1 Legal framework
1.1 Beyond general commercial and contract laws, what other specific laws and regulations govern project finance transactions in your jurisdiction?
To the best of our knowledge, there is no legislation governing project finance transactions as such. There are, however, various sector-specific laws and regulations which are pertinent to project finance transactions in these sectors.
Some of the more salient laws/regulations are the following primary legislation and the subsidiary legislation thereunder:
- the Environmental Protection and Management Act (Cap 94A);
- the Environmental Public Health Act (Cap 95);
- the Workplace Safety and Health Act (Cap 354A);
- the Fire Safety Act (Cap 109A);
- the Sewerage and Drainage Act (Cap 294);
- the Energy Conservation Act (Cap 92C); and
- the Resource Sustainability Act 2019 (29/ 2019).
1.2 Do any bilateral and/or multilateral international instruments have particular relevance for project finance transactions in your jurisdiction?
No, to the best of our knowledge.
1.3 Beyond normal governmental institutions, are there regulatory bodies that play a particular role in project finance in your jurisdiction? What powers do they have?
The Monetary Authority of Singapore (MAS) is Singapore's integrated financial regulator and oversees all financial institutions in Singapore. In light of Singapore's aim of "accelerating the development of green financing", MAS convened the Green Finance Industry Taskforce (GFIT), comprising representatives from corporations, financial institutions and non-governmental organisations, along with several financial industry associations as strategic partners. The GFIT has four key initiatives:
- developing a taxonomy;
- enhancing environmental risk management practices of financial institutions;
- improving disclosures; and
- fostering green finance solutions.
As of May 2021, the GFIT has published several initiatives in furtherance of these aims, including:
- a handbook guiding asset managers, banks and insurers on environmental risk management;
- a guide on the best practices in climate disclosure;
- a white paper on green finance solutions; and
- a public consultation on its proposed taxonomy to demarcate projects as green, transitioning to green or incompatible with a low carbon economy (to be used by financial institutions).
1.4 What is the government's general approach to project finance in your jurisdiction? Is PFI/PPP a preferred model in your jurisdiction?
Singapore has used PPPs for various projects in the past, including water treatment plants, waste disposal plants and education infrastructure. In 2004, the Ministry of Finance's PPP Handbook recommended that the model be considered for all state projects which require the development or redevelopment of capital assets costing more than S$50 million. This advice remains unchanged today, to the best of our knowledge.
2 Project finance market
2.1 How mature is the project finance market in your jurisdiction?
The project finance market in Singapore is well established and is primarily focused on PPP financing and traditional project financing. Singapore is also instrumental in organising financing for regional infrastructure projects, with 60% of project finance loans in Southeast Asia originating from banks in Singapore.
Singapore is home to a range of private and public sector organisations that cater to this industry, ranging from developers and construction companies to financial institutions and professional services firms. In 2018, Enterprise Singapore and the Monetary Authority of Singapore set up Infrastructure Asia, with the purpose of leveraging this extensive network to catalyse project development, financing and execution opportunities in Asia.
2.2 On what types of project and in which industries is project finance typically utilised?
Project finance is typically utilised in the same sectors as elsewhere in the world, such as power, transport, water and sanitation and renewable energy.
2.3 What significant project financings have commenced or concluded in your jurisdiction over the last 12 months?
In September 2020, the National Environment Agency and the Public Utilities Board (Singapore's national water agency) began the first phase of the construction of Tuas Nexus, Singapore's first integrated water and solid waste treatment facility.
In March 2021, Amazon announced its first renewable energy project in Singapore, which will see it purchase clean energy from Sunseap's 62 megawatt solar installation (awarded as part of JTC Corporation's SolarLand project), due to be completed in 2022. Once operational, the installation is expected to produce 80 gigawatt-hours of clean energy annually. Amazon has committed to purchasing all the energy generated by this project.
3 Finance structures
3.1 What project financing structures are most commonly used in your jurisdiction?
In countries such as India and Japan, build-own-operate structures are common; however, in jurisdictions such as Singapore, where the projects are (necessarily) considerably smaller in scale, recourse to the balance sheet is the norm. This is particularly true of the petrochemicals industry; outside of the oil and gas sector, however, large-scale capital investments are financed using non-recourse financing.
In comparison to the 1990s, non-recourse financing has fallen out of favour in Asia. According to Infrastructure Asia, "for many projects, the mode of financing infrastructure is changing from 'project financing' to 'financing projects'". Various types of credit enhancements and non-project collateral are used to enable financings.
Possible financing options may include:
- senior and mezzanine financing;
- fixed and floating rate instruments;
- asset-backed financing;
- acquisition financing; and
- loans and bonds.
An example of a novel structure is the S$458 million Bayfront Infrastructure Capital long-term loan facility established by Clifford Capital. Under this facility, institutional investors provide liquidity while being issued asset-backed securities in return. Bayfront provides this liquidity to lending banks in return for infrastructure loans, which are then repackaged into asset-backed securities, which are further divided into tranches and given credit ratings.
3.2 What are the advantages and disadvantages of these different types of structures?
Non-recourse financing entitles the lender to repayment only from the profits of the project it is funding; hence, for the borrower, the risk is limited to what was invested in the project, which is typically 70-75% of the capital costs. Most of the risk is therefore on the lenders.
3.3 What other factors should parties bear in mind when deciding on a project financing structure?
These factors are broad ranging and sector and project specific; therefore, parties should seek legal advice specific to their own project before deciding on a project financing structure.
4 Industry players and ownership requirements
4.1 Who are the key players in project financings in your jurisdiction? Do any restrictions apply in this regard (eg, foreign ownership)?
The key financial institutions with dedicated non-recourse teams in Singapore include DBS, Standard Chartered Bank and BNP Paribas. Banks such as United Overseas Bank and OCBC have also branched into the financing of infrastructure. American banks in Singapore, such as Bank of America, act more as industry players, bringing in non-recourse experts.
Generally, Singapore law does not restrict foreign ownership of Singapore-incorporated project companies, except in specific sectors such banking, media and broadcasting. The restrictions (if applicable) may be imposed by way of legislation or by the licensing requirements prescribed by the relevant regulatory body. For instance, a broadcasting licence will not be issued to a company that is controlled by foreign entities or if more than 49% of the shares of the company is held by foreign entities.
4.2 What role does the state play in project financings in your jurisdiction?
From a broad perspective, Temasek Holdings (a holding company owned by the government of Singapore) holds several infrastructure firms in its portfolio, such as Sembcorp, Keppel, Changi and PSA. These companies are commercially run, unlike some state-owned enterprises elsewhere. Consequently, the GLC ecosystem has a very significant presence in the infrastructure sector across different industries internationally.
As Ms Indranee Rajah - minister in the Prime Minister's Office and second minister of finance and education - has noted, Singapore is keen to "contribute to Asia's infrastructure and financing needs". It was with this aim in mind that Infrastructure Asia was set up in 2018, to bridge the gap between projects, project sponsors, industry players, private sector and multilateral development banks and government agencies, in order to improve access to infrastructure financing. She further noted that Infrastructure Asia and the Monetary Authority of Singapore were also working towards facilitating asset securitisation and take-out financing for infrastructure as an asset class in Asia.
4.3 Does your jurisdiction have nationalisation or...
