S&P: Infrastructure development in Asean to slow over next two years

KUALA LUMPUR: S&P Global Ratings expects infrastructure development in Asean countries to slow down over the next two years.

“While economic momentum in Asean is strong, policy and macro risks are rising and could deter infrastructure investment.

“Additional potential obstacles include a sharp currency depreciation, global trade wars, higher interest rates, and political uncertainty,” said S&P Global Ratings credit analyst Abhishek Dangra said in a report titled “Policy And Macro Risks Could Derail Asean’s Infrastructure Development Plans”.

However, he said any slowdown in the build-out of infrastructure development is likely to be a breather, rather than an end to a long upward march.

This is because governments or state-owned enterprises will continue to lead heavy infrastructure investments, bridging some of the large gaps between supply and demand.

It said rising domestic interest rates may lead debt costs to spike for Asean infrastructure companies, and a hike in US interest rates or continuing currency volatility would aggravate the pressure.

Most infrastructure companies in Asean have benefitted from low interest rates and benign funding conditions in the past few years, and this may be about to turn, it said.

“Higher interest rates will bite most players, in our view.

“We believe the exposure to currency and interest rate risk is the highest for land transport companies,” he said.

It said regulated utilities benefitting from cost pass-through or ports with significant foreign currency earnings may be relatively less exposed.

The rating house expects the industry’s revenue growth to slow down to 5%-8% in 2018, from 8%-14% in 2017.