China Fortune Network learned at the Second China PPP Forum on September 28 that the world is ushering in a new boom cycle of infrastructure construction, which will provide vast market opportunities for social capital. Especially in the "Belt and Road" construction, PPP projects play a role that cannot be underestimated.

At the roundtable forum held concurrently with the conference, focusing on the hot topic of PPP project financing under the "Belt and Road" initiative, representatives from international financial institutions, commercial banks, investment banks, international rating agencies, funds, and enterprises engaged in discussions.

Xiao Guangrui, CEO of Mingshu Data and Asian regional director of the International Project Finance Association (IPFA), introduced that by 2030, the funding gap for infrastructure construction in the Asia-Pacific region will reach 26 trillion. Enhancing the overseas financing capacity of Chinese enterprises and building a new financing system have become widely concerned topics for enterprises.

Emphasize structured financing system and cash flow

Zhu Jian, Vice President of Guotai Junan Securities Co., Ltd., believes that the core of PPP project financing is cash flow, and structured financing is key. "If there is long-term stable cash flow, financing will be very convenient." He stated that structured financing requires the mixed use of multiple tools—"equity, debt, and even hedging derivatives, mixing and matching the needs of investors with different maturities and risk preferences to build a new financing system."

Zhu Jian introduced that to achieve structured financing of "Belt and Road" PPP projects, first, a new system must be established, with particular attention to legal risks; second, the core is cash flow, and the importance of project financial analysis must be clarified; third, international credit ratings should be emphasized, and attention should be paid to cases where individual ratings exceed sovereign credit ratings; fourth, mature regional capital markets should be utilized to vigorously develop offshore RMB; finally, comprehensive professional services from financial institutions and third-party agencies are needed.

In the context of structured financing, multilateral cooperation is particularly important. Gregory Liu, Senior Private Investment Operations Specialist at the Asian Infrastructure Investment Bank, introduced that the AIIB, which has just been operating for 22 months, is a multilateral institution mainly involved in two types of business: one is sovereign guarantee, i.e., projects guaranteed by national ministries of finance; the other is non-sovereign guarantee, covering projects of state-owned enterprises and local governments. "PPP projects are suitable for non-sovereign guarantees, so the investment cap only accounts for 35% of the total project cost. Therefore, we need to bring in other financial institutions as partners." He introduced.

As the implementing entities of "Belt and Road" PPP projects, enterprises cannot do without the support of financial institutions. Zhou Changjiang, Director of the Board Office of China Communications Construction Company Limited, said: "Enterprises like CCCC that integrate investment, design, construction, and operation need to cooperate with financial institutions to seek multiple financing channels."

Projects in countries with complex credit levels can take alternative approaches

PPP projects in countries along the "Belt and Road" face various risks, including overseas transaction risks, host country war risks, sovereign default risks, and risks from the complexity of the PPP project's transaction structure. When credit ratings hinder financing, what are the solutions?

Zhong Wenquan, Head of Credit Research and Analysis for Greater China at Moody's, introduced that in "Belt and Road" PPP projects involving countries with complex credit levels, Moody's will rate projects separately in the construction and operation phases. Especially for government-paid projects and availability gap subsidy projects, special structures can be adopted to provide guarantees and improve credit levels.

Wang Geng, Deputy General Manager of the Corporate Finance Business Department of Industrial and Commercial Bank of China, introduced that in countries with complex credit levels, local financial institutions and investors cannot purchase high-grade bonds, making PPP project financing difficult. In practical cases, ICBC entrusted a local bank it had acquired to conduct project investigation and investment plans, and ultimately ICBC provided the funding solution. "Although local banks cannot invest in bonds, they understand the project better, so we can entrust them as the initial financial institution for the project."

Multi-party cooperation to build a "community with a shared future"

Wang Xu, Deputy General Manager of the Project Insurance Market Development Department of China Export & Credit Insurance Corporation, suggested that building the "Belt and Road" should create a concept of a "community with a shared future." Especially in PPP project financing, financial institutions should adjust and adapt to the trend of integrated enterprise investment, financing, and construction. "Form syndicates, cooperate with foreign banks, and let funds participate in investment. All parties should build the 'Belt and Road' with a cooperative, open, shared, and inclusive mindset." Wang Xu stated.

Chen Zhiping, Head of Investment Department I of Silk Road Fund Co., Ltd., believes that different entities bearing different risks can ensure the entire investment and financing structure maintains stable development in the medium and long term and achieves reasonable returns. "From the cooperation model perspective, Silk Road Fund is a financial investor and does not aim for controlling stakes. In specific operations, we hope to have a reasonable investment and financing structure and promote projects through cooperation among all parties." Chen Zhiping further introduced that only in this way can the interests of all parties be bound together, and risks be shared and allocated.

Also on the theme of cooperation and joint construction, at the Transportation Industry Night Salon co-hosted by the Transportation Investment and Financing Branch of the China Highway and Transportation Society and the Research Institute of Highway Ministry of Transport, Liu Wenjie, Secretary-General of the China Highway and Transportation Society, invited relevant enterprises and institutions to respond to and participate in the construction of the "Belt and Road" International Transportation Alliance. Through the form of an alliance, moving forward together is also a convenient model for creating a "community with a shared future" among industries.

It is reported that the theme of this forum is "Belt and Road" and PPP, guided by the National Development and Reform Commission, the China Insurance Regulatory Commission, and the United Nations Economic Commission for Europe, hosted by Tsinghua University, organized by the Tsinghua University PPP Research Center, with exclusive support from Guotai Junan Securities Co., Ltd.; co-organized by the China International Contractors Association, the International Cooperation Center of the National Development and Reform Commission, China Economic Herald, the Investment Research Institute of the National Development and Reform Commission, the Research Institute of Highway Ministry of Transport, and the Research Center of China International Engineering Consulting Corporation.