As 2020 (finally) draws to a close, it is time to reflect on how the Treasury Department of the Asian Infrastructure Investment Bank (AIIB) fared through this incredibly challenging year.
No account of 2020 in any discipline or field can elude the word “COVID-19.” Let me address that at the outset. COVID-19 created challenges for Treasury that seemed insurmountable at the peak of the crisis. AIIB staff were caught outside China and found it impossible to come back, but we had a business to run: payments had to be made, collateral on derivative positions had to be exchanged, hedging deals to secure financing to our clients had to be secured, bonds had to be issued. All these had to go on even though at one point, we had more than half of Treasury staff stranded from Thailand to Peru—with the Treasurer in Italy and others in the UK, the Netherlands, Norway, the Philippines—and I am surely missing some more.
Looking back, what an incredible accomplishment it was! President Jin Liqun kept in touch with Senior Management on a daily basis, giving us confidence that there would be no breakdown in the line of command. I would talk to Chief Financial Officer Andrew Cross and Controller Hui Fong Lee, and hold meetings with my team at the most incredible times of the day (actually, night!) as we embraced the opportunity to be a digitally oriented bank. In March, we opened a temporary Finance site in Hong Kong, China where we congregated a number of Treasury and Controller staff to ensure they had a secure and stable connectivity environment on which we can run our transactions.
As a result, particularly for AIIB’s funding operations in the capital markets, I can confidently say that despite all that happened, 2020 is the year our funding business came of age. Year to date, we have raised USD8.75 billion through 25 transactions both public and private; in comparison, our debut and single issuance in 2019 raised USD2.5 billion. By all accounts, this is a massive increase. The first four private placement bonds issued by AIIB were executed between the end of January and the end of May, either at the height of the pandemic in China or at a time when most of us were still stranded outside China, or within China but outside our Beijing headquarters.
This isn’t all. In May, we launched our first USD global bond of the year, raising USD3 billion in one single issue and cementing AIIB’s standing as a large multilateral financial institution belonging to the same league as the most established supranational organizations. In June, we followed this up with the Bank’s debut Renminbi bond in the China onshore markets, a tremendously successful deal that caught everybody’s attention in the market. Remarkably, all of this happened while relying almost exclusively on video conferences, or one-on-one and group meetings (also on video conference), for the all-important investor marketing activity.
I could go on citing a string of other milestones, including our debut sterling bond in the UK; and the many currencies that we have tapped for the first time the Turkish Lira, Mexican Peso, South African Rand, Thai Baht, and others. Perhaps the best way to summarize all this is to mention that AIIB has been named Rising Star Issuer at the mtn-i 11th Asia-Pacific Awards and Best Anti-COVID-19 Deals in China at the Asset Country Awards 2020. This is a strong recognition of the work of Finance but equally of the hard work of our Legal and Communications team.
I would like to close by reflecting on where all of this leaves us for 2021.
First, we have to hope to be able to recharge physically and mentally at the end of the year. The past months have taken a toll on everyone and it is not easy to remain fully productive if the current situation is protracted.
Having said that, and hoping that COVID-19 will come progressively under control next year, there will be no shortage of challenges in 2021. For Treasury, our primary aim is how to preserve AIIB’s capital while ensuring an acceptable return. In the era of so-called “easy money,” when there seems to be no bottom for the level of interest rates, this is no easy task.
Another challenge is maintaining investor interest in AIIB bonds in a cycle that has seen all our peers increase their bond funding dramatically to address COVID-19.
We are also looking into how we can expand our dealings in local currency. This year, we made tremendous progress in this regard by funding our first non-USD loan in Chinese Renminbi, then building a fully functioning swaps operation to source local currency through derivatives.
However, if you ask me what would be my biggest wish in terms of Treasury deliverables for next year, that has to be to see AIIB’s first local currency bond issuance in a country of operations (excluding China). This is not easy and requires a lot of preparatory work by the finance and legal teams. I firmly believe that we need to support our borrowers, particularly in those projects that have revenues in local currency, to help them avoid adding foreign exchange risk to the risks already typical of any project.
