TREASURY CLIENT SOLUTIONS

The Treasury Client Solutions team is focused on delivering sustainable financing solutions for AIIB’s sovereign and nonsovereign clients through products including local currency funding, guarantees and hedges through derivatives.

AIIB offers sovereign and nonsovereign financing for sound and sustainable projects in energy; transport; finance; information, communication and technology (ICT); rural infrastructure and agriculture development; water; and urban development. Under the COVID-19 Crisis Recovery Facility, it also offers financing for projects that can fall under the following classifications: emergency public health responses, economic resilience and finance/liquidity.

Over time, AIIB will access the markets via a range of currencies, formats and maturities, to fund AIIB’s general financing operations. The net proceeds from the sale of AIIB notes will be used in the general operations of AIIB, which are to foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors. Such investments are subject to AIIB’s operational and financial policies, including policies addressing environmental and social sustainability, as documented in AIIB’s Environmental and Social Framework.

Local Currency Financing

Currently, AIIB can source a number of local currencies to fund general financing operations in Indian Rupee (INR), Indonesia Rupiah (IDR), Malaysian Ringgit (MYR), Philippine Peso (PHP), Thai Baht (THB), and Turkish Lira (TRY). The Bank also offers financings in hard currencies such as US Dollar, Euro, other G-10 currencies, and Chinese Renminbi (RMB), Hong Kong Dollar (HKD), Korean Won (KRW), Mexican Peso (MXN) and Singaporean Dollar (SGD). The menu of currencies available for financings is expected to grow as the pipeline of financings in other currencies develops.

Nonsovereign Partial Credit Guarantees

Guarantees represent contingent liabilities to make payments in the event that a borrower cannot meet its obligations to other financial creditors. A partial credit guarantee (PCG) represents a promise of full and timely debt service payment up to a predetermined guaranteed amount. The unfunded instrument can attract significant commercial financing covering the risk of nonpayment of loans and bonds.

The objective of AIIB’s PCG is to enable its private sector clients to unlock access to financial resources, by ensuring that the needs of both the borrower and creditors are met. In general, AIIB's PCG coverage does not extend beyond the minimum guaranteed amount necessary to facilitate a successful transaction.

Fixed Spread Loan

In a Fixed Spread Loan (FSL), the borrower is insulated from changes in AIIB’s funding cost, in return for paying a projected funding cost. The interest rate of a FSL consists of a market-based reference rate and a fixed spread which remains constant during the loan tenor. The fixed spread consists of AIIB’s projected funding cost which is broken down into a projected funding spread and risk premium, depending on the average loan life; a contractual lending spread, which is the same for all loans; and a maturity premium, which depends on the average loan life. Effective April 15, 2021, the fixed spread terms under the Sovereign-backed and sovereign-guaranteed loans are suspended until further notice. The suspension does not apply to operations that meet both of the following conditions: (i) the Invitation to Negotiate is issued on or before April 15, 2021; and (ii) the loan is approved on or before September 30, 2021.

Variable Spread

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. The actual borrowing cost is represented by AIIB’s Borrowing Cost Margin, which is determined semi-annually for the periods of 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. The current funding cost margin can be found in the Fact Sheet—Sovereign-backed Financing.

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 sub-components: a flat Guarantee Fee; and a Maturity premium, which varies upon maturity.