Asian Infrastructure Investment Bank - AIIB

Asian Infrastructure Investment Bank – AIIB

Updated on October 2017

Nature and Purpose

Creation: The Chinese President Xi Jinping and the prime-minister Li Keqiang announced the “AIIB initiative” during a visit to Southeast Asian countries, in October 2013. The AIIB was planned by China to “promote the interconnection and economic integration in the region” and “cooperate with multilateral development banks” (AIIB, 2016b). In January 2016, the Asian Infrastructure Investment Bank has officially started its operations, with 57 signatory countries to its Articles of Agreement at that time.

Objectives

Development of the sectors of infrastructure and production in the Asian continent, where the investment of traditional institutions has not been sufficient.
According to its Articles of Agreement, the AIIB seeks to (i) foster sustainable development and (ii) promote regional cooperation and partnerships by dealing with development challenges common to Asian countries.
With the purpose of differentiating from traditional sources of finance, the bank seeks a faster and less bureaucratic system, centered on a simpler structure and more open to conceding loans (AIIB, 2015).

Capital Structure

The AIIB has an authorized capital reserve of US$100 billion, divided into a hundred million shares with the value of US$100 each.
Within the US$ 100 billion of authorized capital, US$ 20 billion correspond to paid-in capital (a portion of subscribed capital already paid) and US$80 billion to callable capital (not yet paid).
The members of the bank contribute with capital subscriptions of different values, but regional members control 75% of the bank’s reserve capital. Among the largest shareholders of the bank are China, India, Russia, Germany and South Korea (AIIB, 2015).

Rating

The presence of many industrialized countries among AIIB investors gives the bank wide access to the stock market. With a good reputation in the capital market, AIIB’s shares hit the AAA rating, according to an assessment made in June 2017 by Moody’s Investors Service (Mood’s Investors Service, 2017). This scenario is based on AIIB’s governmental framework, its risk policies, negotiation process and liquidity policies, which are stable in the long term. Fitch Ratings also evaluated AIIB’s shares as AAA, based on the bank’s high government quality, excellent liquidity and easy access to the capital market (Mood’s Investors Service, 2017).

Bond Issuing

The AIIB expects to move closer to being able to issue bonds, especially after the release of the international credit rating. The initial bond should be at least of US$1 billion. However, the AIIB has no rush to issue bonds to finance the loans, because the bank had received around US$9 billion in paid-in capital, which means it has enough capital to invest in its projects during the next four or five years (Nikkei Asian Review, 2017).

Governance structure

The AIIB’s Articles of Agreement establishes the financial and governance procedures of the bank, based on a four level structure (AIIB, 2015):

(i) Board of Governors, with annual meetings (all member countries are entitled to the post of Governor);

(ii) Board of Directors (twelve members: nine representatives from regional countries and three representatives from non-regional countries);

(iii) Senior Management (President of the Bank – elected by members of the Board of Governors – the five Vice-Presidents, the General Council and the Chief Risk Officer);

(iv) International Advisory Panel (specialists indicated by the Presidency).