Growing role of exim financing in infrastructure-
Exim financing has begun to assume growing importance in the rapidly expanding infrastructure financing space in Southeast Asia, with some of the financing coming from regional heavyweights. Within the region, some of the recent financings in the infrastructure space have been extended by the exim banks of Malaysia, Thailand, and Vietnam. From outside the region, the exim banks of countries such as China, South Korea, and India are making quick inroads. The power (both, conventional and non-conventional) and road sectors have been the primary recipients of these financings.
Southeast Asia Infrastructure provides a snapshot of the recent activities of various exim banks with regard to the funding of infrastructure projects in Southeast Asia…
Exim Bank of Malaysia: Setting its sights on Indonesia
The Exim Bank of Malaysia (Exim Malaysia) plays an active role in infrastructure financing in the region. Incorporated in August 1995 as a government-owned development financial institution through the Ministry of Finance, the bank was established to promote reverse investments and strategic exports in order to facilitate the entry of Malaysian companies into new markets.
Over the past 12–15 months, most of the bank’s financings in the infrastructure space have been directed to Indonesia. The biggest project financed by the bank ($1.31 billion) during the period was the development of the Cikampek–Palimanan toll road in West Java, Indonesia, in September 2012. The financing was received through a credit syndication agreement, involving 22 banking and financial institutions that provided a total loan facility of $916.67 million, of which $95 million was extended by Exim Malaysia.
In a financing transaction that took place in May 2013, Exim Malaysia signed a $24.4 million facility agreement with PT Senagan Energi to construct and develop a 10 MW hydropower plant situated on the Kreung Isep river at Aceh in Indonesia. The funding extended by the bank constituted almost 80 per cent of the project cost ($30.7 million).
According to reports, in the near term, Exim Malaysia plans to finance up to four infrastructure projects in Indonesia. The bank also aims to increase its loan disbursements by at least 30 per cent per annum until 2015. It is reportedly targeting Indonesia, with particular emphasis on the country’s renewable energy projects.
Meanwhile, Exim Malaysia also signed a technical assistance agreement with the Asian Development Bank (ADB) in August 2012. The multilateral agency will assist Exim Malaysia in strengthening its capacity, knowledge support, and project development preparation so as to bolster its lending facilities.
Exim Bank of Thailand: Growing interest in infrastructure space
The Exim Bank of Thailand (Exim Thailand) is a state-owned financial institution under the supervision of the country’s Ministry of Finance. Established in September 1993, the bank began its operations in February 1994. The bank has not engaged in significant financing activities in the region’s infrastructure space in the recent past.
In 2012, Exim Thailand extended a credit line of 70 million baht to Asia Nampapa Luangprabang Company Limited – a joint venture (JV) between two Thai small and medium enterprise investors, namely, Asia Infrastructure Management (Thailand) Limited and Water Solution Company Limited. Financing was provided to enable the JV to invest in a water treatment plant and water supply services in Luangprabang province of Laos.
As for 2013, the bank’s sole contribution towards an infrastructure segment occurred in March: it provided a term loan of 150 million baht to Thailand-based Symphony Communication Public Company Limited (SYMC). This loan supports SYMC’s plans to expand its fibre network through the development of a fibre optic cable network that is needed for the introduction of 3G mobile phone services, cable and satellite television systems, as well as digital television broadcasts in the region.
Going forward, the bank has set operational targets with the objective of aiding business operators that are planning to invest in, or develop, projects related to renewable energy, energy conservation, logistics, infrastructure, and public utilities. It will provide financial services such as long-term loans for investment and capacity expansion.
Exim Bank of Vietnam: Powering up its infrastructure financing
Another exim bank that is accelerating its infrastructure lending activities in Southeast Asia is the Exim Bank of Vietnam (Exim Vietnam). Established in May 1989, the bank went into operation in January 1990.
Its most recent financing activity in the infrastructure sector took place in August 2013. Exim Vietnam approved loans worth 1.6 billion dong for the National Power Transmission Corporation (NPT), a subsidiary of state-owned Electricity of Vietnam (EVN), to improve the electricity network in the country’s central region.
The funds will be utilised for the implementation of four projects in the country’s energy sector. These are the 500 kV Thanh My substation and branch (Phase 2); the 220 kV transmission line linking both the Song Bung 2 and the Song Bung 4 hydropower plants to the national power system; the 220 kV Son Ha–Doc Soi transmission line; and the 220 kV Vinh Tan–Phan Thiet transmission line.
Financing from exim banks abroad
Apart from the involvement of the regional exim banks in financing infrastructure projects, other banks have also been lending to infrastructure projects in the region. The Exim Bank of China, for instance, is one of the sponsors of the China-ASEAN Investment Cooperation Fund (CAF) – a private equity fund targeted at investment opportunities in infrastructure, energy, and natural resources in Southeast Asia. In September 2013, the CAF signed definitive documents to invest in Thailand-based National Power Supply Public Company Limited, hence marking its entry into the country’s biomass power sector. Another significant contribution from the CAF was its equity investment in Laemchabang port, Thailand’s largest deep-water port, in 2011.
The Exim Bank of South Korea (Exim Korea) is also an active participant in the funding of infrastructure projects in the region. In April 2013, the bank signed an economic development and cooperation fund (EDCF) loan agreement with the Vietnamese government to extend $200 million in credit for the Lo Te–Rach Soi highway construction project. The project involves the construction of a 54 km highway stretching from Lo Te to Rach Soi in the Mekong Delta region. For Exim Korea, this was the largest EDCF loan it had ever provided. Just two months earlier, the bank extended a loan of $194 million to develop an off-gas power plant in Jakarta, Indonesia.
More recently, the Exim Bank of India (Exim India) has entered Southeast Asia’s infrastructure lending space. In July 2013, the bank offered an additional line of credit (LoC) of $19.5 million to the Vietnamese government to fund two projects; hence, the total value of the LoCs from Exim India stands at $91.5 million. The LoCs have supported projects like the Nam Chien hydropower project in the country, among others.
Apart from Vietnam, Exim India extended an LooC of $30.94 million to the Laos government in September 2013. The LoC will be used for the construction of storage dams and the development of irrigation systems in four major provinces of the country.
Finally, Exim India also opened its office in Myanmar in August 2013 to fund infrastructure development in the country. The bank has provided seven LoCs totalling $247.4 million to the Myanmar Foreign Trade Bank (MFTB) for projects such as the upgradation of the Yangon–Mandalay railway system.
Exim financing: A win–win proposition for all parties
Over the course of the next 10 years, the investment needs of infrastructure development in Southeast Asia are estimated to be over 1 trillion. Thus, opportunities for exim financing abound. The current modest share of exim financing is likely to grow in the future, which will help to sustain the export-led growth of the investing countries, present both in and outside the region.
For the receiving countries, however, it is important to keep in view that exim financing comes with a rider that imposes restrictions on the purchases of equipment or services from the financing country. Thus, the financing is weighted more towards strategic reasons of the lending country than the facilitation of infrastructure development of the receiving country. Nonetheless, the value of this line of financing, as a contributing element within a mix of other institutional and commercial lending, cannot be understated. Exim financing for infrastructure in this region is here to stay and will only increase in the future.
