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Asian project finance: Thin pickings in a buoyant market

Throughout Asia, borrowers are exploring new ways of financing the region's huge infrastructure needs. But fierce competition is keeping margins down for the banks on the bandwagon. Norman Peagam reports

In a year of record international bond issues, one unusual recent offering attracted little attention. In August, the Chinese coastal city of Zhuhai raised $200 million through a private placement backed by municipal highway revenues. Modelled on a technique often used in US local government finance, it was the first Asian revenue bond and the first Chinese bond issue with a high-yield tranche, according to sole manager Morgan Stanley. The proceeds will be used to help finance infrastructure development. Hailing the transaction as a milestone, a spokesman says the firm sees "select opportunities" to use the technique elsewhere in the region.

Multilateral agencies such as the World Bank estimate that Asia needs around $1.5 trillion of power, telecommunications and transportation capacity over the next decade to cope with rapid population growth and remove bottlenecks to economic expansion. Unable to foot the bill themselves, governments are turning to the private sector for help, encouraging local and foreign investors to provide services which until recently were considered the exclusive responsibility of the state. They, in turn, are tapping the domestic and international markets for debt and equity capital to finance these projects.

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