AIIB sets out its expansion strategy

AIIB publishes future strategy of originating, structuring and executing standalone deals

PROJECT sponsors are getting to grips with the Asian Infrastructure Investment Bank (AIIB) Strategy on Mobilizing Private Capital for Infrastructure, which it published in early April.

As a relatively new institution, the bank is currently engaged in what it designates Activity 1, which consists of pursuing and executing transactions based on third-party referrals, as well as a few readily investable non-sovereign projects. Activity 1 is important in order to develop its operations and build up the capacity, track record and experience to ensure it is well positioned to proceed to the next phase – Activity 2.

Activity 2 involves the Bank originating, structuring and executing standalone deals. These transactions will provide an opportunity to innovate. Origination under this activity will require an experienced, qualified team of officers with good track records, consistently and regularly implementing a client coverage plan. The team will also establish and foster partnerships with financiers like other MDBs, commercial banks, institutional investors and advisors, including lawyers and technical consultants.

Transactions under Activity 2 will not be based on referrals from other lenders, they will be the result of direct marketing efforts with project sponsors (owners). Although the bank will commence Activity 2 in 2018, the AIIB says that it will require two years to ramp up.

This will pave the way for Activity 3, under which the AIIB creates markets: Implementation entails opening up new markets and creating deal flow. “Activity 3 will be actively pursued in the medium to longer term – we expect from 2021 onwards,” the document says.

“We need institutional investors and private sector funders to come to the table and partner with us if we are going to fill the current infrastructure gap in Asia,” says AIIB vice president for policy and strategy Joachim von Amsberg.

In addition to supporting the bank’s thematic and sectoral priorities, the AIIB will prioritize transactions that have a strong likelihood of generating repeat mandates, provide business development opportunities and employ structures that can be replicated. A set of monitoring indicators has also been established to measure progress as the strategy begins to roll out.

During 2018 the bank will continue implementation of Activity 1. During the period 2018-2020, the Bank’s focus will be to initiate the implementation of Activity 2. The Bank will identify areas for differentiation that could include financing structures and markets that are currently underserved by other MDBs (for example sub-sovereigns).

The latest project to be supported by the AIIB is in India. On April 11 the AIIB announced that its Board of Directors has approved a US$140 million loan to improve rural road connectivity and management for residents of 5,640 villages across Madhya Pradesh. The project is being co-financed with the World Bank.