Funds worth R4.6-trillion target state projects
PRIVATE sector funds controlling R4.6-trillion are seeking ways to invest directly in government infrastructure programmes. The move by the Association for Savings & Investment South Africa (Asisa), whose members include asset managers, life insurance companies and other collective investment schemes, comes as concerns grow that the regulatory requirements of Basel 3 will choke off banks’ ability to fund infrastructure projects. Nicky Prins, the acting chief director of the national capital projects unit at the Treasury who with Asisa has convened a task team to “workshop and problem-solve” private sector involvement in infrastructure financing, said after a team meeting last week that “there was significant appetite from the private sector”. “It is not a question of the availability of finance but about capital allocation and how to access the opportunities,” said Ms Prins. Also speaking after the workshop, Asisa policy advisers Adré Smit and Stephen Smith said that “there was no shortage of capital” at present for infrastructure investments, which were “a good fit” for long-term investors. The initiative also comes after the African National Congress (ANC) withdrew a proposal tabled prior to its Mangaung conference last year, which suggested a policy of prescribed asset classes for pension funds and other collective investors, as a means of raising funds for government infrastructure.
The ANC retreated after talks with business in which an implicit commitment was made that such investments would occur voluntarily. The team has mapped out a nine-month programme of workshops, research and discussions aimed at identifying blockages and finding ways to address constraints. One of the constraints the private sector highlighted was that they need “to see what the pipeline is and what the bankable opportunities are”, said Ms Prins. “We are looking at what can be done to make this information more easily available. We also need to look at which projects generate revenue and thus lend themselves to ring-fenced financing arrangements, thus being suitable for private sector involvement.” The team is chaired by the Treasury and includes the Department of Public Enterprises, the Presidential Infrastructure Co-ordinating Commission, financial services union Sasbo, the Banking Association of South Africa, the South African Venture Capital and Private Equity Association, the Public Investment Corporation and Asisa. While government discussions hitherto had toyed with the idea of new instruments, these discussions were neither about specific projects nor specific instruments, the parties said. Based on experience and research by the Organisation for Economic Co-operation and Development (OECD), Asisa believes the emphasis should be on providing an environment for engagement between the government, banks and fund managers to explore their roles in all phases of projects from equity to the various levels of debt financing. “The private sector will find the instruments (as the projects come to market),” said Mr Smit. “It is more a case of how to get line of sight of the prospects, so we can see the cash flows, assess the risk and so on. “What one would ideally want is an informed framework.
Hybridized financing solutions will present themselves over time,” he said. A recent example of how this might work was the recent bidding processes for the generation of renewable energy. While banks were the major contact point with the suppliers of technology, these investments were quickly passed on to institutional investors. Mr Smit said that although the Basel 3 regulations were being phased in, experience in OECD countries showed that the increased capital requirement for banks were already causing congestion in the market. Banking Association of South Africa MD Cas Coovadia, who is also part of the task team, said the association was in constant contact with the banking regulator over the anticipated effect of the latest Basel regulations. “We believe we have a regulator who will be sensitive to this. It is nonetheless absolutely important for long-term investors to get involved in infrastructure financing. Banks prefer to be involved in the first seven years or so of the financing until the project develops a revenue stream and then the long-term investor can continue (the financing),” said Mr Coovadia. Improving the access to and attractiveness of infrastructure investments to both domestic and international long-term investors is vital, Mr Coovadia said. “What we must first move away from is the idea that the state (can fund the infrastructure programme) alone. So we need the private sector’s involvement.
Then, we don’t have sufficient savings in this country to do it alone. So that takes us into the realm of the attractiveness of the policy environment,” he said. The projected cost of the government’s infrastructure programme over the next 30 years is R4.3-trillion. The industry already holds R700bn in government bonds in, among others, Eskom, Transnet and the South African National Roads Agency. The idea now is to explore whether private sector investment in government infrastructure is possible in ways that do not necessarily follow the same model of the government taking on increasing levels of debt through the bond market.
