Incentives to Encourage Development of Infrastructure Finance
Singapore, 16 September 2006...Minister for Education and Second Minister for Finance Tharman Shanmugaratnam announced that Singapore will introduce a set of incentives aimed at catalysing the growth of project finance through Singapore's capital markets, and meeting the demand for infrastructure funding in the region.
2 The incentives include the following:
a. Tax exemption will be granted to investors on the interest income they derive from bonds issued to finance qualifying infrastructure projects. This is aimed at stimulating investor interest in project bonds.
b. Tax exemption will be given on interest received from overseas by infrastructure funds or other entities listed on the SGX, which are engaged in offshore infrastructure projects. This is aimed at encouraging investment in infrastructure projects in the region.
c. To better service regional funding needs, Singapore will tax income received from providing project advisory services, and from arranging, underwriting and distributing project bonds at a favourable concessionary tax rate. This will help grow the pool of project finance professionals with the requisite financing and structuring skills that are critical to the development of a vibrant infrastructure finance market.
3 Speaking at the International Institute of Finance (IIF)-ASEAN Finance Ministers Forum, Mr Shanmugaratnam said that there was a major need and opportunity to develop corporate bond markets in the region in coming years. Financing for infrastructure projects was overly dependent on bank lending. The region will benefit from diversifying sources of infrastructure finance from loans to the bond market.
4 He added that there were lessons from the experience of developed capital markets which were relevant. Infrastructure funds have emerged as a separate asset class in the portfolio of global pension funds and insurance companies in developed countries. This is because they provide investors with a convenient way to own part of a professionally managed portfolio of infrastructure assets, and to receive a stable and predictable flow of income from those assets. Likewise, project bonds, used to fund long term infrastructure projects, were flourishing in the developed capital markets. Mr Shanmugaratnam said, "Singapore wants to catalyse the markets for funding infrastructure projects in the region".
5 The Monetary Authority of Singapore and the Ministry of Finance will announce further details of the infrastructure financing incentives before the end of October.
Note to Editors:
The need for infrastructure financing
Asia is experiencing explosive infrastructure demand as a result of rapid urbanisation. In addition, increasing need for infrastructure investments is underlined by the low access of infrastructure services in the region. Estimates of the potential market size for ASEAN infrastructure services excluding Singapore from 2006 to 2010 have been estimated between US$50 and 60 billion.
The need for financing remains significant, for instance, in countries such as Indonesia, Philippines and Vietnam have seen significant growth in funding requirements for infrastructure projects in electricity, water and waste management, roads, ports and telecommunication.
The capital markets are a natural source of funding for such infrastructure projects financing because it is able to match long-term project cash flows with investors' objectives.