SINGAPORE (Oct 28): Newly independent Singapore found itself in a fix when it wanted to take the next step up in the shipping business, having already proven itself as an entrepôt.
It was 1966, and when it tried to build its first container terminal at Tanjong Pagar, the island republic found that it did not have sufficient funds to undertake what was supposed to be the first mega infrastructure project in Southeast Asia.
With money from public coffers needed to fund the whole gamut of spending, from housing to utilities to defence, the government found that the terminal, sited adjacent to the central business district, could only be built with debt.
Singapore persuaded the World Bank to help fund the project, but the Washington-based lender considered the project “too far-fetched”, as none of the container shipping lines at that time were plying the Europe-Far East route.
After lengthy discussions, though, a $45 million loan was disbursed, and on June 23, 1972, the terminal welcomed its first “customer”, the container ship MV Nihon.
In the years to come, thousands more vessels would follow its path. As the volume of containers surged, more terminals were built, drawing to Singapore the whole chain of supporting businesses and services in financing, logistics, insurance and so on.
Indeed, without that early funding for the terminal, the Singapore story would have turned out quite differently.
Fifty years on, the city state has become a prime example of how infrastructure can help generate economic growth. Its port and airport contribute 13% of the country’s GDP, and when the World Economic Forum ranked Singapore as the most competitive economy, its infrastructure score was the highest among the 12 categories weighed.
Fifty years on, Singapore stands ready to help countries that want to build a Tanjong Pagar terminal or Changi International Airport of their own.
To this end, a government agency called Infrastructure Asia — headed by former banker Seth Tan — has spent the better part of last year talking to potential partners and project owners. IA, a joint venture between Enterprise Singapore and the Monetary Authority of Singapore, advises on the viability of projects and helps bring in contractors and financiers.
One partner that IA works closely with is regional urban and infrastructure builder Surbana Jurong, which can trace its genesis to the building and development unit of Singapore’s Housing Development Board.
IA’s goal is not just to expand the market for Singapore-based banks to bulk up their loan books. It aims to help Singapore’s neighbours grow by building sound infrastructure so that local companies have a bigger and more prosperous regional customer base to market to.
At a more basic level, infrastructure spending creates business opportunities. Many analysts, consultancies and institutions have tried to estimate the size of infrastructure spending in Asia. Although they cannot agree on the exact figure, they agree that billions, if not trillions, of dollars will be needed in the coming decades. The Global Infrastructure Hub, a G20 initiative to increase the flow and quality of infrastructure projects worldwide, for example, expects Asia’s infrastructure investments through 2040 to hit US$51 trillion ($70.7 trillion).
From The Edge Singapore’s own screening, two listed companies stand out among the diverse field of regional infrastructure plays: Hong Kong-listed Yuexiu Transport Infrastructure and NWS Holdings.
The former is a toll collector operating mainly in China’s Guangdong province. It has better cash flow and yield than many other players in the same space. For example, its earnings yield, operating cash flow yield, free cash flow yield and dividend yield are 11.1%, 24.6%, 22.3% and 5.7% respectively — handsomely beating China’s overall risk-free rate of 3.2%.
NWS, on the other hand, is a 61%-held subsidiary of Hong Kong conglomerate New World Development. Founded by the late Cheng Yu-tung, the business empire includes the Chow Tai Fook jewellery chain.
NWS operates toll roads and builds and owns water treatment and solar power plants. It also manages ports and warehouses. NWS is trading at price-to-book and price-to-NTA ratios of 0.82 and 1.01 times respectively. Its other metrics such as return on assets and return on equity rank high too.
The caveat emptor, though, is that behind the massive headline numbers on infrastructure spending, there are many developments that have sputtered, fallen short of expectations or were simply abandoned — for a variety of reasons ranging from poor planning to cronyism and trophy projects.
One example is China’s ambitious Belt and Road Initiative. Although proponents list the new ports, rails and roads being built with Chinese money, detractors point to those that have accepted Chinese financing and ended up saddled with debt and beholden to a superpower.
Undeniably, infrastructure projects will be an important growth engine for countries in Asia. And, if Singapore can play a leading role as an infrastructure financing and facilitating hub, the region should be a more prosperous — and safer — place for all.
