28 October 2016
China can finance projects under the "One Belt, One Road" initiative by issuing bonds or equities. Photo: CNSA
China can finance projects under the "One Belt, One Road" initiative by issuing bonds or equities. Photo: CNSA

How private equity funds can support OBOR financing

The “One Belt, One Road” (OBOR) initiative involves many big infrastructure projects with long payback period and high risks.

So far, most of the funds are from government-backed institutions while private money is barely seen.

However, it is necessary for China to finance the projects by issuing bonds or equities, allowing the private sector to share the heavy financing pressure.

As we mentioned before, the bond market in Hong Kong can be a good channel to raise the funds.

Meanwhile, as the second-largest private equity hub in Asia, the city can also provide PE financing for the initiative. In Asia, PEs are commonly engaged in financing for the infrastructure, logistics and energy sectors.

For the projects with commercial feasibility, PE is an ideal way to raise the funds, as the participation of private money would help improve operational efficiency and diversify risks.

The total assets under management of Asian PE funds climbed to US$546 billion in 2014 from only US$31 billion in 1994, PwC data shows.

From 2009 to 2014, one-third of the money went to investments in the infrastructure, logistics and energy sectors.

Hong Kong also has an active stock market, offering investors a broader way to quit. In 2013, among the PE or venture capital backed companies that planned to launch initial public offerings, 13 chose to list in Hong Kong.

The city, compared with London, Singapore and other financial centers, understands Asia and mainland China better.

To attract more PE funds to do business in Hong Kong, the government last year extended the tax exemption of offshore funds to offshore PE funds. The policy is favorable for PEs to participate in OBOR projects.

There’s no doubt Hong Kong is an ideal platform for OBOR to raise funds via PEs.

The city’s PEs can benefit by expanding their operations to ASEAN countries as well as eastern and western Europe.

This article appeared in the Hong Kong Economic Journal on March 9.

Translation by Myssie You

[Chinese version 中文版]

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General Manager of HSBC Group and the CEO of The Hongkong and Shanghai Banking Corporation Limited, Asia-Pacific

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