Multi-million financing set for Singapore firms expanding abroad

A so-called project finance company (PFC) will scour $400 million in annual funding for corporate overseas projects.

The PFC, which Temasek Holdings created and will include financial instituions like DBS, is dedicated to support the projects of Singapore-based corporations abroad.

The government said it will guarantee the debt instruments, which it deems a better alternative than injecting capital directly to the companies.

The PFC should be operational by the second half of the year.

"The demand for urban services and infrastructure in emerging markets is growing rapidly. Many of our companies are well-placed to benefit from these opportunities, in areas such as water and sanitation, and construction and engineering works," explained Finance Minister and DPM Tharman Shanmugaratnam in announcing the creation of the PFC.

"The PFC will aim to have about 80% of its portfolio comprising cross-border projects with significant Singapore-based corporate participation. Once it has built up its operations and market presence, the PFC is expected to provide about $400 million of financing annually, in turn catalysing an additional $2 billion to $3 billion of projects," he said.

"As with similar institutions internationally such as the EXIM banks, some government support is necessary to ensure its viability, whether in the form of direct government loans, capital injections or guarantees for fundraising by the institution. The Government has decided that the best approach is to provide a guarantee on the debt instruments issued by the PFC, rather than to get more directly involved in the business through capital injections or direct loans to the PFC. This more arms-length approach is a better way of ensuring commercial discipline and sustainability in this project finance company," he added.

"The guarantee will allow the PFC to raise funds competitively, and thereby also offer terms to our companies that will help them compete internationally on a more equal footing. However, losses on any of the loans made by the PFC will have to be met in the first instance from its overall revenues and the consortium's equity. This substantially reduces the risk of the guarantee being triggered," he said further.

For its part, participating PFC member DBS said in a statement: "The PFC is designed to address market gaps in project and structured asset-backed finance and support Singapore clients expanding overseas. With the burgeoning demand for infrastructure, energy and natural resource flows across Asia, companies are increasingly looking to invest in Asia’s growth through the development of large-scale projects."