Bond finance: a growing source of funds for utility and infrastructure companies?

Article type: Research Article

Authors: Alexander, Ian | Chia, Shi-Chien

Affiliations: Regional Coordinator for East and South Asia, Public-Private Infrastructure Advisory Facility, Program Management Unit, The World Bank, Singapore

Note: [] Shi-Chien Chia is a Research Analyst for PPIAF.

Abstract: The reform of the infrastructure and utility service industries that has seen liberalization and increased private sector participation can be expected to have led to an increased usage of external finance. One of the key markets that should have become available for these operators is that of the international bond market. Using a database of infrastructure and utility bond issues made over the period 1996 to 2001, the authors investigate whether there has been a growing usage of the international bond market. While the raw data would suggest that the expectation of greater usage is borne out, a more detailed investigation shows that the story is more complex. Much of the increased usage, especially in the telecommunications industry, is made by companies that have been accessing the markets for longer than the period covered by this sample and that while new companies are gaining access to the market their issuance is small. An increasing usage of the international bond markets provides useful information for regulatory agencies. When determining allowed revenues, the return on capital is a key input. Within the return on capital, the cost of debt is normally measured as a margin on bonds. The dataset shows that there is an increasing pool of potential comparator companies that can be used to determine these margins. However, the analysis of this data provided in the paper also shows that great care needs to be taken when choosing comparators, many factors have an impact with respect to the determination of the margin and these need to be correctly controlled.

DOI: 10.3233/IJR-120014

Journal: International Journal of Regulation and Governance, vol. 2, no. 1, pp. 1-25, 2002