Opening Keynote Address by Mr Kola Luu, Executive Director, Financial Markets Strategy Department, Monetary Authority of Singapore At Investment Opportunities in Indian Real Estate and Infrastructure 2007, 3rd April 2007, 9:10 am
Singapore as a Gateway into Investment Opportunities in India
Deputy High Commissioner, ladies and gentlemen,
1 Good morning. It gives me great pleasure this morning to have the opportunity to address such a distinguished group of experts and opinion leaders in the field of real estate and infrastructure. I would like to thank the organizer for putting together a conference to facilitate collaboration between business partners from Singapore and India in the fastest growing segments of the Indian economy. To our overseas guests, let me bid you a warm welcome to Singapore and hope you will have a wonderful experience in your short stay in Singapore.
2 India is at an exciting phase of its development. It makes this forum to explore the investment opportunities in India’s real estate and infrastructure markets both relevant and timely. India has enjoyed robust growth over the past decade, led by an increase in consumption and investments. Her economy is now among the five largest in the world by Gross Domestic Product based on purchasing power parity. And the outlook is positive for the next decade as her youthful and entrepreneurial population of 1.1 billion become more wealthy and urbanised. Not surprisingly, India has captured the attention of global investors, attracting a net equity portfolio investment of US$11.5 billion in 2006 according to the Institute of International Finance.
INDIA AND SINGAPORE TIES
3 India and Singapore has enjoyed strong economic linkages, and we expect this to continue. Bilateral trade has reached over S$19 billion per annum. This has been further strengthened with the Comprehensive Economic Co-operation Agreement (CECA) signed between our countries in 2005.
4 Underpinning these economic ties are deep private sector relationships. Indian companies are looking to grow overseas, and more often than not, they base themselves in Singapore for their Asian expansion. There are currently over 2,500 Indian companies operating in Singapore. And within the financial sector, Singapore has eight Indian banks, three capital market players and a growing cluster of leading Indian specialist fund managers such as Reliance Asset Management.
5 Such business relationships are also supported by the close cultural and personal friendships between residents of both countries. There are over 300,000 non-resident Indians who live and work in Singapore, of which many are employed in the financial sector.
SINGAPORE AS A GATEWAY IN PROPERTY AND INFRASTRUCTURE FINANCE
6 Given these ties, it is natural then that Singapore is playing an increasingly important role as a financial market for global investors to access India opportunities. The Singapore Exchange (SGX) has become the preferred listing location for Indian convertible bonds issued overseas. In 2006, Singapore also witnessed the first Indian index-linked Exchange Traded Fund in the world to be listed on the exchange here in SIngapore. And with a vibrant REIT market and the advent of listed infrastructure funds in Singapore, we have a unique value proposition for key real estate and infrastructure players in India to tap our capital markets to finance the rapid growth in the property and infrastructure assets in India.
7 The Indian Government’s Investment Commission is forecasting that over US$300 billion in investment will be required over the next five years in the infrastructure and property sectors in India. This demand is roughly equal to the total loans currently outstanding in the Indian banking sector. With the government’s intent to reduce its fiscal deficit, India will need to have access to private sector and overseas funding to finance its infrastructure and property sector.
8 The ability for project developers to attract global investors will be critical in sustaining the rapid growth in Indian economy. Obtaining adequate funding will be critical for India to achieve its projected growth rate as property and infrastructure assets form the foundation for economic development.
THE SINGAPORE REAL ESTATE INVESTMENT TRUST (REIT) MARKET
9 This is where Singapore’s innovative financial sector and its progressive regulatory framework is able to play a significant role. In Asia, Singapore was the first to introduce a regulatory regime for Real Estate Investment Trusts (REITs). The framework allows property developers to securitize their completed assets through tapping a different pool of investors: traditional fund managers are complemented by pension funds and insurance companies who are looking for higher yielding securities that have direct exposure to assets with strong and stable underlying cashflows. It also allows for companies to retain control and management of the assets, earn an annuity income and realize capital gain in order to re-invest into developing new properties. These are some of the reasons why REITs are very attractive to issuers.
10 The benefits to both issuers and investors are apparent. And this can be seen in the growth of the REITs market in Singapore. From our first listing in 2002, the Singapore REITs market has developed to become the largest in Asia outside of Japan. Singapore currently has 15 listed REITs with a total market capitalisation of about S$26 billion. The success of the REITs market here is partly attributable to our established and robust, and yet pro-business regulatory framework and competitive tax regime, which has gained the attention and interest of global investors.
11 Global fund managers and high net worth individuals attach significant value to the quality of our governance, so much so that our market is attracting not just the securitization of Singapore properties but foreign assets as well. For example, the last three property trusts listed in Singapore consisted entirely of overseas assets from Australia, China and Indonesia separately. More property trusts with offshore assets are in the pipeline including from India.
12 The combined Indian commercial and residential real estate market, is estimated to have turnover of about US$12 billion in 2005, or around 2% of the country’s GDP. And it is getting larger. As more outsourcing services move to India from the United States and Europe, the demand for integrated industrial, retail and commercial parks will increase. Similarly, as rapid urbanization continues, the demand for A-grade office property will increase. The opportunities then exist for such developers to securitize their completed assets at full value through a REITs offering in Singapore, and realize capital to be re-invested in new projects in India.
THE SINGAPORE INFRASTRUCTURE FUND MARKET
13 Similarly, the opportunity also exists for infrastructure developers to utilize a trust structure to realise full value for completed assets.
14 MAS introduced the Business Trust Act in 2004 and the infrastructure finance tax incentive last year. In February, Singapore saw the listing of CitySpring Infrastructure Trust, our first infrastructure business trust utilizing both the legislation and incentive. This complements two other landmark transactions in 2005. Firstly, the listing of Macquarie International Infrastructure Fund, Asia’s first infrastructure fund. Secondly, the pioneer concurrent dual-listing of a stapled infrastructure trust and company called SP Ausnet related to Singapore power used the Business Trust structure to securitize Australian Assets on the Australian Stock Exchange as well as the SGX.
15 Again, the market in Singapore provides the opportunity for Indian infrastructure developers to securitize their assets utilizing our unique, trusted frameworks. The demand for Indian infrastructure assets we believe will be growing at a more rapid pace than the property sector in India. With ambitious high profile projects such as the Golden Quadrilateral, which links India’s four main cities, and the revamping of the Mumbai and Delhi airports, more foreign capital will be required. Alternative funding sources such as the securitization of infrastructure projects via funds or trusts will be required to cope with this demand, and this is where we see Singapore acting as a gateway to capital raising for Indian Real Estate and Infrastructure players.
SPECIALIZED FUND MANAGERS AND INVESTORS IN SINGAPORE
16 As the REIT and infrastructure fund markets continue to develop in Singapore, the community of specialized fund managers and investors will grow. Singapore is a leading home for global fund managers with total assets under management exceeding S$720 billion, and in private banking, assets have grown to more than S$330 billion as at the end of 2005. Among this community, real estate and infrastructure are rapidly gaining traction as a new class of asset.
17 The rise of real estate and infrastructure as an asset class has drawn significant interest from specialized fund managers to base in Singapore. For example, since the start of this year alone, two global leaders in the real estate and infrastructure funds management – Babcock & Brown and AMP Capital – have formally opened their Singapore offices to service the Asian region. And such interests are not limited to investments in publicly listed structures but also investment via the private placement market.
PROJECT SPONSORS IN SINGAPORE
18 Adding to the depth and breath of the real estate and infrastructure sector in Singapore is the presence of large project sponsors that are aggressively pursuing opportunities in the region, including investment opportunities in India. Key real estate players such as CapitaLand, City Development, Ascendas and Mapletree are household names in the Asia Pacific region. Regional infrastructure players such as Sembcorp, Keppel, Changi Airports and Hyflux are also keenly pursuing business partners for major projects. They are complemented by multinational infrastructure developers such as International Power, AES and Conergy which have their Asian headquarters in Singapore.
THE SINGAPORE PROJECT FINANCE INDUSTRY
19 Lastly, Singapore is able to bridge the funding gap in infrastructure and property finance via the banks which are located here. Singapore is the base for sizeable project finance teams of global financial institutions such as Standard Chartered, Mizuho, BNP, Bank of Tokyo-Mitsubishi just to name a few. These teams advise finance infrastructure and property assets across the entire region including India.
20 Hence, Singapore provides Indian companies a strong value proposition as a gateway to raise global capital. Specifically, we believe there is an alternative for Indian companies to reach global investors via Singapore - the ability to finance via a trust or fund structure to tap a different pool of investors, the base to access specialist fund managers and investors, and the expertise of project sponsors and financiers for infrastructure and property projects.
21 The opportunities hence are tremendous. I welcome you to this conference, and wish all participants a productive and enriching experience ahead.