Global insurance giant Sun Life of Canada is keen on investing in Philippine power-generation assets as it turns to infrastructure in search of long-duration assets with steady cash flows.
In a recent interview, Sun Life Financial Philippines (SLFP) president Riza Mantaring estimated that the group could earmark about P15 billion to P20 billion or about 15 percent of investible funds to Philippine infrastructure assets subject to approval from the Insurance Commission.
Interested in airport infrastructure, SLFP earlier partnered with a consortium that participated in the bidding for the Mactan Cebu airport upgrading program, but its team did not win the project.
“We are also looking at things like power plants because that’s a competency of Sun Life,” Mantaring said.
She said that Sun Life could either be a funder or even take an equity position in an infrastructure asset depending on the prospects of individual projects. But typically, she said the group would want to come in when the project is already operating.
“We also don’t want to be there at the high-risk phase,” Mantaring said, adding that once the project was operational and generating a stable cash flow, the next step would be to assess the credit worthiness of the proponent.
Sun Life’s interest in Philippine power plants comes on the heels of concerns over a potential power shortage in the Luzon grid in the summer of next year, during which energy officials earlier warned of a reserve deficiency of 400 to 500 megawatts in the March-to-May period. This is expected to trigger rotating power outages of two to three hours.
In Canada where Sun Life is headquartered, Mantaring noted that the group had invested in tollroads, bridges, jails and even hospitals. In some cases, she said the group had taken an equity position in them.
For a long-term investor like Sun Life, she said there was a lot of opportunities in the Philippines to complement the funding facilities offered by the banking system.
“Because of Basel 3, banks will have trouble funding longer than seven years so they fund during the inception phase then hand over,” Mantaring said, adding that insurance companies, on the other hand, would be able to handle longer-duration projects.
Basel 3 framework requires a complex package of reforms designed to improve the ability of banks to absorb losses. It also extends the coverage of financial risks and requires stronger firewalls to protect banks especially during periods of stress.
In looking for potential infrastructure assets to invest in, Mantaring said there were thresholds for Sun Life. While the group would not expect double-digit internal rate of return from potential projects, Mantaring said it would be crucial to look at stability.
Meanwhile, Mantaring said she was hopeful that investment flows to the country would continue beyond the term of President Aquino. Citing sentiment from overseas investors in investment conferences she has recently attended, Mantaring said the Philippines was still “one of the hottest” investment destinations out there.
On the 2016 presidential elections, Mantaring said: “I think they (international investors) are much more sanguine than we are. I asked them what’s the view—and I share that view—that whoever takes over will want this to continue. That seems to be view. I think whoever takes over will have a very big incentive to continue and it’s difficult to undo a lot of the structural changes.” Doris C. Dumlao