SINGAPORE, Nov 28 (IFR) - Singapore-based Clifford Capital and the Asian Infrastructure Investment Bank have announced the establishment of Bayfront Infrastructure Management, a first-of-its-kind entity to mobilise institutional capital for infrastructure debt in Asia.
Clifford Capital, in which Singaporean state investment holding company Temasek Holdings has a 40.5% shareholding, will take a 70% stake in BIM and AIIB will hold 30%. BIM is expected to be capitalised at US$1.98bn, comprising US$180m in equity and US$1.8bn in debt issuance capacity.
BIM will acquire predominantly brownfield project and infrastructure loans from financial institutions, warehouse and manage them, before securitising them and issuing structured notes in the public markets.
That will free up banks' balance sheets, allowing them to finance new projects, as well as adding to the supply of paper for investors from a relatively new asset class.
Clifford Capital last year arranged Asia's first collateralised loan obligation backed by project finance borrowings, a US$458m multi-tranche transaction issued through Bayfront Infrastructure Capital.
Clive Kerner, CEO of Clifford Capital, described that trade as a "proof of concept" to test whether banks and investors would support an infrastructure take-out facility.
Future deals will be issued off the BIM entity, and are expected to appeal to a similar investor base as the BIC trade, which attracted global insurers, pension funds, endowments, bank treasuries and pension funds.
New issues are expected to be denominated mainly in US dollars, though Kerner said it is possible there could be some local currency issues, with a small carve-out allowing Australian dollar transactions.
Like BIC, the new entity will focus mainly on Asia and the Middle East, though there is flexibility to look at emerging markets like Africa and Latin America.
Clifford Capital is in discussions with the AIIB for the development bank to bring over its ESG principles.
"Renewables will become an increasing focus," said Kerner. "What we will need to see happen first is for the stock of greenfield renewable assets to be built up."
Singapore's government has agreed to guarantee BIM's debt issuance to allow it to acquire the loans, but the guarantee will not extend to securitised products sold to investors.
BIM has already begun discussions with 20 top project finance banks, and Kerner said these banks have been given a good idea of what kinds of assets the vehicle is seeking.
The AIIB's participation is not expected to prevent BIM from talking to other development banks.
It is also likely that BIM will acquire some loans from Clifford Capital, freeing up Clifford Capital's balance sheet and allowing it to scale up future investments.
BIM will invest in the equity tranches or vertical slices of its securitisation issues to align its interests with investors, though it might also consider allowing specialist investors to participate in the unrated subordinated tranches.
Work on the first issue is expected to begin in the first quarter of 2020 when BIM becomes operational. As in the BIC trade, BIM will acquire infrastructure loans and warehouse them while it works with rating agencies and bookrunners to structure a deal.
"The first transaction took 14 months to complete that process, but we expect it to be quicker this time," said Clifford Capital's Premod Thomas, who will be CEO of BIM.
The first CLO transaction could arrive as soon as Q1 2021, Thomas said, and BIM is expected to issue structured instruments every 12 to 15 months thereafter.
(Reporting by Daniel Stanton; Editing by Vincent Baby)
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