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General
1. What is AIIB’s background?

The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank (MDB) established by international treaty and headquartered in Beijing, China, founded to bring countries together to address Asia’s infrastructure funding gap, estimated at USD26 trillion through 2030.1 Our core principles are openness, transparency, independence and accountability.

2. What is the nature of AIIB's membership?

AIIB is open to shareholders who are dedicated to promoting economic and social development across Asia and beyond. Our membership is open to members of the International Bank for Reconstruction and Development or the Asian Development Bank. Please see our current membership here.

3. What is AIIB’s mission?

AIIB’s primary focus is on financing projects that benefit the economic and social development of Asia. Projects should support sustainable infrastructure, cross-border connectivity and private capital mobilization.

4. Are there any specific features that differentiate AIIB from the other MDBs?

Projects can be based in any member shareholder, as long as the project will deliver benefits to the Asian region. All financings must meet the conditions set out in AIIB’s Environmental and Social Framework (ESF), which ensures that all projects are contributing to sustainable development.

5. Where is there evidence that AIIB projects are compliant with the latest in socially responsible, environmentally-friendly lending practices?

AIIB developed its ESF, including the ESP, based on consultation with Member Governments, other MDBs and a wide range of external stakeholders, including NGOs and CSOs. The ESF was developed with consideration given to the objectives of the United Nation’s Sustainable Development Goals (SDGs) and the Paris Climate Accord.

6. What is AIIB’s credit rating?

AIIB is rated triple-A by Standard & Poors, Moody’s and Fitch Ratings. Our credit strength is based on several factors; 1) significant subscribed capital base of USD100 billion, of which USD20 billion is paid-in (among the highest in absolute terms of all MDBs), 2) conservative financial risk management and liquidity management policies, managed to maintain the triple-A ratings, 3) committed global shareholder base, 4) preferred creditor treatment, 5) diversified loan portfolio across sectors and countries, and 6) experienced management team.

7. In five years’ time, what is the forecasted distribution of loans by sector and by country?

There are no concrete forecasts over a five-year horizon, as AIIB’s portfolio is evolving. Our lending is demand-driven and depends on the financial sustainability of project proposals. AIIB has not put any hard limits on investments by sector as long as AIIB’s risk exposure remains within allowed limits. The only hard limits we maintain on lending are 1) no single country exposure may be more than 50 percent of total available capital, and 2) the sum of the top three country exposures may not account for more than 90 percent of total available capital. In terms of sectors, we expect investments will be made mainly in the energy, transport and urban/water sectors.

8. What is the forecasted scope and usage of the Project Preparation Special Fund over the coming years?

AIIB deploys funds available via the Project Preparation Special Fund facility on terms and conditions consistent with the purpose and functions of AIIB. These funds are managed separately and are entirely independent from our Ordinary Resources. Currently, AIIB operations one Project Preparation Special Fund facility, with contributions from China, Hong Kong-China, Korea and the United Kingdom. Monies are transferred to AIIB as grants and do not represent contributions from all members.

9. Is AIIB connected to the other MDBs?

AIIB is working with other MDBs to learn from their experiences and enhance AIIB’s operating efficiency, product offerings and reduce costs. We have signed a co-financing framework agreement with the World Bank. We have also signed Memorandums on joint cooperation and co-financing with: the African Development Bank, the African Development Fund, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank and Inter-American Investment Corporation, the Islamic Development Bank Group, the New Development Bank and the World Bank Group.



1 Source: "Meeting Asia’s Infrastructure Needs", ADB 2017

Debt Issuance and Treasury
1. What is the Asian Infrastructure Investment Bank's (AIIB) borrowing program?

AIIB’s funding program is expected to be several billion US Dollars per annum over the next several years of capital markets issuance. Funding needs are expected to rise gradually to reach circa USD10 billion per annum by the mid-2020s.

2. Will AIIB bonds enjoy the same status and debt issuance platforms as other MDB bonds?

AIIB shares a similar general status and exemptions as other MDBs. For example, Basel Committee on Banking Supervision has agreed that supervisors may allow banks to apply a 0% risk weight to claims on AIIB (BIS Press Release: here) and AIIB is not subject to taxation by the member shareholders in which it operates. We are currently in the process of establishing our principal funding platforms.

3. In what currency sectors are you planning to issue?

AIIB is a US Dollar-based institution and our first public benchmark bond was issued in USD on May 16, 2019. The SEC registered, USD 2.5 billion five-year bond attracted over USD 4.4 billion of orders from over 90 investors across the globe representing 27 countries. The Funding Team’s core objective is to be viewed as a flexible, transparent and responsive issuer, providing liquid public offerings and reverse-inquiry, tailor-made investment solutions. We will diversify by adding further debt issuance programs allowing us to add other currencies and structures to meet the needs of a global investor base.

4. With which investors are you seeking to engage?

We are looking to attract a broad range of global investors to our funding program. These are expected to range from central banks, sovereign wealth funds and bank treasuries, to fund managers, corporate treasuries, insurance companies and pension funds.

5. Is AIIB targeting the development of a liquid benchmark curve of outstanding debt?

Within the constraints of a limited borrowing need over the next few years, AIIB will consider the value of creating a liquid benchmark curve if underlying market conditions and investor demand are supportive. Given our policies dictate that we cannot have more than 30% of all debt redemptions falling due within any single 12-month period on a rolling basis, we can reasonably expect to issue across different maturities.

6. Will AIIB have access to the derivatives markets to manage risk?

AIIB has ISDA master agreements in place with several market counterparties and is working to bring further relevant counterparties online to meet the bank’s needs.

7. Will AIIB provide a Kangaroo, Kauri or Islamic Finance Program and/or open a Uridashi Shelf?

Our product range, both in terms of currency and issuance platforms, will evolve over time to reflect investor appetite. Should cost-effective opportunities be available in niche sectors on a sustainable basis, AIIB will consider creating dedicated programs to access any discrete liquidity pools.

8. AIIB’s lending operations support sustainable development, within the context of the Environmental and Social Framework. Will you offer Green Bonds or "Theme Bonds" in future?

The integrity of AIIB’s ESF, which stands at the core of our investment philosophy, ensures that all AIIB financings can be considered "sustainable". We have adopted "Use of Proceeds" language for our bond documentation that dictates that all financings must comply with the principals our stringent environment and social criteria. All AIIB bonds are Sustainable Development Bonds and we would therefore expect that all our debt instruments will be of interest to SRI investor portfolios.

9. Are dealers committed to making markets in AIIB bonds?

Our underwriters are expected to deliver two-way liquidity over the life of the bonds on which they serve as syndicate members, subject to underlying liquidity trends. While AIIB does not maintain formal market-making agreements with its banks, we consider on-going dealer support for our outstanding debt as one supporting factor when awarding mandates for new issues.

10. Will AIIB operate a buyback facility for its debt products?

AIIB is committed to offering investors and dealers a buyback price for non-benchmark debt securities. Such prices will be based on prevailing market levels. For any buybacks, we will only transact with approved financial counterparties (e.g., our dealers and underwriters), to ensure our operational risk is minimized.

11. Where is liquidity invested?

AIIB’s Treasury invests in a range of eligible assets. These include bank deposits, trust funds and eligible, liquid USD securities. Deposits with banks must be with institutions holding a minimum A minus rating. AIIB cannot hold more than 15% of total liquid assets in any single financial institution.

Eligible securities issued by sovereigns, sovereign agencies and MDBs must hold a minimum A rating. Corporate and asset-backed securities maturing in 13 months or longer must be rated AAA and when maturing in less than 13 months, corporate and asset-backed securities must be rated A-1 or P-1. Investments in money market or mutual funds are only permissible when the underlying funds invest in AAA-rated instruments.

12. Who is your regulator?

As an MDB, AIIB has no national regulator.

13. Where can I find more information on AIIB bonds?

AIIB will list public offerings on a major international exchange. Pricing should be available there on a regular basis. Price transparency and bond details should also be visible via electronic media, such as Bloomberg under the AIIB ticker: <AIIB>. AIIB’s website contains a dedicated section for Treasury activities, www.aiib.org/treasury, and includes a broad range of investor marketing materials. Further questions may be addressed to the Funding Team email: treasury@aiib.org.

Local Currency Financing
1. What currencies are available for AIIB Local Currency Loans? As of September 2019
  • Indian Rupee
  • Indonesian Rupiah
  • Thai Baht
  • Turkish Lira
  • Russian Ruble

AIIB will continue to add currencies, which will include both major non-USD hard currencies and local currencies based on AIIB’s ability to fund itself in those currencies

2. Why clients may prefer to borrow in local currencies?

There are several benefits for clients in local currency financing:

  • Reduction in earnings’ volatility due to FX movements
  • Decrease of debt burden in case local currency depreciation
  • Reduced possibility of financial distress
  • Possibility of borrowing local currency in longer tenor
3. Why local currency financing is of interest to AIIB?

There are several benefits to AIIB in local currency financing:

  • Stronger credit of the loan portfolio
  • Access to loan markets that operate in local currency only
  • Expansion of product toolkit
4. How AIIB sources local currencies for on-lending to clients?

AIIB will use the following approaches for its local currency funding:

  • Initially, the Bank will access back-to-back funding through swaps to finance a specific project;
  • at later stage, the Bank will rely on pool funding, where AIIB maintains a pool of liquidity trough swaps and offshore bonds in a certain local currency to finance various projects; and
  • funding through on-shore bond issuance.
5. How does AIIB manages currency risks associated with local currency financings?

At the time of disbursement of a local currency loan or conversion of a USD disbursement or outstanding USD loan balance into local currency, AIIB will execute a funding or hedging transaction to raise local currency in the market. The profile of such funding/hedging operation will be structured to match the maturity, interest rate type, repayments and other terms of the AIIB’s loan to a client so that the Bank is hedged from any currency exposure. In some cases, the tenor of the market instruments may be shorter than the tenor of the loan, in which case the client takes on the risk of interest rate and currency change upon expiration of the funding/hedging instrument. In general, availability of local currencies is always subject to market conditions in each market at the time of transaction.

6. Are all the currencies available on a permanent basis?

The availability of local currency financing is subject to AIIB’s access to the specific local currency market and the liquidity of this market. AIIB will determine the feasibility of accessing the market on a case by case basis, as well as the maturity and costs of the transaction.

7. Who can apply for local currency loans?

Local currency financing is available to private sector clients and certain public sector entities.

8. Will it be mandatory for the borrower to avail loan in single local currency only or there will be flexibility in choosing the currency?

Disbursements potentially can be made in local currency, USD (or other currencies), subject to loan documentation. It is expected that if at the time of disbursement request, it is not possible to source the local currency in a size, tenor and at a rate required by the client, the client may request a disbursement in USD instead.

9. How local currency loans are priced?

Pricing components are:

  • AIIB’s cost of funds in local currency (if funding through bonds):
        1. Cost based on local market-based benchmark (government bond yield or a relevant reference rate)
        2. Issuance or execution costs (underwriting fees, execution costs)
        3. Recurring costs (listing, custody, payment fees)
  • AIIB’s cost of funds in local currency (if funding through swaps): swap rate or a relevant reference rate
  • Client or project spread (negotiated separately for each loan)
  • Front-end fee
  • Commitment fee
10. What will be the benchmark for AIIB cost of funds in case of swaps?

For the currencies other than USD, applicable benchmark rates are the interest rates in the domestic market of the underlying currency.

11. How can borrowers request local currency financing?

Following mechanisms are available:

  • 1. Upon disbursement: each disbursement and its currency of repayment will be made in local currency, requested at the time of disbursement
  • 2. Conversion request: request the conversion of all or a portion of the disbursed amounts into local currency, at any time during the life of the loan. Conversion of already disbursed amounts into a local currency will be available in case AIIB can effectively source local currency through swap markets or a bond issuance.
12. What is the disbursement notice period for a local currency denominated loan?

Standard disbursement notice period of 15 business days would be enough for cross currency swap preparation, agreeing on terms and then execution

13. Is there a maximum number or volume of swaps that can be executed for one project in a year and/or throughout the availability period?

These are dependent on each market: in some countries financial markets are fairly developed and in some less so. There are limits by size, tenor, structure, beyond which market counterparts will not trade; or the price will increase to penalize too small or too large trade, or charge for maturity premium. Please liaise with AIIB Treasury on specific terms.

14. Can the local currency loans be prepaid or cancelled?

If local currency financing is arranged through a cross currency swap, clients will be allowed to prepay all or part of the disbursed and outstanding amount during the life of the loan, by notifying AIIB according to the relevant provisions in the loan documentation and paying corresponding breakage costs. If the local currency financing is provided through a bond issuance, the client may not be permitted to prepay until the maturity of the matching bond issuance.

Borrowers will be allowed to cancel all or part of the undisbursed balance. Prepayment or cancellation charges may apply in case AIIB incurs costs as a result of the loan prepayment or cancellation by a client.

15. What will be the break cost incurred due to prepayment resulting in unwinding of swap??

The amount of break costs is the cost that AIIB needs to pay to the swap counterparty for unwinding an existing or executing offsetting swap. This cost is calculated as a sum of net present value of future cash flows of the two legs of the swap at the future point in time, using market curves (e.g. interest rate, foreign exchange, currency basis) calculated as of the day when the client wishes to prepay or amend the loan. At that time market conditions could be very different from todays.

The break cost is an amount that is a greater than zero, that AIIB needs to receive from the client, derived by subtracting present value of all future local currency cashflows from a sum of local currency loan principal and accrued interest.

The amount of break costs cannot be calculated in advance simply because the market rates change daily and are not available for future dates.

16. Are there any other costs to be borne by the client other than the break cost or prepayment charges in case of prepayment?

All the local currency specific provisions will be outlined in the loan documentation. In addition to standard loan provisions, they may include currency availability, currency substitution if currency is not available, break costs in case of voluntary or mandatory prepayment or any changes to the payment of interest or principal or failure to take disbursement after request is sent, or increased costs related to funding or hedging arrangements.

17. Can client ask for a USD loan and cross currency swap from AIIB to hedge its currency risk exposure, or request a cross currency swap to hedge its existing currency liability?

No, AIIB offers lending products to its clients in USD, local currencies or non-USD hard currencies in which it can fund itself in the debt or derivatives markets. AIIB does not offer hedging products to its clients at present time.

18. When will the FX and interest rate for a loan be determined?

The FX rate and corresponding interest rates will be determined when AIIB executes funding or hedging transaction, matching each individual disbursement date

19. In an infrastructure project with long construction period, the exchange rate and interest rate will vary across the construction period. This might result in foreign exchange and interest rate risks. Can client lock the exchange rate and / or interest rate at the day of loan agreement signing?

AIIB will transact a funding / hedging transaction to cover each disbursement, which means the client must take currency and interest risk until all disbursements are complete. Depending on individual market availability, if the client agrees to submit an irrevocable disbursement request (containing the predetermined schedule of disbursements, interest and principal repayments), it may be possible to determine currency and interest rate for the required amount of the loan. A clear cost recovery mechanism would need to be in place in the event of a request to modify this schedule.

Sovereign-backed Financing
1. How is borrowing cost margin for Variable Spread Loan (VSL) calculated?

The concept of the VSL product is to directly pass through the Bank’s actual cost of borrowing to its borrowers of sovereign-backed loans. The interest rate for VSL is the sum of contractual lending spread, maturity premium, base rate (such as LIBOR) and the borrowing cost margin. In the calculation of borrowing cost margin, for the purposes of price stability, a synthetic portfolio is built up and will be gradually replaced with the actual bonds issued by AIIB to calculate the average cost of funding. This synthetic portfolio contains two portions: (i) a hypothetical stock of debt with weighted average cost of 0bps over 6m LIBOR and life of five years, based on characteristics of mature stock of debt with similar credit rating as AIIB; and (ii) AIIB’s own bond issuances. We will weigh the cost of the synthetic portfolio over time until the hypothetical part of the calculation ((i) above) is eliminated after five years (straight-line amortization), at which time 100% of the cost basis ((ii) above) will come from actual borrowings. At that point we will achieve a full pass through.

The calculation of the borrowing cost margin as of July 1, 2019 is, based on the actual cost of debt equivalent to 6-months dollar LIBOR plus zero basis points:

[Synthetic borrowing portfolio cost X Current period weight] + [Weighted average actual cost of debt X (1-Current period weight)] = Borrowing cost margin

or by the numbers: [0bps * 90%] + [0bps *(1-90%)] = 0bps

The Weight of the synthetic borrowing portfolio cost will decrease over the next five years, so that more and more of the cost will reflect our actual cost of borrowing.

2. Will the variable spread be always less than fixed spread?

Under Variable Spread Loan, borrowers can benefit from AIIB’s actual funding cost as a triple-A rated institution, as compared to the projected funding cost under Fixed Spread Loan. This advantage may vary over time depending on future market conditions.

3. Is Variable Spread Loan product unique to AIIB?

No. Currently, other MDBs offering variable spread loans are: International Bank for Reconstruction and Development, African Development Bank, Asian Development Bank, and Inter-American Development Bank.

4. Will the Variable Spread Loan rate be applied retrospectively (disbursed and un-disbursed amount) from the date of effectiveness of conversion?

There is no possibility for retrospective application to past accrual periods; nor possibility to have part-variable spread and part fixed spread in a single loan. For borrowers who elect conversion from fixed to variable spread, the variable spread rate will apply to the outstanding disbursed amounts starting on the interest payment period after the effectiveness of conversion. Effectiveness of conversion is the date of AIIB approval of the conversion request.

5. When is loan spread determined?

For fixed spread loan, the spread is determined at loan signing. For variable spread loan, the spread is determined at determination dates (please see FAQ#1).

6. What are the components of the Fixed Spread Loan pricing?

The unique feature of the Fixed Spread Loan is that it insulates the Borrower from changes in AIIB’s own funding cost. The pricing is composed of five components: cost base rate of 6-month USD LIBOR, which is the same for Fixed Spread Loan and Variable Spread Loan; and spread components. Contractual lending spread is the same for all borrowers: it compensates for taking average portfolio risk and covers administrative expenses. Maturity premium is applied to loans based on their individual average maturity: it compensates for additional economic capital deployment for longer tenor loans. The other two components cover the risk of refinancing of AIIB: projected funding spread and market risk premium. These two components vary depending on average loan life. Fixed Spread remains constant during the loan tenor. The Bank also charges commitment fee and front-end fee, on both FSL and VSL. At present FSL is offered in USD only.

7. What is the difference between Fixed Spread Loan and Variable Spread Loan?
8. How can borrower switch between FSL and VSL?
9. Does AIIB offer other risk management tools (fixing the interest rate, interest rate cap or floor, conversion to local currency)?

No. At present, AIIB offers fixed spread and variable spread loan products to its sovereign borrowers. AIIB is developing a range of other products in response to demand from its clients, which will be added to the product menu list in the future.

10. In which currencies can AIIB lend to sovereign sector borrowers?

Sovereign-backed loans may be offered in USD, or other currencies in which AIIB can efficiently fund itself in the market. FSL is offered in USD only. VSL is offered in USD and other hard currencies. Hard currencies are defined as currencies of the Group of Ten (G10) or those included in the SDR basket, i.e. USD, EUR, GBP, JPY, CAD, CHF, SEK, and RMB. Members of the G10 include Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, United Kingdom and United States: https://www.imf.org/en/About/Factsheets/A-Guide-toCommittees-Groups-and-Clubs#G10. Availability of currencies is subject to market conditions, such sufficiently deep and liquid cross currency swap markets. At present, AIIB is ready to provide sovereign-backed loans in Euro, based on Variable Spread Loan terms. In the future, AIIB will expand the list of currencies.

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