Although pension and sovereign funds see infrastructure as a good fit because it offers long tenors and stable, predictable cash flows, many infrastructure projects aren't currently commercially attractive to institutional investors. That's according to a report Standard & Poor's Ratings Services published today titled, "Institutional Investors Struggle To Find Investable Infrastructure Projects In Asia."
"Challenging economic and political risks; nascent credit culture and legislative frameworks; and low bank financing costs render the rewards of investing in the infrastructure projects of Asia's emerging economies insufficient for capital-market investors," Standard & Poor's credit analyst Thomas Jacquot said. Participation from capital-market investors can lift credit standards in infrastructure projects.
That's because investors tend to impose greater scrutiny on the feasibility of the project itself rather than on the borrower, unlike Asian banks that lend mainly based on relationships with companies. And there is room for institutional investors to play a role, now that banks and governments are less keen to shoulder the burden of funding every possible project. Further, projects that offer social, economic, and environmental benefits to the wider community can attract capital-market investors with ethical mandates.
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