According to the Articles of Agreement (AOA) of AIIB, the Bank will “provide or facilitate financing to any member, or any agency, instrumentality or political subdivision thereof, or any entity or enterprise operating in the territory of a member, as well as to international or regional agencies or entities concerned with economic development of the Asia region.” Furthermore, the AOA permits the Bank to provide financing in a variety of ways, including, inter alia, making loans, investing in the equity capital of an enterprise, and guaranteeing, whether as primary or secondary obligor, in whole or in part, loans for economic development. In addition, the Bank may underwrite, or participate in the underwriting of, securities issued by any entity or enterprise for purposes consistent with its purpose.
- A loan to, or guaranteed by, a Member;
- A guarantee that:
(a) covers debt service defaults under a loan that are caused by a Government’s failure to meet a specific obligation in relation to the Project or by a borrower’s failure to make a payment under the loan;
(b) is accompanied by a Member Indemnity.
Nonsovereign-backed financing means any financing extended by the Bank that is not a sovereign-backed financing; it includes any financing to or for the benefit of a private enterprise or a subsovereign entity (such as a political or administrative subdivision of a Member or a public sector entity) that is not backed by a guarantee or counter-guarantee and indemnity provided by the Member to the Bank.
The Bank may make direct equity investments in private or public sector companies. It may invest either in a new enterprise or an existing enterprise. The investment may take a variety of forms, including:
- Subscriptions to ordinary shares or preference shares (or a combination of both);
- A loan convertible into equity. The Bank’s investment may not exceed thirty percent (30%) of the company’s ownership holdings.
- In exceptional circumstances, the Board may decide to approve a higher, but not controlling share;
- If the Bank’s investment is in jeopardy, the Bank may take control of the company in order to safeguard its investment.
Preparation Advances for Sovereign-Backed Financing
The Bank may decide to make an advance (Preparation Advance) to finance preparatory activities for a Project to be supported by sovereign-backed financing. A Preparation Advance is made only when there is a strong probability that the financing for which it is granted will be extended, but granting a Preparation Advance does not obligate the Bank to finance or otherwise support the Project for which it is granted. The maximum aggregate principal amount of all approved Preparation Advances for any given Project may not exceed the lesser of:
- Ten percent (10%) of the total estimated amount of financing for the Project;
- USD10 million equivalent; or,
- The President decides whether to approve each Preparation Advance.