IE to back non-recourse bank loans to SMEs
More help for local SMEs keen to take up regional infrastructure projects
Asia is in dire need of more roads, railways and utility plants, and that means opportunities for Singapore companies in the lucrative infrastructure development sector.
But small and medium-sized enterprises (SMEs) keen on taking on infrastructure projects often find it tough to obtain the funds needed.
South-east Asia will need infrastructure investments of US$2.76 trillion (S$3.9 trillion) between 2016 and 2030, says the Asian Development Bank.
There will be plenty of small-scale projects valued at between $5m and $70m, said Minister for Trade and Industry (Industry) S. Iswaran during the Budget debate in Parliament in March.
"However, (SMEs') expansion is constrained by limited access to project financing for small projects. Typically, commercial lenders are less prepared to provide financing to SMEs unless they put up personal guarantees or recourse to the company's assets," he said.
In response, trade agency International Enterprise (IE) Singapore will soon provide backing for non-recourse bank loans to SMEs. These are loans secured only by the project assets and its cash flow, limiting the impact on a borrower in the event of a default.
"Companies will be able to finance a larger number of overseas infrastructure projects concurrently by taking up non-recourse financing at the post-construction phase - the stable operating phase of projects - to scale up their track record more quickly," IE Singapore environment and infrastructure solutions director Kow Juan Tiang explained to The Straits Times.
While there may be ample potential, funding access remains crucial - and sometimes elusive.
Memiontec, which made the news last year for a joint-venture project to build a water treatment plant in Jakarta, said banks look at factors such as costs and returns to assess bankability.
"When we do a project in an overseas market, there is always uncertainty... and banks have to do a lot of due diligence, which will cost money. If the project is too small, obviously it won't be bankable," Memiontec chief financial officer Roger Chua said.
United Overseas Bank's foreign direct investment (FDI) advisory unit head Sam Cheong said banks are always ready to help SMEs structure a feasible deal for both parties.
"Banking is about managing risks. So long as a company works with us to understand the risks and find ways to mitigate them, I don't think any bank will turn down a good project," he said.
Mr Cheong added that infrastructure financing is a "fast growing part" of the FDI business, which in six years has facilitated over $50 billion of investments and trade across South-east Asia by clients, including some 300 local firms.
It is not just the banks that can play a role, Mr Neo said, adding: "Singapore is building a vibrant infrastructure hub, with a growing number of infrastructure funds and foreign banks forming a complete eco-system. "
And it is not just the money that counts, said Memiontec's Mr Chua, noting that overseas partnerships and networks are also important for less resourceful SMEs.
Another way is through talent development support, IE Singapore's Mr Kow said. An upcoming Global Ready Infrastructure Talent programme will be rolled out by the Government and IE Singapore will give more details this quarter, he said.