Critical Success Factors for Bond Financing of Construction Projects in Asia

Although bonds have been commonly used for financing construction works in developed countries such as the United States, Asian governments would like to see their construction growth increasingly funded by alternative sources such as the capital market, instead of overrelying on bank loans. Yet even in relatively active markets such as Hong Kong and Singapore, the use of bond financing for infrastructure development is limited. In a recent study based on two questionnaire surveys with subsequent interviews about retail and institutional investors, results demonstrated that credit risk was a major concern and that deterrents include lack of bond market information, illiquidity of domestic bonds, and the reliability of external credit ratings. Institutional investors, however, welcome infrastructure bonds because of the stable income stream matching their long-term commitments. To address these practical concerns, we have proposed credit and liquidity enhancement measures in this paper as the critical success factors for international construction promoters to tap into the bond market for financing construction works in Asia. Hence, this paper will be of interest to academics and practitioners who are working on project financing, because empirical findings reveal investors’ concerns, which are then addressed with recommendations.