With market sentiment currently overwhelmingly negative, one bit of good news was the recent historic launch of the Asian Infrastructure Investment Bank (AIIB). The USD 100bn multilateral development bank (MDB) which was launched over the weekend promises to be “lean, clean and green”, according to the website. Lean: efficiently and effectively managed, clean: ethically run with zero-tolerance to corruption and green: respectful of the environment.
At the launch soiree on January 16 2016, President Xi Jinping stated that “Asia’s financing needs for basic infrastructure are absolutely enormous”. In fact, the Asian Development Bank (ADB), a similar institution, estimates that between 2010 and 2020, as much as ~USD 8tn is required to fund infrastructure projects within the region. Interestingly, reports suggest that MDBs, including the World Bank, have only invested USD 10-20bn per annum on infrastructure projects within Asia. Together with the USD 100bn authorised capital, from the 57 member countries, China has pledged a further USD 50bn; which will be dedicated to infrastructure projects within the “less-developed” member states.
ADB cited that “in 2013, the trade finance gap was estimated at USD 1.9tn. Of this gap, USD 1.1tn is in developing Asia.” With global growth concerns weighing heavy, it is hoped that by investing in “high quality”, “low cost” and sustainable development, AIIB will vastly improve the region’s untapped business opportunities and connectivity amongst Asian nations; thus enhance international growth. The bank may follow the World Bank’s example by issuing long-dated bonds for the longer, more measurable projects. We do not expect initial bond issuance to be sizeable (estimates are between USD 100-USD 500m) or even rated for that matter; however we will be keeping an eye out for any issuance announcements towards the end of this year and into 2017.
Some sceptics, are concerned that AIIB will fail to abide by international laws of governance and transparency. However doing this “well” and “right” is high up on the agenda of designated President of the consortium, Jin Liqun who wrote: “The AIIB’s founding members have a clear management vision: We will set a clear and high bar for organizational performance and governance, by upholding openness, transparency, accountability, and independence as its core institutional principles.” Adding “I am firmly committed to fostering an institutional culture grounded in the highest principles and ethical standards.” With institutions including the the World Bank, IMF and ADB working in collaboration, we expect AIIB will avoid falling foul of its modus operandi.