Business World, 24 September 2013
THE GOVERNMENT is looking to entice a new group of players — insurers — to join its vaunted public-private partnership (PPP) program.
“We have to develop infrastructure as an asset class that market players can invest in,” Finance Secretary Cesar V. Purisima said following last week’s government briefing on the economy.
“This is why we have been working to boost the capitalization of insurance companies, because their money is the better match for infrastructure projects,” Mr. Purisima added.
While the insurance sector has held key roles in funding infrastructure development in other countries, here it is still not the first choice among project proponents. Those who may be interested, meanwhile, have no formal system to find partners.
Industry officials noted that they need investments to park the premiums they collect.
Rizalina G. Mantaring, president and chief executive of Sun Life of Canada (Philippines), Inc., estimated that the average liability duration of insurers is 19 years. The average duration of assets like stocks and bonds, however, is only 10 years.
Big-ticket infrastructure projects like toll roads, railways and airports, in contrast, are constructed, developed and operated over much longer terms.
The Organization for Economic Cooperation and Development calls insurance money “patient capital”. It warned in a June 2013 paper that the financial system was running short of such in the wake of the 2008 global crisis.
Michael T. Rodriguez, Macquarie Infrastructure and Real Assets managing director, painted a different problem in the Philippines. “There is so much wealth in the economy right now, but there is nowhere to put it. That is why the money keeps going to the short-term market which is more volatile,” he said.
Sun Life, the country’s largest insurer, amassed P20.06 billion in premium income in 2012 alone. “We are actively looking at PPP projects right now, since they can offer the better yield and duration for us,” Ms. Mantaring said.
“In Canada, Sun Life is the biggest individual investor in infrastructure programs.”
Despite the money on offer, Ms. Mantaring said Sun Life was having difficulty attracting proponents of infrastructure projects.
“Banks are thought of more naturally when people think of loans or funding,” she noted.
Some project proponents also look to the debt markets but the long-term bonds they issue typically have a tenor of 10 to 15 years since investors don’t have the appetite for anything longer. Insurers can lock up funds for 20, even 25 years, she said.
Mr. Purisima said one way of bringing insurers into the PPP program was to issue infrastructure-linked bonds, which are currently being considered by the government.
PPP Center Executive Director Cosette V. Canilao said that over the next two to three years, the government could issue the long-term bonds and allow insurers purchase the bulk. The proceeds will be used to finance projects.
Ms. Canilao also urged investment banks to arrange infrastructure project bonds.
“Local banks will commonly lend for 12-15 years, so there will be refinancing risks for the project proponents. Investment banks should tap insurers to make sure there are no refinancing risks. On the fifth or seventh year of a project when cash flows stabilize, they can issue project bonds,” she said.
Antonio G. de Rosas, president and chief executive of Pru Life UK — the country’s second-largest insurer with P15.59 billion in premium income last year — said investment banks could arrange and underwrite the bonds and then invite insurers to the primary offer.
Until then, insurers are working by themselves to meet project proponents and offer their funding. “Here there appears to be no interest” in bringing the two parties together, Ms. Mantaring said.
“Perhaps the government can help by more actively working with insurance companies when projects are bid out to put them together with interested bidders,” she added.
Ms. Canilao offered: “We have held infrastructure summits. We are also thinking of holding some sort of networking and business-matching event. We will keep in mind the Insurance Commission and insurers.”
Mr. de Rosas was more optimistic, saying: “As more and more projects are approved, credit arrangers will get around to requesting funding requirements not only from banks but also from insurance companies.”
