Methodology and Data

This empirical analysis uses data from Thomson One Banker for project information on bank-financed infrastructure PPP deals from 2011 to 2016 in India, Indonesia, Malaysia, the Philippines, the Republic of Korea, Thailand, and Viet Nam. For a project to be included in the dataset, complete information on project name, type, and sector; financial close date; cost; gearing ratio; and borrower name is required. After excluding five all equity-financed projects, the dataset yields 483 projects. Their combined costs total $163.3 billion, with total project debt (calculated by multiplying the cost of a project by its gearing ratio) of $133.3 billion. This corresponds to an average gearing ratio of 82%, which confirms the highly leveraged nature of project finance transactions in the seven Asian countries. Data from Thomson One Banker are then retrieved on loan characteristics (tranches); these include loan amount, maturity, currency, type of security, and banks (mandated arrangers by ultimate parent). The data show that projects are typically funded by more than one tranche, and only information for term loans is retained. The reason is that the tranches of syndicated financing are allocated for construction, and thus capture the essence of projects to support long-term infrastructure investments. Based on this information, consistent data on 413 projects funded by 108 unique banks through 626 term loans are extracted.

Next, data on bank balance sheet items for mandated arrangers are taken from Orbis Bank Focus. These include (i) the tier 1 capital ratio as a proxy for capital adequacy, (ii) the return of average assets as a proxy for earnings quality, (iii) loans (over total assets) and impaired loans (over gross loans) as proxies for asset quality, (iv) the ratio of liquid to total assets as a proxy for liquidity, and (v) the ratio of cost to income as a proxy for efficiency. Balance sheet items are measured during the same year as the project's financial close. The quality of balance sheet information varies across items. While the return on average assets and the ratio of cost to income are reported by most banks (82%), the tier 1 capital ratio is available for a smaller set of banks (60% of observations). Since no information about each arranger's participation in a loan tranche is available, it is assumed that banks take equal shares in providing funds.4 Thus, for each project, the balance sheet items of banks are syndicate averages of bank-level items.5 At this stage, loans (and therefore projects), for which balance sheet items are unavailable for all the banks in the syndicate, are removed from the sample. The final sample consists of 244 projects funded by 88 unique banks through 367 loans. These projects represent about 45% of the sample in terms of the total project cost of $74.4 billion and total debt of $57.2 billion.

Table 4.1 breaks down these projects by country, with India accounting for the largest number of projects in the dataset. In terms of economic value, however, country representation differs when considering the number of projects. While India still accounts for almost 50% of total project companies and project debt, the size of projects financed in Indonesia and Viet Nam are, on average, significantly larger.

Table 4.1: Project Finance Deals by Country

Source: Author's estimates, based on Thomson One Banker.

Based on the description in Thomson One Banker, the 244 projects are grouped into five sectors. The sector classification in Table 4.2 shows that energy accounts for most projects, followed by transport, mining, and oil and gas. While there are relatively few manufacturing projects, their average size in terms of cost and debt is significantly larger than projects in other sectors. Consequently, manufacturing accounts for about 25% of total cost of the sample projects.

Table 4.2: Project Finance Deals by Sector

PPP = public-private partnership.

Note: Most infrastructure PPP projects are project financed, but it is not the case that most project finance deals are for infrastructure PPP projects.

Source: Author's estimates, based on Thomson One Banker.

Most projects are financed by a single bank. About 25% of projects in the sample have two mandated arrangers. Overall, there are 90 unique syndicates, of which 16 are single banks. Table 4.3 shows the rankings for the top 10 banks in terms of projects funded and debt composition. The leading bank for project lending is Thailand's Kasikornbank PCL, which financed 54 projects (21 of them as single financer). State Bank of India was the next most-active bank, participating in 43 deals, 34 of them as single financier. In terms of economic value, State Bank of India alone accounts for 24% of total debt in the sample. The involvement of banks headquartered outside the target countries was more limited, with only three banks-Mitsubishi UFJ Financial Group Inc., Standard Chartered Bank PLC, and Sumitomo Mitsui Financial Group Inc.- making it in the rankings.

Table 4.3: Project Finance Deals by Ranking

IDBI = Industrial Development Bank of India, UFJ = United Financial of Japan.

Source: Author's estimates, based on Thomson One Banker.

The descriptive statistics of project-level variables in Table 4.4 show the average project cost in the sample at $304 million, a gearing ratio of 86.94%, and an original maturity of about 13 years. In the average project, two banks commit funding by 1.5 term loans. For the composition of syndicates, bilateral and multilateral development banks take part, on average, in one out of 10 projects.6 Within each syndicate, about 85% of mandated arrangers are local banks in the country where the project is financed.

Table 4.4: Project-Level Descriptive Statistics
for Developing Asian Markets

EW = equally weighted, MDB = multilateral development bank, NPL = nonperforming loan,

ROAA = return on average assets.

Source: Author's estimates, based on Thomson One Banker.

The data shows that local banks have a strong arranger certification requirement for infrastructure, particularly for international and nonlocal lenders that may find it hard to invest in these projects without leveraging on market knowledge provided by the local-mandated lead arranger. Seventy-five percent of projects are financed in local currency; debt financing for the rest involves foreign currency for at least one tranche. The typical arranger in the sample shows a solid tier 1 level of about 12%, but relatively low profitability, as measured by a return on average assets of 1.22%. Loans and liquidity account for almost 70% of total assets, and the loan portfolio shows a relatively low degree of riskiness (2.8%). Efficiency in terms of the cost-income ratio is about 54%.

As shown in the literature review, factors influencing bank lending also include macroeconomic and country risk factors. The dataset is complemented with country variables that proxy for economic and institutional conditions. Specifically, gross domestic product (GDP) per capita is used as a proxy for market conditions, inflation for macroeconomic stability, and government debt for government indebtedness, which is also indicative of country risk. Indicators of political stability and regulatory quality-taken from the World Bank's Worldwide Governance Indicators-are also considered, since both the political environment and institutional quality may affect PPP investments. Country investment in infrastructure PPPs (as a percentage of GDP) is included as an indicator of project finance experience that may favor the financing of these projects; this data comes from the World Bank's Private Participation in Infrastructure Database. Appendix A4.1, Table A4.1.1 details the variables and the data sources used in this study.