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Moody's: Covid-19 to drive funding diversity for APAC infrastructure projects

KUALA LUMPUR (June 29): Funding for Asia-Pacific (APAC) infrastructure projects will become increasingly diversified in the "new normal" following the Covid-19 pandemic, according to a report by Moody's Investors Service.

In a statement today, the credit rating firm said this is because the sector's fundamentals will remain resilient, while projects will increasingly rely on institutional investors to meet funding needs.

"The Asia-Pacific infrastructure sector has so far proven itself mostly resilient to the impact of the coronavirus, with just 5% of the nearly 200 rated infrastructure companies having high exposure to the virus.

"However, financing volumes are likely to become constrained, as the private sector pulls back amid uncertain macroeconomic conditions and government containment measures, in turn triggering delays in infrastructure projects," it said.

The likely pressure on banks' loan books would reduce appetite among banks for incremental long-term financing to infrastructure sectors, it added.

Similarly, Moody's said, while multilateral development banks' funding have increased in response to the pandemic given their important role in mitigating the economic and financial impact, these banks were likely to focus on broader objectives than just infrastructure.

"Infrastructure needs, however, remain vast, with five factors driving long-term trends and demand, namely massive infrastructure financing needs including for climate resilience, technological disruption, lower interest rates that further enhance the attractiveness of infrastructure, as well as trade alignment.

“Another factor is the growing importance of environmental, social and governance risks to credit quality and investor decision-making," it said.

Senior vice-president Ray Tay said although the Covid-19 pandemic is unprecedented, the effect on funding diversity in infrastructure could be positive.

"We have observed in past crises that infrastructure financing volumes have generally risen above historical values post-crisis, and expect a similar trend following the pandemic," he said.

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