-private sector collaboration in sustainable infrastructure, as well as to address crucial concerns on methods in developing sustainability towards net zero, urbanisation, and inclusivity and social impacts.
In May 2022, a consortium led by Macquarie Asset Management (MAM), through Macquarie Asia-Pacific Infrastructure Fund 3, acquired a minority stake in Indonesia-based Bersama Digital Infrastructure Asia Private Limited. The MAM consortium will invest alongside Provident and Saratoga to enable Bersama Digital Infrastructure to explore investment opportunities in the digital infrastructure sector, with special focus on telecommunication towers, fibre and data centres in this high growth region. This acquisition values Tower Bersama at over $6.5 billion and represents one of the largest foreign direct investments (FDIs) in the Indonesian digital infrastructure industry. Singapore has been the top hub for FDI in the first half of 2022 within the ASEAN trading bloc, as it remained the most attractive investment destination. During this period, foreign investors in Singapore announced 142 projects worth $8.2 billion, following two consecutive half-year periods in which FDI exceeded $9 billion.
Global firms’ activity
Across Southeast Asia, buyout firms and asset managers are swooping in on billions of dollars in infrastructure assets, drawn by the sector’s development prospects and secure, long-term profits.A robust deal pipeline could make Southeast Asia a rare bright spot for global funds amidst rising finance costs and sinking markets. The industry is loaded with potentially available assets. In 2022 alone, over 210 agreements targeting Southeast Asia’s industrial and telecommunication sectors were announced. Canadian pension funds and buyout firms are among the potential bidders for a toll road business put up for sale by CVC Capital Partners and its Hong Kong-listed partner with assets in Indonesia. This transaction might be valued up to $3 billion.
Despite being at different levels of economic growth, each Southeast Asian country has grown significantly since 2000. Enhancing access to tapping different sources of capital would increase infrastructure sector investments in the near future. For instance, international development financing plays a crucial role in catalysing private funding, particularly for early-stage projects, new technologies (carbon capture), and technologies with inherent risks (exploration risk in geothermal). Unlike other regions where government efforts to rein in inflation have resulted in an economic slowdown, the region has attracted interest due to its comparatively resilient economic growth.