Infrastructure lies at the heart of economic, social and ecological development, and the lack of sufficient financing for infrastructure assets is a continuing challenge to develop emerging market economies. AIIB is partnering with Clifford Capital Holdings (CCH) to bridge the infrastructure financing gap through an innovative securitization platform Bayfront Infrastructure Management (Bayfront) which connects institutional investors with infrastructure debt solutions in Asia Pacific.
In June 2021, AIIB completed a USD60 million anchor investment in Bayfront Infrastructure Capital II (BIC II), a USD401 million issuance across five tranches of Infrastructure Asset-Backed Securities (IABS) that were listed on the Singapore Exchange. BIC II represents the second infrastructure debt securitization in Asia Pacific and the first to be solely sponsored by Bayfront. The inaugural infrastructure debt securitization, issued by Bayfront Infrastructure Capital (BIC) in July 2018, was sponsored by Bayfront’s sister company Clifford Capital Pte. Ltd. (CCPL). The Bayfront team comprises all the CCPL personnel who had structured and executed the BIC transaction.
The successful issuance of BIC II is a capstone project for AIIB and Bayfront’s continuing efforts to establish a primary securitization market for infrastructure debt assets and mobilize the flow of global institutional capital into the asset class in Asia.
Clive Kerner, Group Chief Executive Officer at Clifford Capital Holdings said, “The infrastructure financing gap in Asia is large and growing. One critical challenge that needs to be addressed is expanding the supply of infrastructure debt through attracting institutional investors who are increasingly seeking exposure to the asset class. CCH has embarked on this partnership with AIIB to cater to this market gap, and with AIIB as a valued strategic partner in this groundbreaking platform I am confident we are well placed to catalyze the growth of this asset class in the region as a first mover”.
Capital markets can play an important role as a channel for liquid and long-term financing. The long tenor of infrastructure financing is a natural match with the long- term liabilities of institutional investors such as insurance companies and pension funds. However, many investors are restricted in their capacity to invest in Asian infrastructure assets due to regulatory or commercial restrictions. The securitization market represents one way to address Asia’s infrastructure financing gap by leveraging the capital markets to allow institutional investors to build exposure to this asset class through an accessible format, i.e., rated and listed debt securities.
Bayfront was established in 2019 in connection with the Infrastructure Take-Out Facility (TOF) initiative sponsored by the Monetary Authority of Singapore to mobilize private capital into the Asian infrastructure market. It is the first fully-fledged platform dedicated to developing IABS in Asia. IABS are structured notes backed by a diversified portfolio of senior secured project finance and infrastructure loans. Bayfront focuses on acquiring predominantly brownfield project finance and infrastructure loans from banks while building a portfolio of loans with sufficient scale and diversity to be securitized for distribution to institutional investors. All loans are screened against Bayfront’s selection criteria, credit underwriting requirements and environmental, social and governance considerations. This provides institutional investors with a unique opportunity to support high-quality, sustainable infrastructure in Asia.
AIIB’s investment in BIC II will contribute to a track record of primary IABS issuances and provide a valuable market benchmark, which are critical elements of the market- building process for any new asset class. The growth of this market will lead to virtuous cycles on (i) the supply side, whereby banking partners can rely on Bayfront as a take- out partner for qualifying project finance and infrastructure loans, leading to greater origination appetite, and (ii) the demand side as the increased deal flow will help establish market benchmarks which will drive institutional investors’ familiarity with and demand for Asian infrastructure assets.
“This milestone demonstrates AIIB’s commitment to scale up its sustainable and inclusive investments to meet clients’ needs for low-carbon and climate-resilient infrastructure. It will also help us achieve our objective to develop Asian infrastructure as an asset class,” said AIIB Director General (Banking) Najeeb Haider, “The demand for more investment in Asia is huge and we will continue to work with partners like Bayfront, who are developing innovative products to attract private investment into emerging market infrastructure.”
The anchor investment is a continuation of AIIB’s long-term partnership with Bayfront, one which started two years ago when AIIB joined Bayfront as a founding minority shareholder with CCH as the majority shareholder. CCH is a specialist financing and distribution platform for real assets globally across the debt capital structure and is headquartered in Singapore.
AIIB’s 30 percent anchor equity investment in Bayfront was approved by the Board of Directors in October 2019 and kicked off the first stage of pioneering infrastructure debt securitization in Asia. AIIB’s anchor equity investment is a cornerstone to the setup of Bayfront. It also helped embed leading environmental and sustainability guideline standards into Bayfront’s portfolio selection principles. The BIC II anchor investment is the second stage of this partnership which aims to accelerate the scale-up and further validate the value proposition of IABS in the capital markets.
“The securitization market is a potential solution to Asia’s infrastructure financing gap because it provides institutional investors a way to access Asian infrastructure assets,” said Stefen Shin, Principal Investment Officer at AIIB. “This debut investment will facilitate the growth of the securitization market in Asia. This, in turn, will diversify infrastructure funding channels and crowd-in institutional capital for the region’s infrastructure financing needs.”
BIC II was well received by the market, with an oversubscription of orders from a diverse range of institutional investors including first-time investors in this asset class. A key innovation was the inclusion of a sustainability tranche backed by eligible green and social infrastructure assets as defined in Bayfront’s Sustainable Finance Framework, a first in the public securitization market in Asia and globally.
Premod Thomas, Chief Executive Officer of Bayfront said, “We saw strong demand in BIC II from a wide range of institutional investors including insurance companies, pension funds, multilateral financial institutions, banks, family offices as well as specialized asset managers. The high level of interest in our novel and sustainable product demonstrates a clear gap in the market and an opportunity for us to increase collaboration and reach a wider network of institutional investors. We look forward to further developing infrastructure asset-backed securities into a mainstream, investible asset class with features such as liquidity, pricing benchmarks and a clear market positioning that will help catalyze the development of a global infrastructure financing hub in Asia.”
AIIB’s investment is ultimately geared to support and validate a new type of debt security which will make it easier for institutional investors to access Asian infrastructure assets. The success of BIC II will contribute to the nascent market in Asia and enable Bayfront to drive greater institutional capital participation in the region. This is closely in keeping with AIIB’s mission to mobilize private capital and provide a supportive environment to finance Infrastructure for Tomorrow.
Thomas said, “Bayfront is committed to the mobilization of institutional investment in infrastructure financing and intends to be a frequent issuer of IABS transactions going forward. We aim to grow our network of 22 partner banks and gain greater access to infrastructure loans, especially in relation to sustainable assets. Reaching a wider network of institutional investors through our IABS issuances and other potential distribution channels is a key part of our strategy to develop a new asset class to help address the large infrastructure financing gap in Asia Pacific.”
This project impact story was first published in the 2021 AIIB Annual Report and Financials.
