AIIB looking at capital markets to boost funding capability

The Asian Infrastructure Investment Bank (AIIB) will be tapping the capital markets as it boosts its funding capability to finance infrastructure projects across the region.

AIIB’s total capital is US$100 billion. The bank’s treasurer Soren Elbech told the participants of The Asset 11th Asian Bond Markets Summit in Shanghai that the first US$20 billion in AIIB’s lending can be financed by the paid-in capital, and so it needs to borrow US$80 billion to make up for the gap.

Soren Elbech, treasurer, AIIB, at The Asset 11th Asian Bond Markets Summit.

“So certainly, we have to be a very active participant of the capital markets,” he says. “We’ve already completed the rating process and we expect to have our international ratings in the coming months. In addition, we are getting the risk weighting for our paper, which is very important to institutional investors, and we are putting our bond documentation together, including our swap template. Once these building blocks are done, hopefully we’ll be ready to start borrowing by the end of the year.”

Elbech says that as a US dollar-based institution in Beijing, it is very natural for AIIB to look actively in the US dollar market. However, it will also certainly look at the renminbi bond market, which he describes as the most natural place for the bank to start looking when it taps the bond market.

Elbech says that in February this year, AIIB started disbursing loans that it approved in 2016, amounting to US$1.7 billion. “We’ve now disbursed almost US$500 million of that and we expect to disburse another US$500 million before the end of the year. We expect to approve between US$2 billion and US$2.5 billion in loans for 2017.”

The recipient countries include Pakistan, Uzbekistan, Bangladesh, Azerbaijan, Oman and Indonesia. The last approved project, and its first in India, was a US$160 million loan for the Andhra Pradesh power project – 24x7 Power for All, with the objective of strengthening the power transmission and distribution system in the State of Andhra Pradesh.