Financing Operations: Our Guide
We are guided by our Operational Policy on Financing
, which sets out our policy on providing sovereign- and nonsovereign-backed financing for projects. The policy includes an overview of the instruments, project assessments and structure of financial and contractual terms.
Pricing terms for sovereign-backed loans which meet AIIB’s selection criteria are uniform across borrowers. Revised in 2019, our Sovereign-backed Loan and Guarantee Pricing
policy prescribes the sovereign lending spread for loans made on Dec. 13, 2019 or thereafter. Our General Conditions for Sovereign-backed Loans
prescribe the basic legal provisions applicable to the agreements entered into by AIIB for sovereign-backed projects. These general conditions are incorporated into the legal agreements for each project, including loan, guarantee and project agreements as applicable.
Our Directive on Sovereign-backed and Non-sovereign-backed Financings
was revised on Dec. 6, 2019. The directive establishes responsibilities and Management decision points to enable AIIB staff to implement our Operational Policy on Financing.
The Asian Infrastructure Investment Bank (AIIB) is authorized to invest in any member as long as the investment ultimately benefits Asia’s social and economic development. Such investments come in the form of sovereign-backed loans that have an average maturity of up to 20 years and a final maturity limit of up to 35 years. Sovereign-backed loans are appraised based on a full assessment of the project’s benefits, risks and borrower implementation capacity. This could be in the form of a loan to, or guaranteed by, an AIIB member.
We also provide 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. This type of financing is not backed by a guarantee or counter-guarantee. Indemnity is provided by the member to AIIB in the form of loans, guarantees, direct equity investments, indirect equity investments and underwriting of securities. The terms and conditions of such financings are set on a commercial basis and reflect market conditions and the expected risk the investment poses to AIIB. Loan or guarantee amounts in this type of service can be up to 35 percent of the project and have a final maturity limit of up to 18 years.
We’re guided by our Strategy on Investing in Equity
. AIIB may make direct equity investments in private or public sector companies, 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) or a loan convertible into equity. Our investment may not exceed 30 percent of the company’s shareholdings. In exceptional circumstances, our Board of Directors may decide to approve a higher, but not controlling shareholding. Our limit to equity investments is up to 10 percent of our available capital. We expect to play the role of a minority investor and will not seek a controlling interest in the target entity or enterprise.
We make preparation advances for sovereign-backed financing. AIIB 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 AIIB 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 10 percent of the total estimated amount of financing for the project, USD10 million equivalent or if the President decides whether to approve each preparation advance.
Special Fund for Project Preparation
We have a Project Preparation Special Fund
that provides grants for preparing projects we will finance. The purpose of the Special Fund is to support and facilitate preparatory activities during the preparation and early implementation of projects to be financed by AIIB from its ordinary and/or special resources.
Value Addition to AIIB and the Client
To better serve our clients and match expectations prior to finalizing an investment partnership, we determine both the project’s value addition to the client and to AIIB. Our Project Prioritization and Quality Framework (PPQ)
better aligns the project and the client’s national strategies. For AIIB, the PPQ allows us to examine what the project would bring to the Bank (for example, if it would allow us to learn, build partnerships, build our brand, open new markets or develop our capacity). For the client, the PPQ allows us to (1) see if the project would add value in terms of offering financing currently not provided by the market, (2) determine if risks could be shared or mitigated and (3) see if the project design could be improved to offer better development outcomes by adhering to higher environmental, social and governance standards.
As a young bank, we do not yet have the opportunity to conduct independent evaluations after project completion. However, we recognize that it is equally important for us to learn early and quickly from different perspectives. Thus, we identify several ongoing projects each year for what we call “early learning assessments.” Project teams and the Complaints-resolution, Evaluation and Integrity Unit’s evaluative learning staff visit and review these projects to derive lessons for enhancing future practice. Early learning assessment findings are also shared within AIIB to stimulate discussion and experience exchange.