Hong Kong’s Chief Executive John Lee Ka-chiu, in his opening address to the Asian Financial Forum 2024, underlined Hong Kong’s indispensable role as the capital bridge between the Chinese mainland and international markets. In this context, international infrastructure projects provide ample opportunities for the city to fulfill this vital role.
For instance, last year, the Bank of China acted as the sole global facilitator for Saudi Electricity Co (SEC) to arrange a five-year $2 billion syndicated loan. The Bank of China (Hong Kong), equipped with an experienced infrastructure business team, joined the syndicate as a leading bookrunner. SEC is the largest electricity producer in Saudi Arabia with 38 generating stations, and the leading energy production company in the Middle East and North Africa. The purpose of the syndicated loan was to build more generating stations in this region. This is an illustrative example of the Hong Kong Special Administrative Region’s key function as a bridge between the Chinese mainland and the rest of the world.
Infrastructure projects mainly cover power plants, ports, highways, and industrial zones. Around the world, there are billions of dollars eagerly seeking investment opportunities. It was against this backdrop that the Hong Kong Monetary Authority set up the Infrastructure Financing Facilitation Office in July 2016, which is a platform to facilitate infrastructure investment projects and their financing. The further opening up of the mainland is enhancing Hong Kong’s role as the springboard for many mainland companies expanding overseas, and similarly, an attractive destination for overseas corporations wanting to gain a foothold in the mainland market. In recent years, a growing number of these companies have been looking into investments in infrastructure and related projects in countries participating in the Belt and Road Initiative (BRI).
Under the BRI, a growing number of infrastructure projects have been implemented successfully in countries across Southeast Asia, Central Asia, the Middle East and Africa. For instance, with the completion of the Jakarta-Bandung High Speed Railway in Indonesia in 2023, which is the first high-speed railway in Southeast Asia, the traveling time between Jakarta and Bandung has been significantly reduced from over three hours to 40 minutes. This is enhancing people flows substantially, and speeding up the economic and societal development in the area.
The BRI is bringing enormous infrastructure investments and financing activities to the market; Hong Kong, as one of the top international financial centers, is bringing together domestic and foreign capital as well as top-class financial institutions and talent, and offering diverse and abundant financing channels. With laws, regulations and business practices widely trusted by the international community, Hong Kong can make unique contributions to the success of the BRI.
In terms of financing infrastructure projects, in addition to traditional equity investments, syndicated loans and bond issuance, investors may also choose to list finished projects in Hong Kong, or securitize investment interests so as to recoup funds early for deployment in other projects. In the 2022 budget, the financial secretary proposed a pilot program on infrastructure financing securitization to be launched by the Hong Kong Mortgage Corp (HKMC). In May 2023, the HKMC successfully issued the first infrastructure financing securitization product through a special-purpose company called Bauhinia 1. The total value of the Bauhinia 1 portfolio was in the order of about $400 million, including infrastructure loans for 25 projects across 12 countries and involving nine sectors. It also included $100 million in sustainable financing notes, invested in renewable energy projects that contributed to an annual reduction of over 260,000 metric tons of carbon emissions. The education and telecommunications-related projects covered by Bauhinia 1 will also assist the respective countries to provide more opportunities for improving the communication infrastructure.
The BRI is bringing enormous infrastructure investments and financing activities to the market; Hong Kong, as one of the top international financial centers, is bringing together domestic and foreign capital as well as top-class financial institutions and talent, and offering diverse and abundant financing channels
Compared with other investments, infrastructure investment is much more difficult and complex because it normally involves a larger amount and lasts longer. It may also involve complicated land acquisition, environmental, and other social issues that require strong facilitation by the host government. To facilitate infrastructure investment, banks can play a crucial part by the strength of their necessary technical expertise in the relevant fields and the requisite local knowledge to underwrite a greenfield project. This is a riskier phase of an infrastructure investment but banks are well positioned to cope.
Major proposed projects, such as the Northern Metropolis and the Kau Yi Chau Artificial Islands project, are iconic for the Hong Kong market and complement a wide range of other projects. Together, this pipeline of infrastructure projects presents a significant fortune to Hong Kong’s finance sector. This collection of projects will focus on developing research and development capabilities through the future technology park, the San Tin Technopole and the Hong Kong-Shenzhen Innovation and Technology Park, among other purposes. Overall, there will be approximately 70 separate projects forming the Northern Metropolis.
The Hong Kong Institute of Directors stated on Feb 24 that to “prioritize public works Hong Kong needs to strategically invest in infrastructure for a better ability to generate economic growth” and “the Northern Metropolis development is of a higher priority now, and it warrants judicious debt financing.” This statement carries a lot of commercial sense.
Vice-Premier He Lifeng delivered a keynote speech at the Global Financial Leaders’ Investment Summit in Hong Kong on Nov 19. He emphasized that building, consolidating and developing Hong Kong as an international financial center “is not only necessary for Hong Kong, but also important to the country”. Given the large scale and duration of infrastructure projects, Hong Kong banks have a key role to play in advising on rolling dynamic financial options. They may also lead consortiums, pulling together different sources of finance to this promising market. On Jan 2, a consortium of local banks, with ICBC (Asia) as coordinator, signed a facility agreement with the Urban Renewal Authority totaling HK$13 billion ($1.66 billion) to support its projects in Hong Kong.
To move in this direction, Hong Kong should capitalize on the opportunities arising from infrastructure projects in and outside the city. The related parties need to make thorough preparations to feel their full benefit.
The author is the former head of financial management (general manager) of Bank of China (Hong Kong), former director and deputy general manager of Nanyang Commercial Bank and an alternate director of Shanghai Commercial Bank.
The views do not necessarily reflect those of China Daily.
