2019 AIIB Annual Report and Financials

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Our Services and Value Addition

Sovereign-Backed Financing
Financing Operations: Our Guide
From Our Board of Directors

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.

Nonsovereign-Backed Financing
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.

Equity Investments
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.

Preparation Advances
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.

Client Relations and Consultations

From Our Board of Directors
ENLARGE
We listen to our clients. We proactively engage with members and stakeholders, establishing relationships and forging partnerships. We collect, arrange and share project and client information for better programming of priority projects.

The Client Relations and Programming (CRP) teams connect with stakeholders, generate key contacts for AIIB in different members and organize strategically designed business development and country relations missions.

We carried out business development missions in different members with a series of follow-up visits to advance project opportunities and develop country programming memos which identify priority and prospective projects. By frequently consulting and engaging with clients, we ensure that (1) targets set in the pipeline or country programming memos are met in a timely fashion and (2) focus areas are adequately revised based on clients’ priorities.

Client orientation is an essential part of AIIB’s approach. To continually provide better client service, we (1) formalized CRP’s structure and operating procedures, (2) developed a concept and a structure of CRP’s proprietary “country intelligence system” to feature state-of-the-art tools in preparing country briefs and program memorandums and (3) initiated a system of information exchange on projects and cofinancing matters with several bilateral and multilateral agencies.

From Our Clients

Government of Maharashtra and Ministry of Railways/MRVC
Around 86 percent of Mumbai commuters rely on public transport, but supply is not keeping up with demand. The Mumbai suburban railway network suffers from some of the most severe transport overcrowding in the world and has serious safety concerns.

So began our journey with the client—the Government of Maharashtra and the Ministry of Railways in India—with the Mumbai Urban Transport Project 3. AIIB invested USD500 million in the project. India’s Ministry of Railway invested USD189 million and the Government of Maharashtra invested USD308 million, with Mumbai Railway Vikas Corporation (MRVC) as the implementing entity.

From Our Board of Directors
ENLARGE
AIIB funded the project because it aligns with the Bank’s strategies and the United Nation’s Sustainable Development Goals, specifically Goal 9 on building resilient infrastructure and Goal 11 on sustainable cities and communities. The project will also further strengthen our capacity to finance broad-based sustainable rail infrastructure that are in high demand in other areas of India and in the region.

For the client, AIIB added value by helping in project preparation and will continue to do so during project implementation. We provided substantive inputs to enhance station design and maintenance, with gender responsiveness of station facilities to be monitored and evaluated through a preproject baseline survey and a dedicated gender-related project objective indicator.

MRVC—through Chairman and Managing Director Shri R. S. Khurana and Executive Director Sanjay Singh—said they appreciate AIIB’s assistance, namely (1) guiding MRVC through the preparation of the environmental and social management plan, (2) following international guidelines on environmental and social practices, (3) being quick in project appraisal and loan negotiation, (4) adopting a uniform and transparent procurement policy, (5) being prompt in responding to the client and making sure clearance of issues and documents was timely, (6) using new technology for project progress monitoring and (7) conducting speedy reviews of bid documents and the evaluation report.

Our client added that “AIIB, with their global experience and expertise, can help MRVC in capacity building such as upgrading existing infrastructure like rolling stock, station improvement, new signaling technology, new bridges and structures, energy management and construction technology.”

Other areas of possible collaboration, said the client, were transit-oriented development, increasing train operation efficiency, introducing MRVC officials to state-of-the-art technologies related to mass transit and a Rupee-denominated loan. In 2019, AIIB launched its local currency financing program, with the Indian Rupee as one of the currencies in the product line.
Zhanatas Wind-Power Station LLP
In December 2019, our Board approved our first project in Kazakhstan. The borrower—wholly foreign-owned company Zhanatas Wind-Power Station LLP—was established for the development, construction and operation of a 100-megawatt wind power plant in the town of Zhanatas. The project will produce 350 million kilowatt-hours of electricity per year—enough to meet the power demand of millions of Kazakh families.

Chase Cheng, Head of the Planning and Financial Department of Zhanatas Wind-Power Station LLP, shared their experience working with AIIB.

From Our Board of Directors
ENLARGE
“The development cost of renewable energy is relatively high in Kazakhstan,” he said. “Few international financial institutions are active there, and the local financing cost is high. With AIIB’s support, we were able to arrange competitive financing for the project and realize reasonable returns.”

Cheng added that by working with AIIB and its appointed legal, technical, financial, insurance and other third-party advisers, they were able to identify additional potential risks, areas that can be improved, best practices and mitigation measures—especially in the environmental and social space. “This helps reduce overall project risk,” said Cheng.

“The regulatory environment is marked with uncertainty despite the government’s overall support for renewable energy,” Cheng added. “AIIB helped facilitate conversation with government regulatory authorities. The Bank demonstrated deep knowledge of the energy sector and the Kazakh market, worked diligently and professionally and provided valuable inputs to improve the project. AIIB also helped the client develop a financing structure that suits the project, committed itself to the financing timeline and delivered results in a timely manner.”
Beijing Gas Group Company Ltd
In 2019, the Beijing Gas Group became a project implementing entity for AIIB’s first sovereign-backed loan in China, the Beijing-Tianjin-Hebei Low Carbon Energy Transition and Air Quality Improvement Project.

Yan Kang, Chief Finance Officer of the Beijing Gas Group, said AIIB cares about debt sustainability, has transparent environmental and social policies, respects international rules and management regulations and has a transparent governance structure.

From Our Board of Directors
ENLARGE
“AIIB concentrates on innovation, environmental protection and sustainability and employs experienced and expert staff who gave us many useful suggestions,” said Yan. “All these are advantages for AIIB’s continuous development.”

AIIB’s most significant value addition, according to Yan, was the establishment and standardization of environmental protection and social procedures before project implementation, in accordance with the requirements of AIIB’s Environmental and Social Framework.

“On the other hand, we pay more attention to monitoring and evaluation after project completion,” said Yan. “Above all, AIIB’s loan offered significant financial support. These all contributed to making project implementation better and smoother.”

Developing With Our Clients

Sembcorp in Myanmar
Publicly listed Sembcorp Industries is investing to increase much-needed reliable and low-carbon energy in Myanmar to ease the country’s severe power deficit. The project—located in Taungtha, a township of Myingyan District in the Mandalay Division—had peripheral benefits. We helped our client finance the project which ultimately led to increased power generation. Watch how they achieved their objectives in the following video.
Oman Broadband’s Digital Journey
By end-2019, AIIB had two projects approved in Oman, both geared toward helping the country diversify its economy away from reliance on hydrocarbons. This supports our commitment to help our members meet their Paris Agreement targets. Our 2017 project with Oman Broadband was AIIB’s first stand-alone, nonsovereign-backed financing that involves private capital mobilization through syndication. To implement the country’s National Broadband Strategy, Oman Broadband Company was incorporated as a private company to focus on fiber network infrastructure. AIIB helped Oman Broadband in the construction and operation of the first phase of a nationwide fiber broadband network. Watch the beginning of our journey with Oman Broadband in the following video.
Using Data for Better Client Service
Investment implementation data and knowledge lead us to better client service.

Internally, we monitor the performance of our projects so that our Board and Management are given an overview of the size, composition and status of our investment portfolio. The Implementation Monitoring Unit’s (IMU) Investment Operations Quarterly Monitoring Report builds on our project information database and project implementation monitoring reports of effective projects. The reports deliver risk status updates and identify projects with major implementation risks.

We proactively monitor project performance and compliance. We also monitor and report implementation performance of projects that have been transferred from the origination teams. We actively supervise financial performance, construction progress and operation and maintenance of projects.
Gathering, analyzing and disseminating knowledge on project performance help us better serve clients. With knowledge and experience, we identify risks and design appropriate remedies at early stages. For example, we can identify newly emerging risks and provide Management with early warnings about critical deviations from the original investment plan, while simultaneously proposing appropriate remedies and coordinating related activities with internal and external stakeholders.

With knowledge derived from data, we’re able to analyze periodic financial statements and other project reports and monitor compliance with financial and other covenants. This allows us to develop an informed opinion about expected future project performance while identifying and updating risk factors. For instance, we can assure that clients comply with loan documentation and financing agreements, including delivery of reporting and other requirements.

Some examples of targets met in 2019 include aligning projects with our thematic priorities and ensuring that 80 percent of our projects have fewer than three risk flags. By monitoring project performance, we were able to determine that by end-2019, 87 percent of our projects were aligned and 96 percent had fewer than three risk flags. This informed us that, based on predetermined business indicators, our portfolio quality remains healthy.

With such data, knowledge and experience, we can build and maintain strong client relationships through the supervision process and add value to the client. We’re able to effectively manage relationships with external stakeholders (such as borrowers, sponsors, co-lenders, counsels, advisers, agents, community groups and civil society organizations) and internal teams (such as investment operations, risk management, safeguards, procurement, legal and finance) and ensure collaboration with all teams concerned to assess and implement the most appropriate course of action.

Finally, by generating experience and knowledge feedback loops, we can identify and document lessons learned from the existing portfolio and feed this knowledge back to other AIIB teams. This would ultimately leverage the relationship with AIIB’s clients with an eye toward opening new business opportunities for the Bank.
Serving More Members
Supporting Our Lower-Income Members. In 2019, we reached out to and invested in projects in our lower-income members.

  • We approved our first project in the Lao People’s Democratic Republic (Lao PDR) in April 2019, a USD40-million loan to improve a critical section of National Road 13 that will directly benefit over half a million people. This investment will improve one of the most vital transport routes in the country. The road upgrades will enable quicker and safer transportation of goods and people, which in turn will promote socioeconomic development within Lao PDR and improve connectivity with its neighbors.
  • In May 2019, we approved our first investment in Nepal with a USD90-million investment in the Upper Trishuli-1 Hydropower Project. The project will increase the country’s power generation by almost 20 percent, helping to reduce acute power shortages. Power supply shortages have caused significant delays in the restoration of infrastructure and services impacted by the 2015 Nepal earthquake. By investing in hydropower and encouraging further private sector investment in the country, we can help drive economic growth and alleviate poverty.

  • In July 2019, we approved our first investment in Cambodia, a USD75-million digital infrastructure project that will see a major improvement in internet speed and quality via the country’s largest independent fiber optic communication network provider. The project will contribute to Cambodia’s drive to accelerate digital connectivity and help develop and expand the country’s telecommunication and ICT sector. This in turn is expected to benefit both end users and corporates.

We will continue catering to the needs of our members and strive to serve a broader range of our membership.

From Our Board of Directors
ENLARGE
Project Preparation. One reason why some project proposals are not seen by financiers as bankable investments is that they lack proper preparation. Our Project Preparation Special Fund makes our offering more inclusive in the sense that many AIIB members, especially low-income members, face significant capacity lags in preparing bankable infrastructure projects. We have very high standards for project quality, especially for economic, environmental and social sustainability. These are also areas where some of our members need additional support. AIIB’s Special Fund helps our members address these preparation gaps, improve overall quality of projects and get projects ready for AIIB investment.

The Special Fund provides support for other preparatory activities such as reviewing feasibility studies and creating legal documents, detailed engineering designs and tender documents. Given our stringent assessment of social and environmental issues in AIIB investments and our focus on building the capacity of our clients, the Special Fund also provides grants to develop proper environmental and social safeguard documents and to strengthen the local project implementation unit by filling in critical skills gaps. The Special Fund also enhances implementation readiness of projects we support, thus helping our clients save time and resources during project implementation.

From Our Board of Directors
ENLARGE
An example is our project in Lao PDR, the National Road Improvement and Maintenance Project. The project received a USD995,000 Special Fund grant prior to implementation in support of preparatory activities to enhance the proposed investment’s implementation readiness and quality. The grant supported consultancy services for the preparation and implementation of the Resettlement Action Plan by effectively monitoring the resettlement process through the development of a computerized system that tracks payments to prevent construction delays. It also supported project management and conceptual design for the southern section of National Road 13. The Special Fund support significantly helped improve the project’s bankability by building capacity and the necessary skills to undertake future complex transport projects in Lao PDR.

Special Fund *
  • Year
  • Commitment Contributions
  • Preparation Grants Approved
  • End-2019
  • USD128 million Commitment Contributions

    % Change

    2018 -
    2017 19%
    2016 121%
  • USD11.31 million Preparation Grants Approved

    % Change

    2018 58%
    2017 565%
    2016 -
  • End-2018
  • USD128 million Commitment Contributions

    % Change

    2017 19%
    2016 121%
  • USD7.18 million Preparation Grants Approved

    % Change

    2017 322%
    2016 -
  • End-2017
  • USD108 million Commitment Contributions

    % Change

    2016 86%
  • USD1.70 million Preparation Grants Approved

    % Change

    2016 -
  • End-2016
  • USD58 million
Click to generate chart
* Cumulative year-end figures.
Further Outreach. We continued holding investment program dialogues and visiting clients to develop country programming memos and expand business opportunities in important markets where AIIB’s presence has yet to be established. In 2019 we reached out to Uzbekistan, Kazakhstan, Tajikistan, Russia, Mongolia, Georgia, the Philippines, Malaysia, Vietnam, Jordan and Pakistan. We also initiated outreach programs in nonregional members such as Belarus, Romania, Hungary and Egypt.

As a result of our proactive engagement, in 2019 we secured several firsts. In April, we approved our first two projects in Sri Lanka: a USD200-million loan to improve housing conditions for low-income communities and another loan of USD80 million to reduce the risk and damage from landslides. In December, we approved our first investment in Russia with a USD500-million transport project, our first investment in Uzbekistan with a USD82-million project to improve the quality of basic infrastructure in rural villages and our first investment in Kazakhstan which is also our first wind energy project, set to become Central Asia’s largest wind farm.
Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Board Outreach. Our Board of Directors also conducts outreach programs and provides valuable input on how to further AIIB’s relations with its members. Our Board has been getting real-time, on-the-ground exposure to the frontline work of AIIB through visits to project sites and consultations with our members. These experiences and observations are converted into useful inputs for our Senior Management, helping to guide and shape our future program of activities and investment pipeline.

Our Board visited Turkey in September 2019 and met with key government officials, country representatives of international financial institutions, trade and industry associations, private sector institutions and think tanks. These meetings gave us valuable insights into Turkey’s macroeconomic conditions, government priorities, development agenda, infrastructure challenges and investment opportunities. Business development potentials for AIIB include investments in the energy, transport and finance sectors. The local capacity for exploration of innovative projects appeared to be strong. Closer exchanges between AIIB, the Government of Turkey and other market players should help meet the huge demands for infrastructure financing in the country.
Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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Our Board on the Ground
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In March 2019, our Board visited Oman, the Board’s first visit to a Gulf Cooperation Council member and a high-income economy. While in Oman, the delegation learned more about the infrastructure requirements of a high-income member. They also noted that the power and water sectors require capital investment—supported by regulatory reform—to improve cost efficiency and satisfy growth in demand.

The Board learned that AIIB’s involvement in Oman has already helped attract other investments. For instance, Oman Broadband indicated that business model changes—instituted to facilitate AIIB’s investment—made the enterprise more bankable to foreign investors. Similarly, the World Bank’s Multilateral Investment Guarantee Agency invested in an infrastructure project in the Port of Duqm following AIIB’s participation in an earlier phase of development.

All these underline AIIB’s convening power where the need for infrastructure is waiting to be fulfilled, even in high-income members.

New Financial Products
In 2019 we continued to develop new products for our borrowers. In particular, Local Currency Financing operations and Partial Credit Guarantees were added to the Bank’s product portfolio primarily for the benefit of private sector borrowers.

Local Currency Financing. Some of our clients wish to mitigate the foreign exchange risk of underlying projects’ cashflows, improve the credit standing of a project, protect earnings against volatility due to foreign exchange movements or they simply prefer not to borrow in hard currencies. Local currency lending is designed to address such concerns.

From Our Board of Directors
ENLARGE
In 2019, our local currency loans were made available in five currencies which include the Indian Rupee, Indonesian Rupiah, Russian Ruble, Thai Bhat and Turkish Lira. We also offer loans denominated in Euro and Swiss Francs. The pricing of local currency loans is based on market principles, representing AIIB’s cost of funding the loan in each currency. The underlying interest rates are dependent on benchmarks prevailing in each market.

Local currency loans may be offered in deliverable format, settling in the client’s choice of currency. It could also be delivered in nondeliverable format, settling in hard currency at the foreign exchange rate determined at the time of payment. In both cases, the client’s foreign exchange risk is mitigated. Hard currencies are those of the G10 or Group of Ten—those in the special drawing rights basket including USD, EUR, GBP, JPY, CAD, CHF, SEK and RMB.

To launch our local currency product offering, AIIB rolled out the necessary local currency funding platform which allows us to source various currencies through derivatives on various onshore and offshore markets.

Variable Spread Loan. In July 2019, our Board of Directors approved the Variable Spread Loan (VSL) product in USD for AIIB’s sovereign and sovereign-guaranteed borrowers. In December 2019, we further expanded the VSL currency range to include hard currencies other than USD. Our VSL product aims to meet borrower’s needs in terms of currencies and market-based pricing while retaining features of the existing Fixed Spread Loan product. The lending spread over the market-based reference rate includes AIIB’s actual cost of funding in the market.