3i is an organisation comprised of engineers and financial experts managed by the Palladium Group on behalf of the Australian Department of Foreign Affairs and Trade. Speaking about the viability of the project, an embassy spokesperson said the issuance of government bonds would support the overall development of Cambodia’s domestic bond market. The “i” in 3i stands for Investing in Infrastructure.
The spokesperson outlined, in particular, the (upside of the) development of a market for infrastructure bonds because it would establish yield benchmarks and a sovereign borrowing rate, as well as a yield curve.
In addition, significant steps towards the issuance of government bonds, such as approval of the draft law, would also build confidence in the market around the viability of infrastructure bonds.
Current regulations require all corporate bonds and shares to be issued in local (riel) currency. However, according to the embassy, the 3i-SECC project may look at the possibility of revising requirements to allow the issuance of dollar-denominated bonds.
In addition, they may also explore structures where bonds could be riel-denominated and the issuer would take on the currency exchange risk and guarantee investors the equivalent (via) dollar-linked payment streams.
For many projects, the underlying cash flows are in US dollars, so taking on the currency exchange risk does not represent a major risk for an issuer, the embassy said.
Infrastructure bonds would be backed by the underlying cash flows of each project or company and not the government. In some cases (for example, power generation projects), sovereign guarantees for the underlying cash flows already exist, the embassy added.
In October the Australian government partnered with the SECC to launch the landmark Domestic Capital Mobilisation for Infrastructure Investment through the Security Market Project.
Funded through Australia’s AU$50 million ($35 million) flagship infrastructure programme, the partnership will provide technical assistance to develop a regulatory framework for specific infrastructure bonds with long-term debt.