Making sense of Belt and Road – The institutional investor: Macquarie
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Making sense of Belt and Road – The institutional investor: Macquarie

Policy bank money is fine, to a point, but if China really wants an infrastructure plan to change the world, it is going to need private sector money to join the party. It is going to need names like Macquarie, historically thought of as an investment bank (which it still is), but today also one of the world’s largest infrastructure investors.



Ben Way is the chief executive of Macquarie Group Asia and the co-head of Macquarie Infrastructure and Real Assets for Asia Pacific, based in Hong Kong.

Is Belt and Road providing opportunity today? “I wouldn’t say right this minute it is presenting a lot of investable opportunities for us,” says Way.

Using an earlier name for the Belt and Road Initiative, he adds: “We have invested heavily in being part of the One Belt, One Road (OBOR) dialogue – I am a huge believer in it, I think it makes absolute sense – but the practical implementation of Xi’s vision has taken a little longer than he would have liked to catch up.

“That’s to be expected when you’re trying to move not just a country but a region to a new phase, on a journey it has never been on before.”

Way presents an environment with plenty of discussion taking place, but little that is investable – yet. “A good example is that the first slate of OBOR projects were in Pakistan,” he says. “I think that’s fantastic, personally: obviously Pakistan needs better infrastructure and it would enable economic development.

“But the stark reality is, I don’t know an institutional investor in the world today, be they Chinese, Dutch, Canadian, Middle Eastern or Australian, who would feel comfortable going to their investment board and saying: ‘We’re going to put $100 million in a toll road in Pakistan.’”

Bridging this gap between infrastructure need and institutional comfort will be key.

“That is the biggest dilemma at this point,” says Way. “How will it be overcome?” One way is through continued development of PPP frameworks, “but they will probably need to bear more risk than they currently do in a number of these cases.”


He looks to Macquarie’s experience in South Korea as an example of how big institutions can be coaxed into taking part in a market they might otherwise have shunned.

“The infrastructure around Seoul was poor at best and the government needed to connect the city if it wanted to be an export economy,” he says. “It did that by attracting investors like ourselves with toll road and tunnel projects that came with minimum revenue guaranteed, so we were buying the credit of South Korea itself.”

Now, when Korea builds infrastructure, its risk profile is completely different because institutional investors have a track record of successful projects.

Ben Way, Macquarie
Group Asia

“It’s gone through waves of building, proof of concept and attracting capital. That’s what needs to happen to broaden the pool of capital that is going to become active in Belt and Road projects. “I’m pretty positive it will occur,” he says. “But it won’t be linear. The smarter governments in the region will get there quicker and will create lots of opportunities for people like ourselves.”

Way was in Thailand recently, where 45 to 50 Belt and Road projects have been identified. Going through the list, he finds a range of options. For example, Way says Macquarie would probably avoid the high-speed rail project envisaged to connect Kunming, in China, to Bangkok. It is too complicated, involving cross-border approvals, land approvals, land clearing and offering the modest rate of return common in high-speed railway projects generally. “So we wouldn’t do that,” he says.

“But the northeast corridor, where they are developing new logistics zones, new port developments, linking roads and water infrastructure – that could be very attractive. There is a good opportunity to mix local and international capital in good scale projects. If the government gets the regulatory framework and tender process right, it could create interesting opportunities for people like ourselves.” Way has no doubt that he and other institutional investors are going to be needed. “It depends whose numbers you use, but my sense is that this region has about $10 trillion of infrastructure needs to enable its urbanization and economic development in the next 10 years. There is a funding gap of $2 trillion to $4 trillion.

“AIIB [Asian Infrastructure Investment Bank] and the Silk Road Fund are great and helpful. But a lot of infrastructure in these emerging countries can’t be funded by the government: they don’t have the balance sheet and they don’t have deep insurance and pension fund markets. They are just not going to get there if they don’t bring in institutional capital.”

And that capital needs to be courted.

“While there is a huge amount of capital building up, there is only ever going to be a finite amount that wants to engage with greenfield infrastructure in Asia,” Way says. “If you are fighting for that capital, you need to come up with a smart, international-standard programme. You’re going to have to share the risk.”

'Clear rules'

Way wants to see “transparent, clear, open tender processes. We want to win concession opportunities in a way where it feels like it’s been rewarded under clear rules of engagement.”

He adds that local capital will be vital and must be encouraged through revamped regulation that helps pension funds or insurance companies locally to invest in infrastructure. “The best capital to invest in projects is local capital, because there is no currency risk and the understanding of local risk is better.”

Way adds that projects need to be of a certain size to be attractive and that there must be a path to exit. “We need to know that within an acceptable period, should we choose to liquidate, we may exit,” he says.

“That might be selling internationally or even a listing, but we need to have some flexibility.”

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