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Treasury & Capital Markets
Bayfront prices IABS with sustainability tranche
AIIB returns as anchor investor in fourth iteration of infrastructure financing deal amounting to US$410.3 million
Chito Santiago 14 Sep 2023

Bayfront Infrastructure Management, a platform designed for institutional investors to access Asia-Pacific infrastructure debt, priced its fourth infrastructure asset-backed securities (IABS) transaction – reinforcing its commitment to provide investors access to a diversified portfolio of projects and infrastructure debt across the region.

The transaction, announced on September 13, was done through Bayfront Infrastructure Capital IV (BIC IV), a wholly-owned and a newly-incorporated distribution vehicle. BIC IV features a portfolio size of approximately US$410.3 million spread across 40 individual loans/bonds, 33 projects, 15 countries and 10 industry sub-sectors. Five classes of notes, including a sustainability tranche, were offered to institutional investors. All were priced at par and rated investment grade by Moody’s Investors Service, except the Class D notes which are not rated.

The Class A1 notes amounting to US$170 million are rated Aaa (sf) and priced at a spread of 150bp over secured overnight financing rate (Sofr), while Class A1-SU sustainability notes amounting to US$115 million are also rated Aaa (sf) with a spread of 142.5bp over Sofr. The Class B notes amounting to US$54.5 million are rated Aa1 (sf) with a spread of 225bp over Sofr, while the Class C notes amounting to US$31.6 million are rated Baa1 (sf) with a spread of 490bp over Sofr. The unrated Class D notes amounted to US$13 million, while the preference share component of the transaction amounted to US$25.6 million.

The sustainability tranche will be issued under Bayfront’s sustainable finance framework dated August 2023 with the proceeds to be used to finance or refinance projects and infrastructure debt for green and social assets that meet the eligibility criteria specified in the framework.

The Class D notes, which are also not listed, benefit from a guarantee from GuarantCo for principal and interest amounts payable. The provision of the guarantee by GuarantCo – a contingent credit solutions provider that is part of the Private Infrastructure Development Group (PIDG) – delivers an innovative guarantee structure for the Class D notes, helping to support the financing or refinancing of sustainable infrastructure projects and infrastructure debt, as permitted by PIDG’s investment policy. The Class D notes were pre-placed and taken up in full by funds managed by global asset manager Apollo Global Management.

Preference shares

As sponsor of the transaction, Bayfront has acquired the retention preference shares – equivalent to 20.6 million preference shares comprising 5% of the capital structure – prior to the issue date and will retain them throughout the life of the deal. The UK Foreign Commonwealth & Development Office (FCDO), as part of its Mobilizing Institutional Capital Through Listed Product Structures (MOBILIST) programme, committed an anchor investment of up to US$20.4 million in the preference shares and received a final allocation of US$5 million – equivalent to five million preference shares – given investors’ robust demand which resulted in strong oversubscription for the notes.

The MOBILIST programme, developed by the UK Government and delivered in partnership with the Government of Norway, was created to harness the unparalleled potential of public markets to help deliver the climate transition and the United Nations Sustainable Development Goals (SDGs) in developing economies. By providing direct investment, technical assistance, advisory services, and/or enhanced visibility through the UK Government’s platforms, MOBILIST supports new scalable and replicable financial products to list on public markets.

In March 2022, MOBILIST and Singapore Exchange Group signed a partnership agreement to mobilize public capital markets for sustainable finance in Asia.

Bayfront, which has made a commitment to be a frequent IABS issuer, has already structured and placed three transactions – Bayfront Infrastructure Capital (BIC) in July 2018, Bayfront Infrastructure Capital II (BIC II) in June 2021, and Bayfront Infrastructure Capital III (BIC III) in September 2022.

The latest transaction garnered demand from a range of investors, including insurance companies, pension funds, bank treasuries, sovereign and supranational agencies, private banks, asset managers, and corporates. The orderbook for the rated notes amounted to approximately US$700 million, representing an oversubscription rate of 1.9x over the US$371.7 million of rated notes issued.

Bayfront’s shareholder Asian Infrastructure and Investment Bank (AIIB) participated as an anchor investor for the third time. The other Bayfront shareholder is Clifford Capital Holdings.

Citi and Standard Chartered are the joint global coordinators for the transaction as well as joint bookrunners and lead managers along with ING, OCBC, Société Générale and SMBC Nikko.

Sustainable growth

Bayfront chief executive officer Nicholas Tan says the participation of new partners UK FCDO and GuarantCo/PIDG help enhance the IABS programme, and deliver innovative structures to catalyze incremental institutional participation.

Najeeb Haider, AIIB director-general, banking department (Region 2), notes that the mobilization of private capital and development of Asian infrastructure as an asset class through Bayfront’s platforms promote sustainable growth amid a challenging market environment.

The sustainable feature of BIC IV aligns with the bank’s environmental and social development objectives to finance sustainable solutions for the Asia’s infrastructure going forward, Haider adds.

British High Commissioner to Singapore Kara Owen describes the transaction as catalytic as it removes a significant obstacle for finance institutions committed to the net-zero transition by providing them with the means to free up capital for immediate investment.

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