A Study on Securitization of BOT Projects

In recent years, many countries have implemented a number of policies in order to encourage private investors to build and operate the public infrastructure works. BOT, a policy designed to attract private capital into this works initiated by the government, stresses the private investors’ participation with emphasis on financing, planning, construction, management, efficiency, and creativity and thereby alleviates the debts and financial burden for the government, speeds up the construction progress, upgrades managerial efficiency and eventually enhances the investment benefits, improves the living standard and environment quality. In addition, asset securitization is designed to divide the illiquid asset into small-amounted and standardized liquid securities by means of structuring pools, risk isolation, credit enhancement and thus financing from the capital markets.

Apparently, a modal combined with asset securitization and BOT will allow the BOT investors to identify the most lucrative financing source. Furthermore, asset securitization helps the BOT investors recover a portion of their investments earlier than expected without undermining their managerial stability. Thus, they may continue to invest in the other new BOT projects. Moreover, BOT securitization allows the populace investors to participate in the public infrastructure works practically. Thus, the populace investors will get benefits from BOT and the BOT projects also serve the general public’s interests in the meantime.

This study focuses on the utilization of BOT and asset securitization with emphasis on the market application and conditional requirements for the frameworks and thereby presents the implementation considerations and countermeasures together with the tangible recommendations. This study has also analyzed the features, legal basis, and case studies related to asset securitization and BOT. Furthermore, this study has reviewed the relevant laws and regulations as well as feasible topics related to BOT securitization, such as timing for public issuance, stable net cash flow, bankruptcy remote, credit enhancement, transfer of concession expiration or termination, moral hazard and agency issues, etc. This study finally has provided some examples of securities of BOT equity and debt securitization and has thereby presented the concepts for reference.

The research results indicate that, with the appropriate conditional measures and mechanism design, debt or equity securitization of a BOT project will not only minimize or prevent the moral risks or agency problem from happening, but also enhance managerial efficiency in compliance with the requirements of this BOT project and expanding investment pathways. Thus, the populace investors’ interests and the general public’s interest served at the same time. Furthermore, the relevant laws and regulations in Taiwan indicate that only those specified in the real estate investment trust (REIT) of the Real Estate Securitization Act are eligible for BOT securitization at this moment. Restricted by the Act for the Promotion of Private Participation in Infrastructure Project, however, the financing of debt securitization of a BOT project is not permitted. Therefore, the laws should be discussed and revised for the application and benefits of BOT securitization.