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Asian Infrastructure Investment Bank seeks global deals

The Asian Infrastructure Investment Bank (AIIB) signed cooperation agreements with two major global partners at its recent fourth annual board of governors meeting in Luxembourg and wants to collaborate with other international bodies.

The Beijing-based AIIB, set up in early 2016 to support infrastructure projects in the Asia-Pacific region, now has 100 members from around the world. To date, the AIIB has approved 45 projects in 18 member countries, totalling US$8.5 billion.

In Luxembourg, the AIIB and the European Stability Mechanism (ESM) agreed to a memorandum of understanding (MoU) covering technical cooperation, exchange on economic and policy strategy, funding, risk management and legal services. The MoU, signed by AIIB president Jin Liqun, also supports greater knowledge sharing and staff exchanges between the two institutions. The ESM, an intergovernmental organisation set up in 2012, has its HQ in Luxembourg City

Jin also signed a separate MoU with the International Fund for Agricultural Development (IFAD) to partner in areas, including the co-financing of projects and programmes, mobilisation of private sector financing and research and analysis.

The MoU with the specialised agency of the United Nations has a strong focus on the development of rural infrastructure, renewable energy sources, and climate change adaptation and mitigation – among 17 sustainable development goals set out by the UN four years ago for the period to 2030

“Partnership continues to be a fundamental operating principle of the AIIB,” said Jin. “By working together with ESM and IFAD on joint initiatives and leveraging each other’s expertise we will strengthen our capacity to deliver on our respective missions and benefit our members.”

Luxembourg’s minister of finance, Pierre Gramegna, said in his opening address: “By hosting AIIB’s first annual meeting to be held outside Asia, Luxembourg will further demonstrate its role as a bridge in the heart of Europe bringing European and Asian stakeholders together, thus helping to develop innovative and sustainable solutions in infrastructure financing,”

Luxembourg was the first European country to sign on as an AIIB founding member.

Distancing from Belt & Road

The theme of this year’s meeting, ‘Cooperation and Connectivity’, focused on the economic and social benefits of improved connectivity among countries and regions, including Europe and Asia.

The AIIB operates outside of China’s Belt & Road Initiative (BRI) and is keen to develop relationships as a multilateral development bank. The AIIB is also active in India, which has been a fierce critic of BRI.

However, just as the Asian Development Bank (ADB) is identified as being close to Japan, so the AIIB is viewed as being dominated by China. The US administration regards AIIB lending is a further element of what it claims is a debt trap, as recipient countries press ahead with large infrastructure projects.

At the meeting, the AIIB announced that it now has 100 approved members, after its board of governors supported the applications of three African countries: Benin, Djibouti and Rwanda.

New projects

At the Luxembourg meeting, the AIIB announced support for new projects. The bank approved a US$100 million loan to Bangladesh to accelerate the country’s efforts to deliver improved water supply and sanitation services to underserved communities.

The AIIB also announced a US$75 million loan to Cambodia Fiber Optic Communication Network Co, the country’s largest independent fiber optic network provider, and an on-lending facility to support renewable energy in India.

The board of directors also approved a US$75 million investment into the Asia Investment Fund (AIF), a closed-end private equity fund established in Hong Kong, China that focuses on telecommunications, transportation and energy.

The investment aims to mobilize private capital for infrastructure and other productive sectors by investing in minority equity stakes in Asian companies via a private equity fund. The AIF’s target size is US$3 billion with a 10-year term from the final closing date.

“With this investment, AIIB will be able to construct a well-diversified equity portfolio across members,” said AIIB vice president and chief investment officer DJ Pandian. “This aligns well with AIIB’s strategy on investing in equity. Participating in the AIF will progressively develop our equity capacity while benefiting from a market risk-adjusted return for our long-term financial sustainability.”

Last December, the AIIB and Aberdeen Standard Investments (ASI) announced a strategic partnership to develop debt capital markets for infrastructure, drive responsible investing in fixed income and build a sustainable environmental, social and governance (ESG) ecosystem in emerging markets in Asia.

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