Sovereign-backed Financing

AIIB provides financings in the form of loans and guarantees to sovereign-backed and sovereign-guaranteed borrowers. The loans are provided in hard currencies, including USD, EUR, JPY, and RMB, with the pricing based on a reference rate (including non-USD funding cost if the loan is in a hard currency other than USD) plus a variable lending spread, a front-end fee, and a commitment fee. The lending spread depends on the average repayment profile of a loan. Other currencies may be offered if AIIB is able to hedge non-USD currency lending.

Currencies

Hard Currencies including USD, EUR, JPY, and RMB

Long-Term Financing

Up to 35-year Final Maturity and 20-year Average Maturity

Flexible Structures

Customized Repayment and Amortization Profiles

Variable Spread Loans

Transparent Pricing Based on AIIB’s AAA-rated Funding Cost and Project Maturity

Variable Spread Loan

In a variable spread loan (VSL), AIIB passes to the borrower its funding cost by varying the spread every six months over the lifetime of the loan. The interest rate of a VSL consists of a market-based reference rate and a variable spread. This variable spread consists of AIIB's actual borrowing cost; a contractual lending spread, which is the same for all loans; and a maturity premium, which depends on the average loan life. Under a VSL, borrowers can benefit from AIIB's actual funding cost as an AAA-rated institution.

Breakdown of Lending Rate and Fees

Reference Rate - for the relevant currency

Variable Spread - reflection of AllB's funding cost, contractual lending spread and maturity premium

Fees - one-time front-end fee plus accruing commitment fee

Reference Rate

Based on a market benchmark for the relevant currency

+

Variable Spread

AllB's funding cost
Contractual lending spread
Maturity premium

+

Fees

One-time front-end fee
Accruing commitment fee

Total Lending Rate and Fees

Sovereign Guarantee

Pricing for sovereign-backed guarantees consists of four components: front-end fee, processing charge, standby fee, and guarantee fee. The guarantee fee has two subcomponents: a flat guarantee fee and a maturity premium, which varies upon maturity.

Interest Rate and Currency Conversions

AIIB provides Interest Rate and Currency Conversion options for sovereign-backed loans, subject to the Conversion Guidelines and the General Conditions for Sovereign-Backed Loans available on AIIB’s website. The Interest Rate Conversion allows clients to fix or unfix the reference rate; however, the spread is not subject to conversion. The Currency Conversion allows all or part of the withdrawn or unwithdrawn loan balance to be converted into any approved currency.

Frequently Asked Questions

Does AIIB provide only a variable spread loan (VSL) product?

Yes. Currently, AIIB provides only a VSL product. The fixed spread loan (FSL) product has been suspended as of April 15, 2021. For a detailed comparison of FSL and VSL, see Fact Sheet—Sovereign-backed Financing.

Is the VSL product unique to AIIB?

No. Currently, the following multilateral development banks also offer VSLs: International Bank for Reconstruction and Development, African Development Bank, Asian Development Bank, and Inter-American Development Bank.

How is the interest rate for a VSL calculated?

A VSL product allows AIIB to directly pass its cost of borrowing to borrowers of its sovereign-backed loans. The VSL interest rate is the sum of the contractual lending spread, maturity premium, base rate (such as SOFR), and actual borrowing cost. The actual borrowing cost is represented by AIIB's borrowing cost margin, which is a variable spread.

When is the borrowing cost margin determined?

The borrowing cost margin is determined semi-annually on the determination dates for the periods Jan. 1 to June 30 and July 1 to Dec. 31, based on AIIB's average cost of funding at the end of each period and applied to the interest accrued in the period that starts immediately following the determination period.

Does AIIB offer other risk-management tools?

Yes. AIIB offers to its sovereign borrowers the interest rate conversion option to fix or unfix the reference rate and the currency conversion option to convert all or part of the withdrawn or unwithdrawn loan balance into any approved currency. For detailed information about interest rate conversion and currency conversion, see Conversion Guidelines—Sovereign-backed Loans.

Get in Touch

Have questions about our financing solutions?
Our Treasury Client Solutions team is here to help.

SEND AN EMAIL