Securities Commission Malaysia – World Bank Conference - Islamic Finance and Public-Private Partnership (PPP) for Infrastructure Development
9 May 2017   |   By : Tan Sri Dato’ Seri Ranjit Ajit Singh, Chairman Securities Commission Malaysia

Welcome Remarks 

by YBhg Tan Sri Dato’ Seri Ranjit Ajit Singh Chairman, Securities Commission Malaysia 

Securities Commission Malaysia – World Bank Conference 

“Islamic Finance and Public-Private Partnership (PPP) for Infrastructure Development”

Mr Laurence Carter, Senior Director of the Public-Private Partnerships Group of the World Bank Group, 
Distinguished guests, 
Members of the media, 
Ladies and gentlemen,

  1. A very good morning to everyone. It is with great pleasure for me to warmly welcome you to the Securities Commission Malaysia – World Bank Conference on Islamic finance and Public Private Partnerships (PPP) for infrastructure development. To all our foreign guests may I extend a warm welcome to Malaysia. Let me also thank all the speakers who have kindly accepted our invitation to speak at this event. 
  2. I would like to sincerely thank the World Bank Group for their generous support and excellent collaboration with the SC in bringing to fruition this significant event. This conference marks yet another milestone of the excellent working relationship that the SC has had with the World Bank Group over the years. The conference brings together a top list of experts, professionals and stakeholders to generate discussions on how infrastructure development can be sustained and supported through Islamic finance as well as public-private partnership (PPP) frameworks, and the ways in which policy, legal, regulatory and institutional interventions can facilitate this.

The need for infrastructure financing

Ladies and gentlemen, 

  1. This conference is happening at a timely stage. The world is moving towards a broader economic recovery, on the back of a cyclical improvement in commodity prices and stronger market sentiment. In both advanced and emerging economies, the focus of the day has predicated upon how economic activity and productivity can be sustained in a steady, lasting and inclusive manner. A key component of this agenda is to ensure that public infrastructure is adequate and sufficient for the country’s growth needs. 
  2. Indeed, reliable and well-functioning energy sources, telecommunication networks, clean water supply, and transportation connectivity, whether by land, air or sea, are basic essentials of a productive and competitive economy as well as that of a modern, civilised society. Good quality infrastructure not only promotes economic and social development by cultivating and linking sources of supply and demand, but also lays the foundation for such growth to be shared through local and regional connectivity. 
  3. The Organisation for Economic Co-operation and Development (OECD) estimates that over USD $80 trillion of global infrastructure investments are needed up till 2030. The demand for infrastructure is particularly acute in Asia, where it’s estimated USD $26 trillion worth of infrastructure investment is required from 2016 to 2030.

Market-based financing and challenges in fulfilling infrastructure financing needs

  1. Therein lies the challenge, and indeed the impetus for today’s conference – this critical imperative for infrastructure financing is not so much about securing the required quantum of investment as it is about successfully bridging the gap between the demand and supply of capital. 
  2. We have over the years seen an increasing emphasis and reliance being placed on capital markets as a source of financing, partly this is a consequence of the structural shifts which have occurred in the banking sector in the past decade. In an environment where investors are searching for higher yields and there is a sharpening focus on alternative asset classes, the infrastructure asset class potentially offers consistent income streams, and diversification of opportunities through its low sensitivity to business cycles as well as low correlations to other asset classes. 
  3. On the other hand, infrastructure assets also possess unique features which may make the matching of investment demand and capital supply a challenging task. Most infrastructure assets only begin to generate cash flows after some years, with earlier phases of the development bearing high risks which may include construction, operational, legal, regulatory and sometimes political risks. 
  4. They are also often complex in legal and financing structure. A key concern for both governments and private investors alike is the configuration of PPP projects through legal contracts and financing structures which will distribute the relevant risks and returns in a manner which is fair for all parties involved and more importantly incentivises good operational performance. 
  5. The influence of these challenges is real, and is reflected today in the relatively low levels of private investor partnership in infrastructure projects. While there has historically been a strong uptake of publicly listed infrastructure stocks and bonds amongst investors, there remains significant headroom for the involvement of private capital, especially in the East Asia Pacific region, where private investor participation of around 0.1% of GDP falls well below the global average of 0.6% of GDP.

Ladies and gentlemen,

Islamic Capital Market and infrastructure: the Malaysian experience 

  1. The utilisation of market-based financing is one way in which Malaysia has managed its infrastructure development needs, with the first PPP project launched more than three decades ago. These projects were supported by the long-term financing capabilities of Malaysia’s established and vibrant bond market – the 3rd largest today as a percentage of GDP in Asia today. This has contributed to more than half of the private-sector infrastructure investments since the early 1990s. 
  2. Over the decades, Malaysia has been able to diversify its market-based funding avenues through the development of its Islamic capital market segment. The Securities Commission Malaysia has long recognised the promising potential of sukuk, given its asset-based and risk-sharing nature, as an alternative asset class for large-scale long-term financing. Coupled with its ability to be combined with support and guarantee features which allow for the alleviation and management of risk, sukuk structures are particularly apt for infrastructure financing. 
  3. The SC has worked over the years put into place initiatives to create a facilitative ecosystem for the sukuk industry to develop, ranging from tax incentives, creating a facilitative approval process and supportive regulatory framework. These initiatives were intended to allow sukuk issuers to enjoy greater efficiency in costs and time-to-market, as well as creating greater flexibility in innovative structures. 
  4. Today, the Malaysian sukuk market accounts for 46.4% of the world’s sukuk issuances as well as 52.6% of outstanding sukuk globally. Our pools of institutional funds, as well as the growing Islamic fund management industry, which is the second largest in the world, provides ample liquidity for the sukuk market’s continued growth. The size and depth of Malaysia’s sukuk market has allowed it to carve a further niche – 61% of the world’s infrastructure sukuk was issued in Malaysia. 
  5. These efforts have paid off for Malaysia whose quality of infrastructure and attractiveness as a venue for infrastructure investment has received international recognition. 
  6. Building upon such recognition, the SC has embarked on further efforts to expand the range of sukuk structures as well as attract new market participants. Initiatives such as the Islamic Fund and Wealth Management Blueprint as well as the first-ever SRI Sukuk Framework incorporate a focus on a growing trend – ethical and green investing – which is synergistic with the principles of Islamic finance and investment. Today, an increasing number of infrastructure project issuers are considering the issuance of green bonds and sukuk to tap into this emerging demand.

Ladies and gentlemen,

Regional efforts: Malaysia’s leadership role 

  1. For the SC, these initiatives are part of an ongoing agenda we have which also extends to promoting infrastructure financing beyond our domestic borders and within the region. In an increasingly competitive global landscape, the ASEAN region must ensure that it is well-equipped, not only to optimise its economic potential, but also to ensure that progress occurs in an inclusive manner. There is, for example, a real need for enhancements of transportation linkages and telecommunication penetration to enable a freer intra- and inter-regional flow of trade, commerce and investment.
  2. The ASEAN Capital Markets Forum (ACMF) is mindful of the benefit of facilitating cross-border investment to fulfill the region’s infrastructure needs and the importance of close collaboration in achieving that outcome. The ACMF, which I chair, has encouraged cross-border equity and bond offerings through the introduction of facilitative frameworks for such offerings.
  3. A priority in the near term is to further advance connectivity among the region’s bond markets. One such initiative that the ACMF is working on is the work we are doing in the ASEAN Infrastructure Fund (AIF), an innovative investment vehicle designed to mobilise ASEAN’s very significant and deep pool of savings to fulfill the large infrastructure financing needs of the region. There is much work to be done in this area. The AIF is a regional partnership between the ASEAN member countries and a multilateral development bank, focusing on critical infrastructure in countries with developmental gaps. We envisage the AIF to eventually encourage greater private sector participation in regional infrastructure development through debt issuances via the capital market, the proceeds of which will be directly channeled to PPP projects as private investments.
  4. These supplement other regional initiatives such as the Asian Bond Market Initiative (ABMI), whose work has entailed improving market infrastructure, as well as demand for local-currency denominated bonds through enhancements to credit guarantee facilities and availability of market information.

Ladies and gentlemen,

The value of collaborating with multilateral development banks

  1. The initiatives I have just described are but a few of the many illustrations of the unique value and significant impact that multilateral development banks (MDBs) can bring to any nation and indeed, the world at large. With their rich portfolio of technical expertise and operational experience spanning many jurisdictions of various developmental stages, MDBs such as the World Bank Group provide investors with the assurance and confidence that a project will be designed, implemented and delivered with efficiency and in accordance to global best practices. This sharing of knowhow also translates into cultivating wider stakeholder awareness so often vital to generate traction in any nascent or growing field of development, as well as the adoption of innovative ideas and structures.
  2. These collaborations, such as this conference today, are also highly valuable for all market participants to ensure that the capital markets continues to enable the productive and efficient financing of the economy 23. I look forward to the insightful views and experiences that will be shared at today’s conference and I wish everyone a fruitful and productive discussion. Thank you.
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