Africa: China Plans to Sell Off Its African Infrastructure Debt to Investors

Nov 05, 2018 | The East African; All Africa

Regional governments could soon get access to more Chinese debt if a plan by a leading Chinese banking conglomerate to buy African infrastructure debts from the government starting next year, repackage them into securities and then sell them to investors, comes to fruition.

However, the new proposal could prove to be a poisoned chalice as it could mire African countries in more debt. For Chinese financiers, developers and multilateral development financial institutions, this will offer further opportunities to make money from the continent.

The plan will see Hong Kong mortgage insurer Hong Kong Mortgage Corporation (HKMC) buy a diverse basket of infrastructure loans next year and explore the idea of "securitising" or repackaging them into securities for sale to investors, allowing it extra liquidity that it can loan out to finance more infrastructure projects.

"This initiative we believe will help 'recycle' commercial banks' capital to be redeployed into other greenfield infrastructure projects, besides enabling wider capital markets participation in infrastructure development under the Road and Belt initiative," said HKMC Greater China Chief Executive Helen Wong.

The thinking behind this, according to the country's Monetary Authority, is to use Hong Kong's recently set up Infrastructure Financing Facilitation Office to enhance the capacity of the investing and recipient countries in infrastructure financing and facilitate infrastructure investment and financing flows. "I am happy that the HKMC is now considering a new line of business of buying infrastructure loans for the purpose of securitisation. This is because new capital standards for banks do not make it attractive for them to hold on to these loans on a long-term basis, even though the projects at the brownfield stage are operating smoothly. I can see a good opportunity for banks to offload their loans to these long-term investors," Norman Chan, Chief Executive of the Hong Kong Monetary Authority, said last week, adding that there are currently many investors, including insurance and pension funds, looking for less risky investments that can produce steady long-term cash flows. Read more from All Africa.

 

Source: All Africa