• New Source of Funding - ASEAN Infrastructure Fund (AIF)
  • January 10, 2012
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • Introduction
    Sponsors looking to develop infrastructure projects in South East Asia will soon have a new source of funding available to them. The governments of 10 South East Asian countries (Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Myanmar, Cambodia, Laos and Vietnam) have recently collaborated with the Asian Development Bank (ADB) in order to establish the ASEAN Infrastructure Fund (the AIF), in an effort to increase investment in infrastructure in the region.

    Infrastructure deficit
    The ADB has estimated that Association of South East Asian Nations (ASEAN) countries will need to invest approximately $60 billion per year in infrastructure in order to address current deficiencies. Vast expenditure will be needed in numerous sectors including roads, railways, ports, energy, water and sanitation in order to allow ASEAN countries to reduce the infrastructure deficit, support growth and promote regional economic integration.

    An ASEAN solution
    The AIF seeks to address these issues, as well as making use of the substantial foreign exchange reserves which ASEAN countries possess but generally invest outside of the ASEAN region and Asia.

    The initial equity of the AIF will be US$485 million, which will be funded by the ASEAN countries (US$335 million) and the ADB (US$150 million). The AIF is expected to lend up to US$4 billion by 2020. With projected 70 per cent co-financing by ADB, it is expected to leverage more than US$13 billion in infrastructure financing by 2020.

    The AIF is expected to finance around six new infrastructure projects in the region each year. Several ASEAN countries have already announced that they intend to apply for AIF financing, including an Indonesian shipping lane project and a cross-border power grid project in Indonesia and Malaysia.

    Our view
    In the current economic conditions where there is a lack of liquidity in the debt markets for the number of competing projects in the region, the ability of the AIF, together with ADB, to fund necessary projects will be very welcome to sponsors and governments alike. We expect that over the coming years, with the strong political backing of the ASEAN nations, the AIF will be a lead player in the funding and development of a wide variety of infrastructure projects in South East Asia.