Regional governments could soon gain access to more Chinese debt as a plan by a leading Chinese bank conglomerate to buy government’s infrastructure debts from next year, repurchase them in shares, and then sell them to investors.
The new proposal could, however, be a poisoned chalice because it could throw African countries into more debt.
For Chinese funders, developers and multilateral development finance institutions, however, this will offer further opportunities for making money with the continent.
The plan will allow Hong Kong mortgage insurer Hong Kong Mortgage Corporation (HKMC) to purchase a diverse package of infrastructure loans next year and to investigate the idea of ”securitizing” or repackaging securities for sale to investors, giving it extra liquidity that it can lend more infrastructure projects.
“In our view, this initiative will help to reuse the capital of commercial banks for other greenfield infrastructure projects, alongside broader capital market participation in the development of infrastructure under the Road and Belt initiative,” said Helen Wong, Chief Executive Officer at HKMC.
The idea behind this is according to the Monetary Authority of the country to use the recently established Facilitation Financing Facility Office of Hong Kong to increase the capacity of the investing and the receiving countries in infrastructure financing and to make investments in infrastructure and financing flows possible.
“I am pleased that the HKMC is now considering a new activity to purchase infrastructure loans for securitization, because new capital standards for banks do not make it attractive to hold these loans in the long term, even though the projects are in the brownfield.
“I see a good opportunity for banks to lend their loans to these long-term investors,” said Norman Chan, chief executive of the Hong Kong Monetary Authority last week, adding that there are currently many investors, including insurance and pension funds. , looking for less risky investments that can produce stable cash flows over the long term.
The switch is a boon for infrastructure financiers because it will bring illiquid assets back to market and provide new capital injections for newer projects, which would allow more funding opportunities for regional countries.
The most recent data from the China-Africa Research Initiative at Johns Hopkins University show that regional economies China and its institutions owed more than $ 29.42 billion in April this year to infrastructure loans that have been tapped over the past 10 years to build transport, communication, production and energy sectors.
The data show that Ethiopia is leading the region with a debt of $ 13.73 billion to Beijing, followed by Kenya for $ 9.8 billion.
Uganda owes $ 2.96 billion; Tanzania owes $ 2.34 billion. Rwanda, Burundi and South Sudan are respectively paying $ 289 million, $ 99 million and $ 182 million.
Nairobi, which increased the number of freight for its SGR line between Nairobi and Mombasa, was also on the list of requests for a subsidy of 50 per cent on the third phase of the construction of railway constructions between Naivasha and Kisumu, for value of $ 3.8 billion.
The first phase of the project, which cost $ 3.2 billion, was funded by the China Exim Bank, with a concessional loan of $ 1.6 billion with a lifetime of 20 years, a grace period of seven years and an annual interest rate of two percent.
“Since the start of SGR cargo operations in January, a total of $ 16.2 million has been invoiced, collected and transferred to the SGR escrow account, which is under the custody of Kenya Railways,” said KPA director Daniel Manduku.