Investor alert: Thai infrastructure funds on the launch pad

Improving infrastructure is an essential part of any country’s sustainable development, as doing so not only facilitates societal living conditions and business operations, but is also a key mechanism to stimulate the economy, increase employment and generate income for people. However, building infrastructure needs massive funding, and can place debt burdens on the public and private sectors, possibly bogging down progress if funding is insufficient. Thus, infrastructure funds have been created elsewhere as a win-win proposition for all parties concerned.

Such funds raise money from institutional and general investors to cover costs of major infrastructure projects, such as expressways, railways, airports, telecommunication systems, power plants and waterworks, all of which benefit the general public while generating income. Investors have the opportunity to receive long-term benefits from dividends or interest payments, depending on the form of investment unit issued. Investors will benefit from the increase in liquidity when the funds are traded on the SET’s main board.

To be established and listed on the SET, an infrastructure fund must have no less than Bt2 billion invested, and at least 75 per cent of the fund’s total asset must invest in infrastructure. Also, according to the Securities and Exchange Commission, if a fund invests in more than one project, each project must be worth at least Bt1 billion, except for power plants where each project must be worth at least Bt500 million.

An infrastructure fund may invest either directly or indirectly in projects. For direct investment, the fund owns the assets, including plant and equipment, leaseholds, creditor’s rights and revenue sharing of the project. However, for indirect investment, the fund must hold at least 75 per cent of the total number of shares with voting rights for a company operating such infrastructure projects. In addition, the fund can invest in a green-field project that meets the SEC conditions, making the fund flexible and able to be a successful fundraising tool.

Investors will be happy to know that the government places high importance on infrastructure funds and thus promotes both publicly and privately owned infrastructure projects through tax incentives and other policies. Also, the SET has reduced the listing fee so that those listing before the end of 2013 will only be charged the same fee as for a property fund, while those listing in 2014-2015 will pay half the normal rate.

Prospective investors in infrastructure funds should understand the projects that the fund plans to invest in, so as to clearly evaluate the fund’s financial returns. Although revenues from infrastructure projects tend to be quite stable, you should evaluate the project’s profitability, including long-term cash flows and the risk of receiving lower-than-anticipated revenues. All in all, this should be a good investment opportunity for investors when the country’s first infrastructure fund is launched this year. 

 

Paveena Sriphothong is group head of issuing and listing at The Stock Exchange of Thailand.