Banking themes in Asia

Giorgio Gamba

Milan, 14 June 2018

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Key Messages 3

Innovation 5

China’s Liberalisation 8

Sustainable Finance 12

Belt and Road Initiative 18

Key Messages

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• In 2015 Asia accounted for 33% of Global GDP in 2025 - 38%

• In 2015 Asia accounted for 35% of Global Trade in 2025 - 39%

• Urban population in Asia is expected to grow to 44% by 2030 (+550m people)

• By 2030 Asia will account for 66% of the world’s middle class population

• By 2045 Asia GDP expected to be 26% higher than the combined GDP of Europe and N. America

‘The’ Growth Story

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1. Source: Oxford Economics

14 of Global 20 top trade corridors by 2030 will have Asia at either end1

USDbn

1.303 1.158

640 536 462 321 305 284 279 262 261 249 205 199

Chin

a-H

K

Chin

a-U

SA

Chin

a-K

ore

a

Chin

a-J

apan

Chin

a-V

ietn

am

Chin

a-

Germ

any

Chin

a-I

ndia

Austr

alia

-Chin

a

Japan-U

SA

Chin

a-

Mala

ysia

Chin

a-

Sin

gapore

India

-UA

E

Kore

a-U

SA

India

-US

A

2010-30

CAGR: 8% 8% 9% 5% 20% 6% 12% 9% 3% 12% 9% 10% 6% 11%

Innovation

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FinTech in Asia

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FinTech adoption percentages in ASP and major markets Rapid growth in China’s digital financial marketplace

14

23

32

32

37

37

40

42

52

69

Japan

Singapore

Hong Kong

South Korea

Australia

Spain

Brazil

UK

India

China

FinTech category adoption percentages

Money transfer

& payments

Financial

Planning

Savings &

Investments

Borrowing

Insurance

1 83% 22% 58% 46% 47%

2 72% 21% 39% 20% 43%

3 60% 20% 29% 15% 38%

3

24

2013 2017E

66

403

2013 2016

Mobile payments1

(USDtn)

Online AUM1

(USDbn)

1. Source: iResearch

2. Source: KPMG report – “The Pulse of FinTech Q4 2017”

15

358

2013 2017E

0

1

2013 2017

Online lending1

(USDbn)

Investment in FinTechs2

(USDbn)

+121% +93%

+74% +83% CAGR

Blockchain in Trade

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LCs relevant – USD2.5tn business of which 65% involves Asia

Example: Successful execution of a live trade finance transaction for international food and agriculture

conglomerate Cargill using R3's Corda DLT/blockchain platform (May 2018)

The transaction involved a bulk shipment of soybeans from Argentina, through Geneva's trading arm of Cargill, to Malaysia, through Cargill's Singapore

subsidiary as the purchaser. A Letter of Credit was issued using Corda by two separate banks acting on behalf of the Cargill entities.

The Letter of Credit transaction was an end-to-end trade between a buyer and a seller and their respective banking partners, completed on a single

shared application rather than multiple systems.

What’s the big deal?

• Real client, real shipment and real transaction

• Not a proof of concept, not a dummy transaction

• Not conducted on technology no-one else will ever adopt

Digitising Asia-

Pacific region's

trade-related

paperwork could

cut time it takes to

export goods

by up to

44%

Boost exports

by as much as

$257

billion per year

Cut costs

by up to

31%

HSBC processes

USD300bn worth of trade

every year and

100 million pieces of

unstructured

paper

China’s Liberalisation

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The Capital Markets

• China made significant progress in liberalizing foreign access to its capital markets since 2017

– China A-share

– In Jun17, MSCI decided to include China A-share in its Emerging Market Index. In Jun-Aug18, 236 stocks will form part of initial inclusion

– Upon full inclusion China allocation in EM Portfolio would be 40% up from 28% in 2017

– Bond Connect

– Launched Jul17. Allowing foreign investors to access the China interbank bond market (CIBM) through a simplified registration process and trading and custodian arrangement that are currently using offshore

• Capital account liberalisation is expected to gain further traction in 2018

• HSBC Fixed Income Research expects China’s sovereign bonds to be included in benchmark bond indices in 2H18

• Recent deregulation measures and positive sentiment will drive foreign portfolio inflows to China’s bond and equity markets

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Rising stock flow (Av. Daily turnover), HKDbn

0

10

20

30

40

50

nov-1

4

gen-1

5

mar-

15

mag-1

5

lug-1

5

set-

15

nov-1

5

gen-1

6

mar-

16

mag-1

6

lug-1

6

set-

16

nov-1

6

gen-1

7

mar-

17

mag-1

7

lug-1

7

set-

17

nov-1

7

gen-1

8

mar-

18

Shanghai-HK Stock Connect Southbound Buy & Sell

Shanghai-HK Stock Connect Northbound Buy & Sell

Shenzen-HK Stock Connect Southbound Buy & Sell

Shenzen-HK Stock Connect Northbound Buy & Sell

China’s capital markets have been gradually opening up…

Shanghai-Hong Kong

Stock Connect launched

Shenzhen-Hong Kong

Stock Connect launched

Bond Connect

launched

2011 2014 2015 2016 2017

RMB Qualified Institutional

Investor Scheme (RQFII)

launched

China Interbank Bond Market

(CIBM) Direct launched

Mutual Recognition of

Funds (MRF) launched

RMB in the World

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1. Source: SWIFT

2. Source: PBoC, HKMA, MAS, Central Bank of the Republic of China (Taiwan), City of London, CEIC, BIS, WFE, BOK, Bundesbank, Central Bank of Qatar, Central bank of Australia, Central Bank of Canada, HSBC

70

180

NA

200

300

360

400

Thailand

Malaysia

Taiwan

Australia

Singapore

South Korea

Hong Kong

Asia-Pacific

116

139

na

75

69

32

559 306

317 --

na 1

na 1

Americas

22

US

Canada

Chile na --

na 9

na 17

NA

NA

35 UAE

Qatar

MENA

na --

na --

NA

Europe

10

350

150

350

Hungary

France

Germany

Ireland

Luxembourg

ECB

Switzerland

UK 20

na

21

39

na

11

25 24

na 7

73 15

na --

na --

Via ECB

Via ECB

Via ECB

Via ECB

Brazil

Argentina

United Kingdom

Hungary

Switzerland

Turkey Ukraine

Mongolia

South Korea

Taiwan

Australia

New Zealand

Indonesia

Hong Kong

Thailand

Malaysia

Singapore

ECB

Pakistan

UAE

Albania

Iceland

Russia

Sri Lanka

Qatar

Canada

Luxembourg

France

Germany

Armenia

Suriname

South Africa

Chile

Tajikistan

Morocco Serbia

US

Zambia

Ireland

Egypt

Macau

RMB deposit (RMBbn)2 Territories with existing swap agreements Bilateral Swap Line (RMBbn)2

RQFII quota (RMBbn)2 Orange-highlight RMB clearing bank appointed

RMB Internationalisation

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2,9%

6,9%

10,4%

12,8%

3,3%

7,0%

10,0%

13,5%

4,2%

7,4%

9,1%

12,9%

6,1%

8,5%

12,1%

15,0%

0%

5%

10%

15%

End of this year 2020 2025 2030

2015 Survey results 2016 Survey results 2017 Survey results 2018 Survey results

The SDR Inclusion’s Importance Is More Than Just Symbolic

• The RMB was formally included in the IMF's Special Drawing Right (SDR) basket as the third largest component with effect from Oct16 joining the

USD, EUR, JPY and GBP with a 10.92% allocation

• The IMF's endorsement supports long-term demand for the RMB

• RMB is currently 1.23% of total holding

• Reserve Manager Trends Survey - 79 central banks, responsible for 54% of global reserves, completed the survey

• In 2018 survey RMB scored highest to question “which of following currencies appear more attractive than 12 months ago?”

Reserve managers see the RMB’s share of global reserves rising to 8.5% by 2020 What proportion of global reserves do you think will be invested in the Renminbi by?

Source: IMF. HSBC research, 27 Nov 2017, “Emerging Markets FX Roadmap’

Sustainable Finance

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0

2.000

4.000

6.000

8.000

10.000

1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

China India S. Korea Other Asia

Sustainable Finance – why Asia matters?

• Asia is a major contributor to global emissions China #1; India #3; Korea #8

• Of the 67 countries we rank according to their vulnerability to climate change Asia has 5 of top 10 at risk including India

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Overall climate vulnerability (lower score = higher vulnerability)

Physical

impacts

Sensitivity to

extreme events

Energy

transition risk

Potential to

respond to

climate risks

Overall climate

vulnerability

Country Score Rank Score Rank Score Rank Score Rank Score Rank Market

Weights 25% 25% 25% 25%

India 3.84 17 1.67 7 4.34 20 2.54 10 3.10 1 EM

Pakistan 3.55 13 0.93 3 6.43 58 1.87 3 3.19 2 EM

Philippines 3.64 15 0.37 1 6.17 52 2.63 11 3.20 3 EM

Bangladesh 4.49 24 1.16 5 5.17 34 2.48 8 3.33 4 FM

Oman 2.89 7 2.09 9 2.85 4 5.62 45 3.36 5 FM

Sri Lanka 3.99 19 1.04 4 6.42 57 2.03 4 3.37 6 FM

Colombia 6.11 49 2.16 10 3.05 8 2.72 16 3.51 7 EM

Mexico 4.43 23 3.10 15 4.38 22 2.37 7 3.57 8 EM

Kenya 2.90 8 3.15 16 6.63 61 1.74 1 3.60 9 FM

S. Africa 3.80 16 4.39 29 3.90 14 2.63 12 3.68 10 EM

Emission in Asia have risen steadily

MtCO2

Source: BP Statistical Review

Note: DM = developed market, EM = emerging market, FM = frontier market

Source: HSBC

Country Pledge Target year Base year

Long term

pledge

Finance amount

USDbn (max) Comments

China Peak 2030 NA None Cut carbon intensity of GDP by 60-65% by 2030 from 2005

India NA 2030 2005 None 2,500.0 Cut emissions intensity of GDP by 33-35% by 2030 (2005); achieve 40% installed electricity

capacity from non-fossil fuel sources

S. Korea 37% 2030 BAU None - Unclear whether target includes land use change and forestry

Singapore Peak 2030 NA None Aims to cut emission intensity of GDP by 36% by 2030 (vs 2005)

Japan 26% 2030 2013 None Equivalent to 25.4% reduction from 2005 levels

Indonesia 29% 2030 BAU None Conditional target totals (41%), subject to agreement & external support

Vietnam 8% 2030 BAU None Conditional totals (25%) by 2030 by BAU. Carbon intensity of GDP could decline by 30% by 2030

from 2010 with external support

Philippines 70% 2030 BAU None Mitigation contribution conditional on intl. support

Thailand 20% 2030 BAU None Conditional total (25%) subject to financial and technical support

Malaysia NA 2030 2005 None Cut emissions intensity of GDP by 45% by 2030 (2005) - includes 35% unconditional and

additional 10% conditional targets

Mongolia 14% 2030 BAU None 6.9 Contingent upon gaining access to finance and new technology

Bangladesh 5% 2030 BAU None 69.0 Only covers power, transport, industry. Conditional total -15%

North Korea 8% 2030 BAU None Conditional: 40.25% through international support

Timor-Leste (East Timore) NA 2025 2020 None No target for emission reduction; has outlined commitment to reducing emissions in sectors

What is Asia doing about it?

• Material ‘Nationally Determined Contribution’ pledges at COP21

• China’s leadership

– Real life issue costing lives not just conceptual ‘climate change’

– “Blue waters and green hills are mountains of gold and silver”

– In 2013 air pollution captures public attention. New Environmental, Air and Water Pollution Laws passed in 2015, 2016, 2018

– In 2018 Green development elevated from third development concept to highest national importance ahead of Innovation, Coordination, Openness and Sharing

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Source: UNFCCC; HSBC

NDC submitted by Asian countries

Investment Needed

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40,5

13,5

9,0

15,0

9,0

16,5

103,5

Transport Water & sanitation

Telecoms Power and electricity transmission/ distribution

Primary energy

supply chain

Energy demand/ efficiency

2016-2030 Total

Global Infrastructure Investment needed in the next 15 years for a 66% chance of 2°C1 USD trillion, 2016-2030

1. OECD, IEA, Investing in Climate, Investment in Growth, JUL17; The OECD estimates that for infrastructure to be consistent with a 2°C 66 scenario, investment needs to amount to USD6.9tn per year in the next 15 years, an increase of about 10%

in total infrastructure investment from the reference estimate of USD6.3tn. Definition and source data are different to those shown in the BRI presentation

2. McKinsey, “Bridging Global Infrastructure Gaps” JUN16

3. HSBC estimation

16%

22%

5% 7% 2% 7%

6% 6%

29%

By region

Mainlan China

India

Other emerging Asia

Developed Asia

Africa

Latin America

Middle East

US and Canada

Europe

100%

• c.50% of total investment will be in Asia, especially emerging Asia

• Further areas of investment

– Energy

– Power/electricity

– Transport

• Mainland China’s BRI will further drive global investment and trade, especially in the Asia-Pacific region

Banking Revenue pool in next 15 years3:

>USD5tn

2

Transition Will Affect Many Industries and Create Opportunities

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Transition

• Risk of stranded assets

• Renewables will contribute at least 20% of primary energy supply by 20401

Business opportunities

• Portfolio diversification

– Transition from high-carbon to low-carbon assets

– USD350bn of investment in wind and solar needed to achieve the current market share in upstream O&G3

Financing solutions

• Corporate Lending

• M&A, DCM, ECM

• Trade Finance

Energy

• Decentralisation of power generation system

• Grid health (risk of overgeneration due to intermittency of renewable energy systems); smart grids

• Households to install more solar panels

• New infrastructure: energy storage to provide behind-the-meter solutions and control over-generation

• Personal Loan

• Corporate Lending

• Project Finance

• M&A, DCM, ECM

Utilities

• 'Green buildings'

• Regulatory requirements to increase energy efficiency

• Total spending on energy-efficient products and services in buildings was USD406bn in 20164

• Better insulation materials/technologies in new buildings

• Smart meters

• Trade Finance

• Mortgage/Personal Loan

• Corporate Lending

Real Estate

• Transition from Internal Combustion Engine (ICE) vehicles to Electric Vehicles (EV)

– Countries set target years for ban of new ICE sales (eg France/UK by 2040)

– 54% of annual global light duty vehicle sales will be EV by 20502

• Car makers to invest at least USD90bn in designing new EV models and increasing production5

• USD2.7tn investment on infrastructure needed for EV adoption6, ie building new charging points in petrol stations

• Corporate Lending

• Project Finance

• M&A, DCM, ECM

Transportation

1. Source: IEA World Energy Outlook 2017, New Policy Scenario projection, incl. hydro, bioenergy, wind, geothermal, solar photovoltaic, concentrated solar power, marine

2. BNEF, Long-Term Electric Vehicle Outlook 2017

3. Wood Mackenzie 2017

4. UN, Global Status Report 2017; IEA

5. Reuters Analysis, Jan18

6. Morgan Stanley Research

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Denotes HSBC as lead manager

1. HSBC Green, Social, Sustainability Bond database – based on Dealogic, CBI, Bloomberg, as of 11th Apr 2018 The data presented above is to the best of our knowledge and may not be fully representative of the SRI market

Development of Green, Social & Sustainability Bond Market

SRI Issuance (2006-2018YTD)1

2006

IFFIM: First ever SRI

benchmark

USD1bn 5yr

2007 2008 2009 2010 2011 2012

EIB: Inaugural

Environmental Themed

Bond

EUR600m 3yr

IFC: Inaugural SRI

bond

USD200m 4yr

IFFIM: Inaugural

AUD SRI bond

AUD400m 5yr

2013 2014 2015 2016 2017 2018

IFC: First SRI

benchmark

USD1bn 3yr

EDF issues the first

corporate Green Bond

EUR1.4bn 7yr

GDF Suez: broke largest

Green Bond record

EUR2.5bn 6yr & 12yr

EIB: First ever GBP SRI

Bond

GBP500m 6yr

AfDB: Inaugural/Largest

ever SEK Green Bond

SEK1bn 5yr Fixed & FRN

MIT: First higher

education Green

Bond

USD370m 24yr

IBRD: First FRN SRI

USD550m 18-mth

EIB: Largest ever SRI

climate-themed bond

Total outstanding

EUR2.25bn

Abengoa:

First high yield

Green Bond

USD300m

EIB: Inaugural USD CAB &

Longest dollar SRI bond

USD1bn 10yr

ICO: Inaugural SRI –

Social Bond

EUR1000m 3yr

KBN: First new Green

Bond of 2015 –

USD500m 10yr

Vestas: First Pure Play

Green Bond with a

General UOP definition

Agricultural Bank of

China: first international

green bond issued by a

Chinese FIG USD400m

4yr, USD500m 5yr and

CNH600m 3yr

TFL: Inaugural issue and

largest GBP Green Bond

from a Corporate

Rabobank: First issuer to

combined green and

sustainability framework

EUR 500m 5yr

TSKB: First CEEMEA

SRI Bond & Most

oversubscribed SRI

bond ever

USD300m 5yr

Bank of China:

Largest Green Bond &

First Green Covered

Bond

USD3.03bn 4 tranche &

USD500m 3yr

IFC: USD152m Forest

Bond

First bond to offer

repayment in carbon

credits

Republic of Poland:

EUR750m 5yr First Ever

Sovereign Green Bond

issued

TenneT: EUR1bn 7yr First

Green Hybrid

QBE: USD300m

5.5yr 1st Green

bond from

insurance

NWB: EUR2bn 7yr & 15yr

largest social bond to date

NAFIN: MXN4bn 5yr 1st

Social Bond from Mexico

and Latin America

Anglian Water:

GBP250m 8yr 1st

Sterling-denominated

Green bond from a

utility company

ICBC:

ICBC Luxemburg

EUR1.1bn 3yr, USD450m

3yr and USD400m 5yr.

First Green Bond aligned

with international and PRC

green standards

HSBC:

USD1bn 6yr Inaugural

Sustainable Development

Goal bond

0

20

40

60

80

100

120

140

160

180

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

USD EUR GBP Non G3 Aggregate totals and expected issuance going forwards

USDbn

Predictions for 2018FY issuance volume

HSBC Fixed Income Research USD140bn-180bn

TD Securities USD160bn

Climate Bonds Initiative USD250-300bn

S&P USD200bn

Bloomberg USD200bn

Moody’s USD250bn

• Development of instruments from Green bonds to social bonds, SDG bonds, green loans

• In China encouraging issuance through following measurers

– In Mar16 Shanghai and Shenzhen Stock Exchanges published the Notice on Green Bond Pilot Program, indicating that green bonds can be listed on stock exchanges in addition to the interbank bond market

– In Aug16 PBoC, MOF, NDRC, Ministry of Environmental Protection and other key arms of Government issued “Guidelines for Establishing the Green Financial System” which proposed measures to push the development of the green financial system (Aug-16)

– In Apr17 announced establishment of green channel to accelerate the approval of green bond issuance, and financial institutions encouraged to invest in green bonds

– In Jan18 the HKQAA launched Green Finance Certification Scheme

• In Mar17 Japan’s Ministry of Environment issued first green bond guidelines consistent with Green Bond Principles

• In Jan18 the Tokyo Stock Exchange launched a dedicated green and social bond segment

• In Mar17 MAS announced a Green Bond Grant scheme which will cover the costs of external reviews for green bond issuance

How is Sustainable Finance being encouraged?

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Belt and Road Initiative

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Asia’s Infrastructure Gap

• Developing Asia will need to invest USD26trn from 2016 to 2030, or USD1.7trn per year.

• Of this USD14.7bn will be from Power and USD8.4bn from Transport.

• The USD1.7trn annual estimate is more than double the USD750bn ADB estimated in 2009

• The infrastructure investment gap – the difference between investment needs and current investment levels – equals 2.4% of projected GDP for the 5-year period 2016 to 2020

• Outside of China, the gap for the remaining economies rises to higher than 5% of their projected GDP

ASEAN

• Almost 50% of the required Infrastructure spend will be from ASEAN

• Infrastructure spending as a percentage of GDP in ASEAN has been inching higher from 2012-16 but material gap remains

• Between 2016-2020 ASEAN is expected to more than double the USD355bn spent on Infra in 2011-15

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Source: Meeting Asia’s Infrastructure Needs; ADB 2017

What’s the big deal?

ASEAN 10:

Brunei, Cambodia, Indonesia,

Laos, Malaysia, Myanmar, the

Philippines, Singapore, Thailand

and Vietnam

ASEAN + 3:

Cooperation process with China,

Japan and The Republic of

Korea

ASEAN + 6:

Cooperation process & Free

Trade Area (FTA) with Australia,

China, India, Japan, New

Zealand and South Korea

Future expansion:

Hong Kong:

Implement free trade agreement

signed in 2017

RCEP:

Free trade agreement between

all countries in ASEAN + 6 0,5

0,7

0,7

0,7

0,8

0,9

2,7

Others

Vietnam

Singapore

Malaysia

Thailand

Philippines

Indonesia

Forecast Investment spend to 2030 USDtn2

Infrastructure investment By sub-region

61%

24%

12% 2% 0%

East Asia

South Asia

Southeast Asia

Central Asia

The Pacific

• Belt and Road Initiative is made up of “The Silk Road Economic Belt” and “The 21st Century Maritime Silk Road”

• Seeks to connect > 65 countries across Asia, Middle East, Africa and Europe, c.30% of global GDP and 63% of world population1

• Improving the global infrastructure and network connectivity can better facilitate international trade anddevelopment

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BRI – the scale

Rotterdam

Venice

Netherlands

Germany

Greece

Athens Mediterranean Sea

Kenya

Nairobi

Colombo

Sri Lanka

India

Black Sea

Kolkata

Bay of

Bengal

Kuala

Lumpur

Jakarta

Indonesia

Malaysia

South

China Sea

Haikou

Vietnam Guangzhou

Fuzhou East

China Sea

Yellow

Sea

Xi’an

China

Urumqi

Almaty

Bishkek

Samarkand

Uzbekistan

Dushanbe Tajikistan

Tehran Iran

Turkey

Istanbul

Moscow

Russia

Duisburg

Italy

Kazakhstan

Hanoi

Maritime Silk Road

Silk Road Economic Belt

4.4 Billion

people

63 % of world’s

population

29 % of

global GDP

2.5 Trillion. Expectation

of Annual trade

of countries

along the BRI

65 countries that

BRI connects

Committed funding by multinationals/policy banks3

Agency Capital

CDB 890

AIIB 100

SRF 55

NDB 50

CHEXIM 19

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1. Initial RMB10bn to promote cooperation between China's Northeast and Russia’s Far East.

NA - Not applicable.

Source: Belt and Road PortaI

Where’s the money coming from?

A multi-tier system to provide sustainable funding No one source of funding Public sector dominates infrastructure investment

in Asia As % of GDP

The ASEAN countries with the largest funding gaps

have the least developed corporate bonds % of GDP % of GDP

• Silk Road Fund

• China Development Bank

• Export and Import Bank of China

• Asia Infrastructure Investment Bank

• New Development Bank,

• Asian Development Bank

• Project financing

• Transactional banking (Trade, Cash

Management, FX)

• Advisory

• Match projects with investors who

have different requirements

• Infrastructure-related financial

instruments part of mainstream

asset allocation

• Private investors, including pension

and insurance fund managers

• Greater involvement by the private

sector will increase efficiencies

Public & Development Finance

Commercial Banks

Capital Markets

Note: UK for 2014, other countries for 2011-14 avg.

Source: ADB, HSBC

Action RMBbn

USDbn

equivalent Timeframe

Silk Road Fund capital 100 14.5 NA

Encouraging financial institutions overseas fund business in RMB to provide support for the BRI 300 43.5 NA

China-Russia Regional Cooperation Development Investment Fund1 100 14.5 NA

China Development Bank (CDB) will set up the B&R Multi-currency Special Lending Scheme for Infrastructure Development 100 14.5 NA

CDB will set up the B&R Multi-currency Special Lending Scheme for Industrial Cooperation 100 14.5 NA

CDB will set up the B&R Multi-currency Special Credit Lines for Overseas Financial Institutions 50 7.3 NA

EXIM will setup the B&R Multi-currency Special Lending Scheme 100 14.5 NA

EXIM will set up the B&R Multi-currency Special Lending Scheme for Infrastructure Development 30 4.4 NA

Assistance to developing countries 60 8.7 2017-20

RMB940bn USD136.5bn

0 2 4 6 8

25 ADB developing …

Indonesia

India

China

UK Public

Private

-50

50

150

250

0

10

20

30

40

50

60

MY SG IN TH CH PH IN VN

Corporate bonds Bank lending to corporates

Beijing’s increased financial support to the BRI announced during the BRF

Source: HSBC

ASEAN Infrastructure Overview

• (THA) Announced the Infrastructure Development Plan with an approved budget of THB2.4trn (USD75bn)

from 2015-2022

• (THA) Positive developments around PPP law (PISUA 2013) and the Cabinet's approval of the drat PPP

Strategic Plan in Feb 2015

• (MAL) Infrastructure is a pillar of the Government’s development plans.

• (SIN) Singapore continues to invest in infrastructure at well above average rates compared to other similarly

developed countries

• (SIN) 2018 Budget pushing SOEs to fund via GG Bonds not Grants

• (IDN) Transport is a key focus

• (IDN) Greater decentralisation of funding decision. Allocation to line ministries declined 15% yoy while

allocation to local governments increased 16% yoy and capital injection to SOEs increased 40% yoy

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Local competitive landscape Emphasis on infrastructure driven growth

• (THA) Experienced local construction sector which is dominated by government qualified contractors

• (THA) Foreign companies have typically participated in partnerships where specialized expertise is required or

as suppliers and subcontractors to local consortiums

• (MAL) Chinese companies have been successful in winning bids both on an independent and joint basis with

local companies

• (SIN) Highly competitive with experienced local operators/contractors and multinationals with regional base in

Singapore

• (SIN) Chinese construction SOEs have had success in winning contracts mostly in the civil construction/rail

and real estate sectors

• (IDN) Most projects are awarded by government ministries or SOE operators, eg ports (Pelindo I/II.III), airports

(Angkasa Pura), power (PLN). Infrastructure construction predominately handled by the public sector or top

construction SOEs (eg WIKA, PTPP, WSKT)

Key considerations and challenges

Considerations Challenges

• (THA) Positive policy developments including PPP act (2013) and Draft PPP Strategic Plan (2015)

• (THA) Slow economic recovery and upcoming elections provide an impetus to fast-track infrastructure delivery

• (THA) Liquid capital markets and banking sector

• (MAL) Track record of executing projects under both traditional and PPP schemes with high international

participation

• (MAL) Strong financial infrastructure with developed banking sector and capital markets

• (MAL) Key Islamic financing centre

• (MAL) Experienced local operators and construction companies

• (SIN) Position as regional financial and trading hub with highly sophisticated banking sector and capital

markets

• (IDN) Strong pipeline across all sectors

• (IDN) Track record of implementing power projects – under IPP and direct procurement

schemes – with international sponsors/financiers

• (IDN) Public/quasi-public bodies (PPP Unit, IIF, SMI) charged with facilitating private investment

• (THA) Largest projects in pipeline dependent on progress of bilateral negotiations

• (THA) Foreign Business Act: foreign owned corporates may require additional permits for certain industries,

capped ownership percentage

• (MAL) Ongoing challenges in commodities prices may lead to change in infrastructure budget

• (MAL) Potential foreign restrictions on acquisition of key assets and/or participation in key projects

• (MAL) FX/market risk

• (SIN) Shrinkage in private real estate market may intensify local competition for certain jobs, eg civil

construction, with downward pressure on margins

• (SIN) Increasing labour costs could contribute to compressed margins

• (IDN) Land acquisition remains challenging despite recent reforms

• (IDN) Challenging project planning and licensing process across multiple federal, state and

city officials

• (IDN) Easing of government guarantee for IPPs may limit the pool of potential international financiers

Sources: Public Debt Management Office, Ministry of Finance

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Infrastructure Project

Banking Opportunities

Clients’ needs / product opportunities over the Project’s life cycle

Th

e P

roje

ct’

s E

co

sys

tem

Project

procurers

Ministry of Finance (MoF)

Ministry of Transport (MoT)

Government Agencies

Central Bank

• Funding (loan / bonds) • Financial & structuring Advice • Hedging

Real Estate

Companies International & Local real estate

investors and builders

• Funding (loan / bonds) • Performance bonds • Trade financing • Working Capital

Lead

contractors Large International & local

Infrastructure companies

• Performance bonds • Receivable financing • Payable financing

• Working Capital • Hedging (FX)

Sub

Contractor

suppliers

Mid-size local Infrastructure

& logistics companies

• Performance bonds • Receivable financing • Working Capital

Local banks

Int’l & local depending on

markets / currency required

ProjectCo

Bidders /

Investors

International investors

partnering with local

large Company

Bidder A Bidder B Bidder C • Financial Advisory • Intro to local partner • Bid & Perf. Bonds

• Funding (loan / bonds) • Hedging (IRS, FX)

International banks’ scope

Project

South-East Asian railways – The international angle

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Sources: Related news clippings

Bangkok

Sanur

Jakarta

Singapore

Koh Phangan

Koh Samui

Nakhon Si Thammarat

Penang

Cameron Highlands

Kuala Lumpur

Cianjur

Yogyakarta

Malang

Mt. Bromo

Kalibaru

Perumtaran

Malaysia

Thailand

Australian engineering firm, John Holland, working on Malaysian Double

Tracking

British firm, Mott Macdonald, adviser on KL to Singapore HSR’s technical

and safety standards

Canadian firm - Bombardier Transportation – signed a strategic

agreement with China Railway Rolling Stock Corporation involving

support for several rail projects in ASEAN

The US, Jacobs Engineering was appointed Lead Consultant for the track

work design for the Klang Valley Mass Rapid Transit Line in Malaysia

French firm, Thales, supplying automatic fare collection system for

Bangkok Metro’s Blue Line extension

Siemens teaming up with Malaysian firm, George Kent, to bid for the KL to

Singapore HSR tender

US firm, AECOM, doing advanced engineering study for the Singapore

stretch of KL to Singapore HSR

India – expected to be USD5tn economy by 2025

• Challenges

– Banking sector stress

– Overleveraged private sector – limited capex

– Infrastructure bottlenecks

• Drivers

– FDI & Portfolio Investor reforms; growth in FDI, highest in EMs 2017 (USD43bn)

– Largest recipient of remittances globally (USD66bn)

– Acquisition plans global companies

– Digitization of corporate payments

– ‘Make in India’ initiative

• Opportunity

– Transaction banking focus – supply chain financing and cash management

– Inbound M&A

– Equity capital markets

– Digitisation - levels playing field

Other Key Markets

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Thank you

Milan, 14 June 2018

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