Project finance company
Mr Chen Show Mao (Aljunied): Based on the recommendations of the Economic Strategies Committee (ESC) in 2010, Budget 2012 announced that Temasek has put together a consortium of reputable financial institutions to establish a specialised project finance company (PFC). I would like to understand more specifically how the PFC will benefit our companies.
First, the PFC will aim to have about 80% of its portfolio comprising cross-border projects with significant Singapore-based corporate participation. What does the Government mean by “significant Singapore-based corporate participation”? Does significant participation means majority ownership? And how does the Government define a Singapore-based company for this purpose? Does it have to be headquartered in Singapore? Listed on the SGX? Or majority owned by Singaporeans? Is a Singapore subsidiary of a foreign multinational company considered a Singapore-based company?
I hope the Government will have clear guidelines on this. The ESC has made it very clear what the gap is and that is to facilitate cross-border financing for our companies that are investing in large-scale projects overseas, because project finance is significantly less developed in Singapore than elsewhere and capabilities of our local banks in this area are relatively limited. These concerns do not exist in the case of companies that can access project financing outside Singapore’s financial system.
Second, the ESC highlighted that as foreign export/import banks (EXIMs) remained largely nationalistic, Singapore companies are currently disadvantaged in this aspect. In order to help our companies compete on an equal footing, will the PFC adopt a similar approach to the foreign EXIMs? The Singapore Government will provide backing to the PCF by guaranteeing it debts. Will the PCF require some form of participation by Singapore companies in every project that it finances?
The Minister of State for Finance (Mrs Josephine Teo):
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Sir, we had said that to further support internationalization efforts, a Project Finance company (PFC) will be operational from the second half of this year. Mr Chen Show Mao sought to understand how the PFC will benefit local companies. The PFC addresses a market gap in long tenure, cross-border project financing. The PFC, which is a commercial venture led by Temasek Holdings, will address this gap and catalyze the supply of such project financing. Local companies will benefit in the following ways: first, access to financing gives them added confidence and ability to bid for major projects on an equal footing with their competitors, who typically have funding support from their respective national Export Import (Exim) banks. The PFC removes a constraint on our companies where Singapore companies have had to partner foreign contractors to tap financing facilities overseas. And as Mr Chen pointed out, we have put our companies at a slight disadvantage. So this opens up opportunities for our own SMEs to participate in these projects.
Mr Chen has a specific question on the definition of Singapore-based companies. We have defined a Singapore-based company as one that is listed or incorporated in Singapore and have at least three global or regional strategic decision-making functions located in Singapore. This is the definition that is commonly used in incentive schemes of our enterprise development agencies. While this definition does include foreign companies based here, these companies will have substantial presence anchored in Singapore. And there are significant spin-offs to the economy such as value-add and jobs created because they use Singapore as a base for internationalizing and undertaking major projects overseas. This will strengthen our position as a global Asia hub.
Mr Chen also asked whether the involvement of Singapore’s companies will be a requirement in every project. Let me reiterate that the PFC will aim to have 80% of its long-term portfolio comprise projects with significant participation from Singapore-based companies. This already assures us of significant benefits because the Singapore-based company must have at least three global or regional strategic decision-making functions located in Singapore, which I have explained earlier. The additional condition of local partnership, if we were to put it in, will unduly constrain the borrower and make it less attractive for the deal to be financed out of Singapore. So if we make that as a requirement, you might not even get it. Notwithstanding this, our economic agencies will continue to facilitate meaningful partnerships between our local SMEs and international companies for infrastructure opportunities in the region.
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Mr Yee Jenn Jong: I have two questions regarding the PFC. It seems that the criteria allow Singapore incorporated foreign companies with zero Singapore ownership to take part. First question is that can the evaluation criteria be bias in such a way that it will favour companies with local ownership so that we can help grow locally-owned companies? The second question is that by having only 80% of the projects required to be Singapore-based companies involved and not 100%, is it because we are not confident that there will be enough projects that will involve at least some of our local companies?
Mrs Josephine Teo: Mr Chairman, I will try to be brief. On his second question first: why 80% and not 100%? Actually, with the requirement to have 80% of the portfolio comprised projects with significant participation from Singapore-based companies, the mandate of the PFC is very clear. However, as with any investment portfolio, the PFC needs to diversify its project portfolio and also the risks. Other countries and their EXIMs are far larger than Singapore’s and able to achieve sufficient risks diversity within their own country’s industries and companies. So, it is a practical concern there. With us, there is a reason why we have decided to allow the PFC some flexibility to provide financing for projects not involving Singapore-based companies. It is to our benefit that the PFC is able to diversify and manage it risks to enhance the commercial viability. So that is to the second question.
To the first question: I have every confidence that Singapore companies are up to it and, in fact, all of our efforts are directed towards helping them to build the capabilities and not assuming that they are not up to it. So, let me give him that assurance.