S&P says investors struggling to find commercially viable projects in Asia

MANILA, Philippines - Despite the need for infrastructure in Asia’s emerging countries, Standard & Poor’s said in a report investors are struggling to find “commercially viable” projects in the region.

“Institutional investors awash with funds bemoan the lack of commercially viable infrastructure projects in Asia,” S&P said in a report.

“Pension and sovereign funds see infrastructure as a good fit because it offers long tenors and stable, predictable cash flows. Yet, many infrastructure projects aren’t currently attractive to institutional investors,” it said.

S&P said that despite estimates by various organizations for over trillions of dollars worth of needed infrastructure across the globe, the number of “investable projects” is insufficient to cater to investors looking at the sector.

“One reason is that infrastructure investments are a complex and still-underdeveloped asset class. Greenfield projects, which comprise 70 percent of the infrastructure project pipeline, carry construction risk and lack a track record of reliable cash flows,” S&P said.

“Most investors don’t have yet the depth in expertise to assess the technical and design viability of such projects,” S&P said.

At the same time, investors do not see the rewards justifying the risks for a number of infrastructure projects.

“Infrastructure projects bear not only technical risks, but also political and economic risks, which can be formidable in Asia’s emerging economies. Investors can be subject to uncertain and frequently changing policies, tax regimes, and tariff-setting frameworks that can harm their infrastructure investments,” S&P said.

“To take on these risks, investors demand higher returns than government bonds. But infrastructure projects are usually unable to charge higher than that because their services or products, such as electricity and water, have to be affordable to the end-users,” the debt watcher pointed out.

Infrastructure projects in Asia remain largely funded by banks and governments but S&P stressed that they will be insufficient to fill in a large funding gap until 2030.