Filed Pursuant to Rule 424(b)(1)
Registration Statement No. 333-228613

 

 

ASIAN INFRASTRUCTURE INVESTMENT

BANK

$2,500,000,000

2.250% NOTES DUE 2024

 

 

The Asian Infrastructure Investment Bank (“AIIB” or the “Bank”) will pay interest on the notes (the “Notes”) on May 16 and November 16 of each year. Interest will accrue on the Notes from and including May 16, 2019, and the first interest payment date will be November 16, 2019. AIIB may not redeem the Notes prior to their maturity on May 16, 2024. There is no sinking fund for these Notes.

AIIB will apply to the Financial Conduct Authority in its capacity as competent listing authority pursuant to Part VI of the Financial Services and Markets Act 2000, as amended (the “UK Listing Authority”) for the Notes to be listed on the Official List of the UK Listing Authority (the “Official List”) and to the London Stock Exchange plc (the “London Stock Exchange”) for the Notes to be admitted to trading on the London Stock Exchange’s Regulated Market (the “Regulated Market”). No assurance can be given by AIIB that such applications will be approved. The London Stock Exchange’s Regulated Market is a regulated market for the purposes of Directive 2014/65/EU.

This prospectus (the “Prospectus”) comprises neither a prospectus for the purposes of Part VI of the Financial Services and Markets Act 2000, as amended (the “FSMA”) nor listing particulars given in compliance with the listing rules (the “Listing Rules”) made under Part VI of the FSMA by the UK Listing Authority.

 

 

PRICE 99.718% AND ACCRUED INTEREST

 

 

 

		Price to Public(1)				Underwriting Discounts and Commissions(2)				Proceeds to AIIB(1)(3)
Per Note			99.718	%			0.125	%			99.593	%
Total		$	2,492,950,000			$	3,125,000			$	2,489,825,000

 

(1)	Plus accrued interest, if any, from May 16, 2019.

(2)	AIIB has agreed to indemnify the Underwriters (as defined herein) against certain liabilities, including liabilities under the Securities Act of 1933, as amended.

(3)	Before deducting expenses payable by AIIB estimated at US$2,145,500.

 

 

Neither the Securities and Exchange Commission (the “SEC”), any state securities commission, the London Stock Exchange nor any foreign governmental agency has approved or disapproved of these securities or determined whether this Prospectus is accurate and complete. Any representation to the contrary is a criminal offense.

 

 

The Underwriters below expect to deliver the Notes to purchasers in book-entry form only through The Depository Trust Company (“DTC”) on May 16, 2019.

 

Goldman Sachs International		Bank of China		Barclays		Crédit Agricole CIB		TD Securities

 

BofA Merrill Lynch		BNP PARIBAS		Citi		Deutsche Bank		HSBC
ICBC International		J.P. Morgan		Morgan Stanley		NatWest Markets		Nomura
		RBC Capital Markets				Standard Chartered Bank

 

 

 

The date of this Prospectus is May 9, 2019

TABLE OF CONTENTS

 

		Page
ADDITIONAL INFORMATION			1
FORWARD-LOOKING INFORMATION			1
PROSPECTUS SUMMARY			2
ASIAN INFRASTRUCTURE INVESTMENT BANK			4
USE OF PROCEEDS			10
CAPITALIZATION			10
SELECTED FINANCIAL INFORMATION			11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			13
OPERATIONS OF AIIB			20
RISK MANAGEMENT			40
GOVERNANCE AND ADMINISTRATION			47
SELECTED DEMOGRAPHIC AND ECONOMIC DATA			61
DESCRIPTION OF THE NOTES			62
GLOBAL CLEARANCE AND SETTLEMENT			67
UNITED STATES TAXATION			71
UNDERWRITING			75
VALIDITY OF THE NOTES			77
EXPERTS			77
AUTHORIZED REPRESENTATIVE			77
WHERE YOU CAN FIND MORE INFORMATION			77
INDEX TO THE FINANCIAL STATEMENTS			F-1

ADDITIONAL INFORMATION

AIIB has filed with the SEC a registration statement (which term shall include any amendments thereto) under Schedule B of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the securities offered hereby. This Prospectus does not contain all the information set forth in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC and to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

FORWARD-LOOKING INFORMATION

This Prospectus may contain forward-looking statements. Statements that are not historical facts are statements about our beliefs and expectations and may include forward-looking statements. These statements are identified by words such as “believe,” “expect,” “anticipate,” “should” and words of similar meaning. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual financial and other results may differ materially from the results discussed in the forward-looking statements. Therefore, you should not place undue reliance on them. Factors that might cause such a difference include, but are not limited to, those discussed in this Prospectus, such as the effects of losses from the Bank’s financing or investment activities.

 

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ASIAN INFRASTRUCTURE INVESTMENT BANK

Overview

AIIB is an MDB with a mission to (i) foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors and (ii) promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions.

The Bank commenced operations on January 16, 2016 to help its members meet a substantial financing gap between the demand for infrastructure in Asia and available financial resources. The Bank aims to work with public and private sector partners to channel its own public resources, together with private and institutional funds, into sustainable infrastructure investment. The Bank maintains its principal office in Beijing, People’s Republic of China (“China”).

The Bank has identified three thematic priorities:

 

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Sustainable Infrastructure: Promoting green infrastructure and supporting countries to meet their environmental and development goals.

 

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Cross-border Connectivity: Prioritizing cross-border infrastructure, ranging from roads and rail, to ports, energy pipelines and telecoms across Central Asia, and the maritime routes in Southeast Asia, South Asia, the Middle East and beyond.

 

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Private Capital Mobilization: Devising innovative solutions that catalyze private capital, in partnership with other MDBs, governments, private financiers and other partners.

Legal Status

AIIB was established and operates under the Articles of Agreement (the “Articles of Agreement”), an international agreement to which governments are parties and which was open for signature on June 29, 2015 and entered into force on December 25, 2015. The Bank is not a private institution and does not have private shareholders.

The Articles of Agreement provide that all the powers of AIIB shall be vested in the Board of Governors of AIIB (the “Board of Governors”). The Board of Governors has delegated a broad range of operational oversight functions to the non-resident Board of Directors of AIIB (the “Board of Directors”). See “Governance and Administration.” On January 16, 2016, the Board of Governors convened its inaugural meeting in Beijing and declared the Bank open for business.

The Articles of Agreement endow AIIB with full juridical personality and, in particular, the full legal capacity (i) to contract, (ii) to acquire, and dispose of, immovable and movable property, (iii) to institute and respond to legal proceedings and (iv) to take such other action as may be necessary or useful for its purpose and activities. The Articles of Agreement provide that the Bank enjoys, in the territory of each of its members, the following immunities, exemptions and privileges:

 

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The Bank enjoys immunity from every form of legal process, except in cases arising out of or in connection with the exercise of its power to raise funds, to guarantee obligations, or to buy and sell securities, in which case actions may be brought in a court of competent jurisdiction in the territory in which the Bank has an office, has appointed an agent for service of process or has issued or guaranteed securities. Moreover, no action may be brought against the Bank by a member or an instrumentality of such member; instead they have recourse to special procedures for settlement of disputes as described in the Articles of Agreement, in the by-laws and regulations of the Bank, or in contracts entered with the Bank.

 

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The property and other assets of the Bank are immune from all forms of seizure, attachment or execution before delivery of a final judgment against the Bank, and from search, requisition, confiscation, expropriation or any other forceful taking by executive or legislative action. The archives of the Bank and all documents belonging to it or held by it are inviolable, regardless of location or who holds them.

 

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All Governors, Directors, Alternates, the President, Vice-president(s) and other officers and employees of the Bank are immune from legal process with respect to acts performed by them in their official capacity, except when the Bank waives this immunity.

 

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The Bank, its assets, property, income and its operations and transactions are immune from all taxes and customs duties, and the Bank is immune from any obligation relating to the payment, withholding or collection of any tax or duty.

 

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All of the property and assets of the Bank are free from restrictions, regulations, controls and moratoria of any nature (subject to the Articles of Agreement).

 

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The salaries, emoluments and expenses which the Bank pays to its Directors, Alternate Directors, President, Vice-President(s) and other officers and employees of the Bank are exempt from taxation, save to the extent that a member has explicitly reserved its right to tax such payments to its nationals or citizens.

Membership, Capital Structure and Reserves

Membership

Membership in AIIB is open to members of the International Bank for Reconstruction and Development (“IBRD” or the “World Bank”) or the Asian Development Bank (“ADB”). In the case of an applicant that is not a sovereign or not responsible for the conduct of its international relations (e.g., a political subdivision such as a semi-autonomous territory), application for membership in the Bank must be presented or agreed by the member of the Bank responsible for its international relations.

In October 2014, 22 countries signed a Memorandum of Understanding to establish the Bank. By the end of March 2015, 57 countries committed to being part of the process to design and establish the Bank. Negotiations on the Articles of Agreement concluded on May 22, 2015 and by the end of 2015, 57 prospective members signed the Articles of Agreement. Signatories to the Articles of Agreement were required to ratify, accept or approve the Articles of Agreement no later than December 31, 2016, or such later date as determined by the Board of Governors by an affirmative vote of a majority of the total number of Governors, representing not less than a majority of the total voting power of AIIB’s members (a “Special Majority Vote”). For those signatories that did not ratify, accept or approve the Articles of Agreement by December 31, 2016, the deadline for such ratification, acceptance or approval was extended; the current deadline is December 31, 2019.

Members of IBRD or ADB which were not signatories to the Articles of Agreement may be admitted by a Special Majority Vote of the Board of Governors. In respect of membership for non-signatories to the Articles of Agreement, the Bank has established procedures for membership. These procedures include initial informal discussions with the Corporate Secretary of the Bank followed by a firm written expression of interest in membership addressed to the Corporate Secretary and signed by an applicant’s duly authorized person with the rank of minister or above. If the applicant receives an informal consensus for admission from the Board of Directors, the Bank would then determine the indicative terms and conditions of membership of the applicant consistent with the Articles of Agreement. At this point, a formal application would then be made by the applicant, which would be signed by the applicant’s competent authority, such as Head of Government, Head of State or Foreign Minister. Upon receipt of the membership application, the terms and conditions of

 

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membership (including the maximum number of shares of the Bank to which the applicant may subscribe) would be recommended by the Board of Directors to the Board of Governors for its approval. Following approval by a Special Majority Vote of the Board of Governors, the applicant would prepare the necessary domestic authorization and legislation to become a member, and take other steps required for membership, including making payment of a first installment for subscribed paid-in shares, appointing a Governor and Alternate Governor and assigning votes to a Director.

There are 57 signatories to the Articles of Agreement, three of which, as of the date hereof, have not yet ratified, approved or accepted the Articles of Agreement. Consequently, the Bank currently has 54 founding members. As of the date hereof, the Bank has 70 members (44 regional and 26 non-regional). See “Table 1: Membership and Capital Allocation” below. The Bank also has 27 prospective members (six regional and 21 non-regional). Prospective members denote those jurisdictions whose membership applications have already been approved by the Board of Governors, but that have not become members yet. The Bank’s prospective regional members are: Armenia, Cook Islands, Kuwait, Lebanon, Papua New Guinea and Tonga. The Bank’s prospective non-regional members are: Algeria, Argentina, Belgium, Bolivia, Brazil, Chile, Côte d’Ivoire, Ecuador, Ghana, Greece, Guinea, Kenya, Libya, Morocco, Peru, Serbia, South Africa, Togo, Tunisia, Uruguay and Venezuela.

If a member fails to fulfill any of its obligations to the Bank, the Board of Governors may suspend such member by an affirmative vote of two-thirds of the total number of Governors, representing not less than three-fourths of the total voting power of AIIB’s members (a “Super Majority Vote”). A suspended member automatically ceases to be a member one year from the date of its suspension, unless the Board of Governors decides by a Super Majority Vote to restore the member to good standing. Other than the right of withdrawal, a suspended member is not allowed to exercise any rights under the Articles of Agreement, but remains subject to all the Articles of Agreement’s obligations.

Capital Structure

The authorized capital of the Bank consists of US$100,000,000,000 divided into paid-in shares having an aggregate par value of US$20,000,000,000 and callable shares having an aggregate par value of US$80,000,000,000. As of March 31, 2019, the members had subscribed an aggregate of US$96,403,800,000 of the Bank’s share capital, of which US$19,280,800,000 was paid-in and US$77,123,000,000 was callable.

Payment of subscribed, paid-in capital is due in five installments, except for members designated as less developed countries, which may pay in up to ten installments. As of March 31, 2019, US$15,031,590,905 had been received from members, all in convertible currency, and US$4,171,190,369 was not yet due. Capital subscriptions may be paid in United States dollars or in other convertible currency. However, to the extent that a member is a less developed country, the member may pay a portion of up to 50% of each installment in the currency of the member, with the Bank having discretion as to what amount is equivalent to the full value in terms of U.S. dollars and the member maintaining the value of all such currency held by the Bank should the member’s currency depreciate in the Bank’s opinion.

The authorized capital stock of the Bank may be increased only by a Super Majority Vote.

Total voting power of each member consists of the sum of its basic votes, share votes and, in the case of a founding member, its founding member votes. A member’s basic votes equal 12% of the aggregate sum of basic votes, share votes and founding member votes of all the members, divided by the number of members. Share votes consist of the number of shares of the capital stock of the Bank subscribed to by that member. All rights, including voting rights, acquired in respect of paid-in and

 

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associated callable shares for which payments are due but have not been received are suspended until full payment is received by the Bank. Each founding member is allocated 600 founding member votes.

Table 1: Membership and Capital Allocation⁽¹⁾

 

		Year of Accession				Total Subscriptions								Voting Power
Member						Amount (million USD)				Percent of Total				Share Votes				Founding Member Votes				Basic Votes				Total Votes				Percent of Total
Regional
Afghanistan			2017				86.6				0.0898	%			693				—				1,934				2,627				0.2328	%
Australia			2015				3,691.2				3.8289	%			36,912				600				1,934				39,446				3.4958	%
Azerbaijan			2016				254.1				0.2636	%			2,541				600				1,934				5,075				0.4498	%
Bahrain			2018				103.6				0.1075	%			1,036				—				1,934				2,970				0.2632	%
Bangladesh			2016				660.5				0.6851	%			6,605				600				1,934				9,139				0.8099	%
Brunei Darussalam			2015				52.4				0.0544	%			524				600				1,934				3,058				0.2710	%
Cambodia			2016				62.3				0.0646	%			623				600				1,934				3,157				0.2798	%
China			2015				29,780.4				30.8913	%			297,804				600				1,934				300,338				26.6167	%
Cyprus			2018				20.0				0.0207	%			200				—				1,934				2,134				0.1891	%
Fiji			2017				12.5				0.0130	%			125				—				1,934				2,059				0.1825	%
Georgia			2015				53.9				0.0559	%			539				600				1,934				3,073				0.2723	%
Hong Kong, China			2017				765.1				0.7936	%			7,651				—				1,934				9,585				0.8494	%
India			2016				8,367.3				8.6794	%			83,673				600				1,934				86,207				7.6399	%
Indonesia			2016				3,360.7				3.4861	%			33,607				600				1,934				36,141				3.2029	%
Iran			2017				1,580.8				1.6398	%			12,646				600				1,934				15,180				1.3453	%
Israel			2016				749.9				0.7779	%			7,499				600				1,934				10,033				0.8891	%
Jordan			2015				119.2				0.1236	%			1,192				600				1,934				3,726				0.3302	%
Kazakhstan			2016				729.3				0.7565	%			7,205				600				1,934				9,739				0.8631	%
Korea			2015				3,738.7				3.8782	%			37,387				600				1,934				39,921				3.5379	%
Kyrgyz Republic			2016				26.8				0.0278	%			268				600				1,934				2,802				0.2483	%
Lao PDR			2016				43.0				0.0446	%			430				600				1,934				2,964				0.2627	%
Malaysia			2017				109.5				0.1136	%			1,095				600				1,934				3,629				0.3216	%
Maldives			2016				7.2				0.0075	%			72				600				1,934				2,606				0.2310	%
Mongolia			2015				41.1				0.0426	%			411				600				1,934				2,945				0.2610	%
Myanmar			2015				264.5				0.2744	%			2,645				600				1,934				5,179				0.4590	%
Nepal			2016				80.9				0.0839	%			809				600				1,934				3,343				0.2963	%
New Zealand			2015				461.5				0.4787	%			4,615				600				1,934				7,149				0.6336	%
Oman			2016				259.2				0.2689	%			2,592				600				1,934				5,126				0.4543	%
Pakistan			2015				1,034.1				1.0727	%			10,332				600				1,934				12,866				1.1402	%
Philippines			2016				979.1				1.0156	%			9,791				600				1,934				12,325				1.0923	%
Qatar			2016				604.4				0.6269	%			6,044				600				1,934				8,578				0.7602	%
Russia			2015				6,536.2				6.7800	%			65,362				600				1,934				67,896				6.0171	%
Samoa			2018				2.1				0.0022	%			17				—				1,934				1,951				0.1729	%
Saudi Arabia			2016				2,544.6				2.6395	%			25,446				600				1,934				27,980				2.4797	%
Singapore			2015				250.0				0.2593	%			2,500				600				1,934				5,034				0.4461	%
Sri Lanka			2016				269.0				0.2790	%			2,690				600				1,934				5,224				0.4630	%
Tajikistan			2016				30.9				0.0321	%			309				600				1,934				2,843				0.2520	%
Thailand			2016				1,427.5				1.4808	%			14,275				600				1,934				16,809				1.4897	%
Timor-Leste			2017				16.0				0.0166	%			160				—				1,934				2,094				0.1856	%
Turkey			2016				2,609.9				2.7073	%			26,099				600				1,934				28,633				2.5375	%
United Arab Emirates			2016				1,185.7				1.2299	%			11,857				600				1,934				14,391				1.2754	%
Uzbekistan			2016				219.8				0.2280	%			2,198				600				1,934				4,732				0.4194	%

 

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		Year of Accession				Total Subscriptions								Voting Power
Member						Amount (million USD)				Percent of Total				Share Votes				Founding Member Votes				Basic Votes				Total Votes				Percent of Total
Vanuatu			2018				0.5				0.0005	%			5				—				1,934				1,939				0.1718	%
Vietnam			2016				663.3				0.6880	%			6,633				600				1,934				9,167				0.8124	%
Total Regional							73,855.3				76.6104	%			735,116				21,600				85,096				841,812				74.6035	%
Non-Regional
Austria			2015				500.8				0.5195	%			5,008				600				1,934				7,542				0.6684	%
Belarus			2019				64.1				0.0665	%			641				—				1,934				2,575				0.2282	%
Canada			2018				995.4				1.0325	%			9,954				—				1,934				11,888				1.0535	%
Denmark			2016				369.5				0.3833	%			3,695				600				1,934				6,229				0.5520	%
Egypt			2016				650.5				0.6748	%			6,505				600				1,934				9,039				0.8011	%
Ethiopia			2017				45.8				0.0475	%			458				—				1,934				2,392				0.2120	%
Finland			2016				310.3				0.3219	%			3,103				600				1,934				5,637				0.4996	%
France			2016				3,375.6				3.5015	%			33,756				600				1,934				36,290				3.2161	%
Germany			2015				4,484.2				4.6515	%			44,842				600				1,934				47,376				4.1986	%
Hungary			2017				100.0				0.1037	%			1,000				—				1,934				2,934				0.2600	%
Iceland			2016				17.6				0.0183	%			176				600				1,934				2,710				0.2402	%
Ireland			2017				131.3				0.1362	%			1,313				—				1,934				3,247				0.2878	%
Italy			2016				2,571.8				2.6677	%			25,718				600				1,934				28,252				2.5038	%
Luxembourg			2015				69.7				0.0723	%			697				600				1,934				3,231				0.2863	%
Madagascar			2018				5.0				0.0052	%			50				—				1,934				1,984				0.1758	%
Malta			2016				13.6				0.0141	%			136				600				1,934				2,670				0.2366	%
Netherlands			2015				1,031.3				1.0698	%			10,313				600				1,934				12,847				1.1385	%
Norway			2015				550.6				0.5711	%			5,506				600				1,934				8,040				0.7125	%
Poland			2016				831.8				0.8628	%			8,318				600				1,934				10,852				0.9617	%
Portugal			2017				65.0				0.0674	%			650				600				1,934				3,184				0.2822	%
Romania			2018				153.0				0.1587	%			1,530				—				1,934				3,464				0.3070	%
Spain			2017				1,761.5				1.8272	%			17,615				600				1,934				20,149				1.7857	%
Sudan			2018				59.0				0.0612	%			590				—				1,934				2,524				0.2237	%
Sweden			2016				630.0				0.6535	%			6,300				600				1,934				8,834				0.7829	%
Switzerland			2016				706.4				0.7328	%			7,064				600				1,934				9,598				0.8506	%
United Kingdom			2015				3,054.7				3.1687	%			30,547				600				1,934				33,081				2.9317	%
Total Non-Regional							22,548.5				23.3896	%			225,485				10,800				50,284				286,569				25.3965	%
Grand Total							96,403.8				100.0000	%			960,601				32,400				135,380				1,128,381				100.0000	%

Note:

 

(1)	Subscription and voting figures are as of May 6, 2019.

As shown in the table above, China holds the largest percentage of voting power, with 26.6167% of the total as of the date of this Prospectus. Because Super Majority Votes require in part the affirmative vote of Governors representing not less than three-fourths of the total voting power of AIIB’s members, any member with over 25% of AIIB’s total voting power could effectively prevent actions requiring a Super Majority Vote from occurring. See “Governance and Administration – Board of Governors” for further information on the types of measures that require a Super Majority Vote.

Withdrawal and Suspension

Pursuant to Article 37 of the Articles of Agreement, any member may withdraw from the Bank at any time by delivering a notice to the Bank, and such withdrawal will become effective (and the withdrawing member’s membership will cease) on the date specified in the notice but no sooner than

 

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six months after the date that notice is received by the Bank. At any time before the withdrawal becomes effective, the member may cancel its notice of intention to withdraw. A withdrawing member remains liable for all direct and contingent obligations to the Bank to which it was subject as of the date of delivery of the withdrawal notice. At the time membership ceases, the Bank shall arrange for the repurchase of the withdrawing member’s shares by the Bank as a part of the settlement of accounts with such member.

Pursuant to Article 38 of the Article of Agreement, if a member fails to fulfill any of its obligations to the Bank, the Board of Governors may suspend such member by a Super Majority Vote. See “Governance and Administration – Board of Governors”. A suspended member shall automatically cease to be a member one year from the date of its suspension, unless the Board of Governors decides by a Super Majority Vote to restore the member to good standing. While under suspension, a member shall not be entitled to exercise any rights under the Articles of Agreement, except the right of withdrawal, but shall remain subject to all its obligations.

Reserves

Pursuant to Article 18(1) of the Articles of Agreement, the Board of Governors shall determine at least annually what part of the net income of AIIB shall be allocated, after making provision for reserves, to retained earnings or other purposes and what part, if any, shall be distributed to the members.

Relationship with Other International Financial Institutions

In the interest of partnership and cooperation, the Bank signed Memoranda of Understanding with several international financial institutions, including ADB, the African Development Bank (“AfDB”), the African Development Fund, the European Bank for Reconstruction and Development (“EBRD”), the European Investment Bank, the Inter-American Development Bank, the Inter-American Investment Corporation, the International Development Association (“IDA”), the International Finance Corporation (“IFC”), the Islamic Development Bank Group, the Multilateral Investment Guarantee Agency, the New Development Bank (“NDB”) and the World Bank. The Bank has also entered into a Co-Financing Framework Agreement with IBRD and IDA, an International Swaps and Derivatives Association Master Agreement with IFC, and a Joint Declaration with the International Solar Alliance for the Promotion of Solar Energy Globally.

 

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USE OF PROCEEDS

The net proceeds from the sale of the 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, which may consist of loans, guarantees, equity investments or other types of financing, 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 (the “ESF Framework”). Pending their application to such investments, the net proceeds from the sale of the Notes will be invested as part of AIIB’s liquid assets portfolio.

CAPITALIZATION

The following table sets forth AIIB’s capitalization as of December 31, 2018 and does not give effect to any transaction since December 31, 2018. There have been no material changes to the capitalization of the Bank since December 31, 2018. As of the date of this Prospectus, the Bank has no significant long-term indebtedness.

 

		As of December 31, 2018
		(audited)
		(in thousands of US$)
Members’ equity
Paid-in capital			19,268,000
Reserve for accretion of paid-in capital receivables			(70,481	)
Retained earnings			314,899
Total members’ equity			19,512,418

 

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SELECTED FINANCIAL INFORMATION

The financial information included herein as of and for the years ended December 31, 2018, December 31, 2017 and December 31, 2016 (beginning on January 16, 2016, the date of commencement of AIIB’s operations) is derived from AIIB’s audited financial statements for the year ended December 31, 2018, including the notes thereto (the “2018 Audited Financial Statements”), which were audited by AIIB’s independent auditor PricewaterhouseCoopers, and AIIB’s audited financial statements for the year ended December 31, 2017, including the notes thereto (the “2017 Audited Financial Statements,” and together with the 2018 Audited Financial Statements, the “Financial Statements”), which were also audited by PricewaterhouseCoopers. The 2018 Audited Financial Statements, and the independent auditor’s report issued by PricewaterhouseCoopers in respect thereof, have been included herein beginning on page F-2 of this Prospectus. The 2017 Audited Financial Statements, and the independent auditor’s report issued by PricewaterhouseCoopers in respect thereof, have been included herein beginning on page F-50 of this Prospectus. The Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The 2018 Audited Financial Statements and the 2017 Audited Financial Statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2018 and December 31, 2017, respectively, and its results of operations and its cash flows for the years ended December 31, 2018 and December 31, 2017, respectively, in accordance with IFRS.

The Bank is currently implementing internal controls over financial reporting based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and will provide an attestation report issued by its external auditors on the Bank’s internal control over financial reporting beginning with its audited financial statements for the year ended December 31, 2019.

 

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The selected financial information should be read in conjunction with the Financial Statements and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Prospectus.

 

		Year ended December 31,
		2018				2017				2016
										(beginning on January 16, 2016, the date of commencement of AIIB’s operations)
		(in thousands of US$)
Selected Profit and Loss Information
Interest income			250,761				124,193				23,455
Interest expense			—				—				—
Net interest income			250,761				124,193				23,455
Net fee and commission income (expense)			12,654				(866	)			(70	)
Net gain on investment at fair value through profit or loss			56,622				53,783				14,873
Impairment provision			(39,608	)			(9,088	)			(277	)
General and administrative expenses			(84,737	)			(56,098	)			(30,658	)
Net foreign exchange gain (loss)			44				(58	)			(26	)
Operating profit for the period			195,736				111,866				7,297
Accretion of paid-in capital receivables			103,780				140,442				160,063
Net profit for the period			299,516				252,308				167,360
Other comprehensive income			—				—				—
Total comprehensive income			299,516				252,308				167,360

 

		As of December 31,
		2018				2017				2016
		(in thousands of US$)
Selected Balance Sheet Information
Total assets			19,562,269				18,972,606				17,795,367
Total liabilities			49,851				13,587				5,538
Total members’ equity			19,512,418				18,959,019				17,789,829
Total liabilities and members’ equity			19,562,269				18,972,606				17,795,367

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Financial Statements beginning on page F-2 of this Prospectus.

Overview

AIIB is an MDB with a mission to (i) foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors and (ii) promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions. The Bank commenced operations on January 16, 2016 to help its members meet a substantial financing gap between the demand for infrastructure in Asia and available financial resources. The Bank aims to work with public and private sector partners to channel its own public resources, together with private and institutional funds, into sustainable infrastructure investment. The Bank maintains its principal office in Beijing, China.

The Bank has identified three thematic priorities:

 

•

Sustainable Infrastructure: Promoting green infrastructure and supporting countries to meet their environmental and development goals.

 

•

Cross-border Connectivity: Prioritizing cross-border infrastructure, ranging from roads and rail, to ports, energy pipelines and telecoms across Central Asia, and the maritime routes in Southeast Asia, South Asia, the Middle East and beyond.

 

•

Private Capital Mobilization: Devising innovative solutions that catalyze private capital, in partnership with other MDBs, governments, private financiers and other partners.

Critical Accounting Policies

AIIB’s financial statements are prepared in accordance with IFRS. The financial year of the Bank begins on January 1 and ends on December 31 of each year. For 2016, the financial year began on January 16, 2016, the date the Bank commenced operations, and ended on December 31, 2016.

The Bank has adopted all of the IFRS standards and interpretations effective for annual periods beginning with the financial year commencing on January 16, 2016, the date the Bank commenced operations. In addition, the Bank has adopted IFRS 9 Financial Instruments (full version issued in July 2014 and mandatorily effective on January 1, 2018), IFRS 15 Revenue from Contracts with Customers (mandatorily effective on January 1, 2018) and IFRS 16 Leases (mandatorily effective on January 1, 2019) from the commencement of AIIB’s operations. AIIB’s financial statements are prepared under the historical cost convention, except for those financial assets measured at fair value. The financial statements are prepared on a going concern basis. AIIB’s functional and presentation currency is the U.S. dollar.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in its process of applying the Bank’s policies. The areas involving a higher degree of judgement or complexity, or areas where judgements or estimates are significant to the Financial Statements are disclosed in Note B to the 2018 Audited Financial Statements.

 

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Income Statement

Interest Income

Interest income mainly consists of (i) interest earned on term deposits (and, beginning in the year ended December 31, 2018, interest earned on investments in money market funds) and (ii) interest earned on loan investments, including the amortization of front-end fees and other costs related to loan origination.

Years Ended December 31, 2018, 2017 and 2016. AIIB’s interest income increased to US$250.8 million for the year ended December 31, 2018 from US$124.2 million for the year ended December 31, 2017 due to an increase in both term deposit and money market fund balances and loan investments. Interest income from cash and deposits increased to US$213.4 million for the year ended December 31, 2018 from US$112.4 million for the year ended December 31, 2017. Interest income from loan investments increased to US$37.4 million for the year ended December 31, 2018 from US$11.8 million for the year ended December 31, 2017.

AIIB’s interest income increased to US$124.2 million for the year ended December 31, 2017 from US$23.5 million for the year ended December 31, 2016 (beginning on January 16, 2016) mainly due to an increase in term deposit balances. Interest income from cash and deposits increased to US$112.4 million for the year ended December 31, 2017 from US$23.4 million for the year ended December 31, 2016 (beginning on January 16, 2016). Interest income from loan investments increased to US$11.8 million for the year ended December 31, 2017 from less than US$0.1 million for the year ended December 31, 2016 (beginning on January 16, 2016).

Interest Expense

Years Ended December 31, 2018, 2017 and 2016. AIIB’s interest expense was nil for the years ended December 31, 2018, 2017 and 2016 (beginning on January 16, 2016).

Net Interest Income

Net interest income is interest income less interest expense.

Years Ended December 31, 2018, 2017 and 2016. For the reasons set forth above, AIIB’s net interest income increased to US$250.8 million for the year ended December 31, 2018 from US$124.2 million for the year ended December 31, 2017 and US$23.5 million for the year ended December 31, 2016 (beginning on January 16, 2016).

Net Fee and Commission Income (Expense)

Net fee and commission income (expense) consists of (i) loan service (i.e., supervision) fees charged to borrowers (and, beginning in the year ended December 31, 2018, loan commitment fees) and (ii) fees earned from administering the Special Fund, less (iii) co-financing service fees paid in respect of co-financing arrangements. See “Asian Infrastructure Investment Bank – Relationship with Other International Financial Institutions.”

Years Ended December 31, 2018, 2017 and 2016. AIIB generated a net fee and commission income of US$12.7 million for the year ended December 31, 2018, compared to a net fee and commission expense of US$0.9 million for the year ended December 31, 2017. This change was mainly due to the recognition of loan commitment fees as fee and commission income beginning in the year ended December 31, 2018 (such fees having been in prior periods accounted for using the amortization method) and to an increase in committed loans, resulting in an increase of loan service

 

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and commitment fees to US$13.8 million for the year ended December 31, 2018 from loan service fees of less than US$0.1 million for the year ended December 31, 2017. This increase was partially offset by an increase in co-financing service fees to US$1.2 million for the year ended December 31, 2018 from US$1.0 million for the year ended December 31, 2017, resulting from an increase in loan commitments made pursuant to co-financing arrangements with other international financial institutions.

AIIB’s net fee and commission expense increased to US$0.9 million for the year ended December 31, 2017 from US$0.1 million for the year ended December 31, 2016 (beginning on January 16, 2016) mainly due to an increase in co-financing service fees to US$1.0 million from US$0.2 million. This increase in co-financing service fees was the result of an increase in loan commitments made pursuant to co-financing arrangements with other international financial institutions.

Net Gain on Investments at Fair Value through Profit or Loss

Net gain on investments at fair value through profit or loss is the fair value gain of AIIB’s investments in a trust fund with the World Bank (the “Trust Fund”), the IFC Emerging Asia Fund, a private equity limited partnership fund in which AIIB invests as a limited partner (the “LLP Fund”), and the India Infrastructure Fund. The Trust Fund was closed upon expiration of its contractual term and all outstanding balances (approximately US$3,295.2 million) were returned to the Bank as of the end of January 2019. See “– Balance Sheet – Assets.”

Years Ended December 31, 2018, 2017 and 2016. AIIB’s net gain on investments at fair value through profit or loss increased to US$56.6 million for the year ended December 31, 2018 from US$53.8 million for the year ended December 31, 2017 mainly due to the fair value gain of AIIB’s investments in the Trust Fund.

AIIB’s net gain on investments at fair value through profit or loss increased to US$53.8 million for the year ended December 31, 2017 from US$14.9 million for the year ended December 31, 2016 (beginning on January 16, 2016) mainly due to the fair value gain of AIIB’s investments in the Trust Fund.

Impairment Provision

As required by IFRS 9, AIIB uses an expected credit loss (“ECL”) model to estimate credit loss on financial assets, such as loan disbursements, and on other instruments, such as undrawn loan commitments. AIIB recognizes an ECL allowance at each reporting date and recognizes as an impairment loss or the reversal of an impairment loss (i.e., an impairment provision) the change in ECL allowance between such reporting date and the previous reporting date. See “Operations of AIIB – Quality of Loan Portfolio,” “Risk Management – Risk Types – Financing Credit Risk” and Notes B.3.3.4, B4.1 and D3 to the 2018 Audited Financial Statements for further discussion on the Bank’s credit quality analysis.

Years Ended December 31, 2018, 2017 and 2016. AIIB’s impairment provision increased to US$39.6 million for the year ended December 31, 2018 from US$9.1 million for the year ended December 31, 2017 mainly due to the downgrade in the internal ratings of certain sovereign borrowers and, to a lesser extent, the increase in loan commitments and disbursements. AIIB’s impairment provision increased to US$9.1 million for the year ended December 31, 2017 from US$0.3 million for the year ended December 31, 2016 (beginning on January 16, 2016) mainly due to the increase in the Bank’s loan commitments and disbursements. See “Operations of AIIB – Quality of Loan Portfolio.”

 

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General and Administrative Expenses

General and administrative expenses mainly consist of (i) staff costs, such as short-term employee benefits, including salaries, location premiums and medical and life insurance, and costs related to AIIB’s defined contribution (i.e., retirement) plan, (ii) professional service expenses, (iii) IT services, (iv) facilities and administration expenses, (v) traveling expenses and (vi) other expenses.

Years Ended December 31, 2018, 2017 and 2016. AIIB’s general and administrative expenses increased to US$84.7 million for the year ended December 31, 2018 from US$56.1 million for the year ended December 31, 2017 mainly due to (i) an increase in staff costs to US$38.4 million for the year ended December 31, 2018 from US$25.2 million for the year ended December 31, 2017, (ii) an increase in professional service expenses to US$19.7 million for the year ended December 31, 2018 from US$12.6 million for the year ended December 31, 2017, (iii) an increase in traveling expenses to US$7.4 million for the year ended December 31, 2018 from US$4.2 million for the year ended December 31, 2017 and (iv) an increase in IT services to US$7.8 million for the year ended December 31, 2018 from US$5.7 million for the year ended December 31, 2017. Such increases were mainly due to the continuing ramp-up of AIIB’s organizational activities and operations, including an increase in employee headcount.

AIIB’s general and administrative expenses increased to US$56.1 million for the year ended December 31, 2017 from US$30.7 million for the year ended December 31, 2016 (beginning on January 16, 2016) mainly due to (i) an increase in staff costs to US$25.2 million for the year ended December 31, 2017 from US$12.2 million for the year ended December 31, 2016 (beginning on January 16, 2016) and (ii) an increase in professional service expenses to US$12.6 million for the year ended December 31, 2017 from US$6.7 million for the year ended December 31, 2016 (beginning on January 16, 2016). The increases in staff costs and professional service expenses were mainly due to the ramp-up of AIIB’s organizational activities and operations, including an increase in employee headcount.

Operating Profit

Years Ended December 31, 2018, 2017 and 2016. Mainly for the reasons set forth above, AIIB’s operating profit increased to US$195.7 million for the year ended December 31, 2018 from US$111.9 million for the year ended December 31, 2017 and US$7.3 million for the year ended December 31, 2016 (beginning on January 16, 2016).

Accretion of Paid-in Capital Receivables

Paid-in capital receivables represent amounts due from the Bank’s members in respect of paid-in capital. See “Asian Infrastructure Investment Bank – Membership, Capital Structure and Reserves – Capital Structure.” These amounts are initially recognized at fair value, which reflects the discounted present value of future paid-in capital inflows, and subsequently measured at amortized cost. The difference between amortized cost and fair value is accounted for as a reserve under members’ equity and is accreted through the income statement using the effective interest method.

Years Ended December 31, 2018, 2017 and 2016. AIIB’s accretion of paid-in capital receivables equaled US$103.8 million for the year ended December 31, 2018, US$140.4 million for the year ended December 31, 2017 and US$160.1 million for the year ended December 31, 2016 (beginning on January 16, 2016).

Total comprehensive income

Years Ended December 31, 2018, 2017 and 2016. Mainly for the reasons set forth above, AIIB’s total comprehensive income increased to US$299.5 million for the year ended December 31, 2018

 

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from US$252.3 million for the year ended December 31, 2017 and US$167.4 million for the year ended December 31, 2016 (beginning on January 16, 2016).

Balance Sheet

Assets

Total assets mainly consist of (i) term deposits, (ii) paid-in capital receivables, (iii) investments at fair value through profit or loss, (iv) cash and cash equivalents and (v) loan investments at amortized cost.

During the periods under review, investments at fair value through profit or loss included the funds that the Bank had placed in the Trust Fund. These funds were, in turn, reinvested by the Trust Fund counterparty, the World Bank, in a larger collective pool of investments in accordance with the investment mandate for the entire pool. The counterparty made allocations within the investment pool subject to a framework agreement between the Bank and the counterparty to create a model portfolio exposure. Permitted holdings within the investment pool consisted of local currency sovereign instruments; foreign currency instruments of sovereign entities, agencies, other official entities and multilateral institutions rated at least AA-; corporate and ABS instruments rated AAA; and deposits with banks rated at least A-. As of December 31, 2018, the fair value of the Trust Fund was approximately US$3,292.6 million. The Trust Fund was closed upon expiration of its contractual term and all outstanding balances were returned to the Bank as of the end of January 2019.

Assets of the Bank include high-quality liquid assets, which are defined as cash or assets that can be converted into cash at little or no loss in value. See “Risk Management – Risk Types – Liquidity Risks” for further discussion on the Bank’s liquidity.

As of December 31, 2018 and 2017. As of December 31, 2018, AIIB’s total assets were US$19,562.3 million, compared to total assets of US$18,972.6 million as of December 31, 2017. This increase resulted mainly from an increase of US$2,337.4 million in term deposits with a maturity of more than 3 months, an increase of US$1,147.9 million in cash and cash equivalents (mainly due to investment in money market funds) and an increase of US$591.9 million in loan investments at amortized cost. This increase was partially offset by a decrease of US$3,561.9 million in paid-in capital receivables (reflecting the continuing payment of members’ paid-in capital contributions).

Liabilities

Total liabilities mainly consist of accrued expenses, provisions related to ECL on loan commitments, staff costs payable and, for the year ended December 31, 2018, prepaid paid-in capital.

As of December 31, 2018 and 2017. As of December 31, 2018, AIIB’s total liabilities were US$49.9 million, compared to total liabilities of US$13.6 million as of December 31, 2017. This increase resulted primarily from a provision of US$32.8 million that the Bank has taken in respect of an ECL allowance due mainly to the downgrade in the internal ratings of certain sovereign borrowers, an increase of US$4.8 million in accrued expenses and the prepayment of US$2.6 million in paid-in capital in 2018. See “Operations of AIIB – Quality of Loan Portfolio.”

Members’ Equity

Members’ equity consists of (i) paid-in capital, (ii) reserves for accretion of paid-in capital receivables and (iii) retained earnings.

 

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As of December 31, 2018 and 2017. As of December 31, 2018, AIIB’s total members’ equity was US$19,512.4 million, compared to total members’ equity of US$18,959.0 million as of December 31, 2017. This increase resulted from an increase of US$267.7 million in paid-in capital and an increase of US$195.7 million in retained earnings, partially offset by a decrease of US$90.0 million in reserves for accretion of paid-in capital receivables.

Asset Quality

As of December 31, 2018, no AIIB assets were categorized as overdue, restructured trouble debt, in non-accrual status or written off, except for overdue contractual undiscounted paid-in capital receivables of $256.7 million, which are not considered as impaired. Of this amount, $178.7 million was collected as of April 3, 2019, the date of the signing of the 2018 Audited Financial Statements. See “Operations of AIIB – Quality of Loan Portfolio,” “Risk Management – Risk Types – Financing Credit Risk” and Note D to the 2018 Audited Financial Statements for further discussion on the Bank’s asset quality.

Debt Record

A non-interest bearing start-up budget loan facility of US$8.3 million to fund AIIB’s initial organizational activities was provided to AIIB by the Ministry of Finance of China. All amounts owed under this facility were repaid on April 1, 2016. AIIB has never defaulted on the payment of principal of, or premium or interest on, any debt obligation.

External Auditor Work Papers

In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the mainland Chinese affiliates of the “big four” accounting firms, including the affiliate of the Bank’s auditor. The Rule 102(e) proceedings initiated by the SEC, which have since been stayed pursuant to an agreement between the accounting firms and the SEC, related to the failure of these firms to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act of 2002, as the auditors located in China are not in a position lawfully to produce documents directly to the SEC because of restrictions under Chinese law, including specific directives issued by the Chinese Securities Regulatory Commission. The issues raised by the proceedings are not specific to the Chinese affiliate of the Bank’s auditor, but potentially affect equally all Public Company Accounting Oversight Board-registered audit firms based in China and all businesses based in China (or with substantial operations in China) with securities registered with the SEC. In addition, auditors based outside of China are subject to similar restrictions under Chinese law in respect of audit work that is carried out in China which supports the audit opinions issued on financial statements of entities with substantial China operations.

To address the potential difficulties in obtaining audit work papers, the Bank has engaged with the authorities of China, its host country, and received assurances from the Ministry of Finance of China that the authorities of China would not prevent the release of the Bank’s external auditor work papers pertaining to the Bank if the SEC were to request them during the course of an SEC investigation.

Related Party Transactions

Parties are generally considered to be related if the parties are under common control, or one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely to the legal form.

 

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The Bank’s related party transactions include the following. For additional information with respect to AIIB’s related party transactions, see Note C14 to the 2018 Audited Financial Statements.

 

•

In accordance with Article 5 of the Headquarters Agreement entered into between the government of China and the Bank on January 16, 2016, the government of China provides a permanent office building and temporary office accommodation to the Bank, free of charge.

 

•

As of March 31, 2019, the Bank had one loan outstanding to a member of the Bank’s senior management, Sir Danny Alexander, Vice President and Corporate Secretary, which had an amount outstanding of US$11,750.

 

•

In December 2017, the Bank approved a US$250.0 million term loan facility to Beijing Gas Group Company Limited, a nonsovereign borrower that is ultimately controlled by a state-owned enterprise of China. See “Operations of AIIB – Approved Financings – Loans – China.” The facility is guaranteed by a commercial bank and was entered into in the ordinary course of business under normal commercial terms and at market rates. As of December 31, 2018, the carrying amount of this facility was US$47.0 million.

Interim Period

The Bank expects that its financial condition and results of operations for the interim period as of and for the three months ended March 31, 2019 will generally reflect the trends discussed under “ – Income Statement” and “ – Balance Sheet” above, including, among other things, an increase in investments and loans outstanding compared with amounts during the comparable period in 2018 and the continuing ramp-up of AIIB’s organizational activities and operations.

 

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OPERATIONS OF AIIB

AIIB’s mission is to (i) foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors and (ii) promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions. The Bank commenced operations on January 16, 2016 to help its members meet a substantial financing gap between the demand for infrastructure in Asia and available financial resources. The Bank aims to work with public and private sector partners to channel its own public resources, together with private and institutional funds, into sustainable infrastructure investment.

The Bank has identified three thematic priorities:

 

•

Sustainable Infrastructure: Promoting green infrastructure and supporting countries to meet their environmental and development goals.

 

•

Cross-border Connectivity: Prioritizing cross-border infrastructure, ranging from roads and rail, to ports, energy pipelines and telecoms across Central Asia, and the maritime routes in Southeast Asia, South Asia, the Middle East and beyond.

 

•

Private Capital Mobilization: Devising innovative solutions that catalyze private capital, in partnership with other MDBs, governments, private financiers and other partners.

The Bank’s policies are designed to ensure there is a direct link between the Bank’s mission and thematic priorities and the projects it finances. Sustainable development is an integral part of the Bank’s identification, preparation and implementation of projects. For example, the Bank has approved an ESF Framework, which, consistent with the United Nations’ Sustainable Development Goals and the practices of peer MDBs, recognizes the need to address the three dimensions of sustainable development – economic, social and environmental – in a balanced and integrated manner. See “– Key Operational Policies, Strategies and Frameworks – Environmental and Social Framework.”

Ordinary Resources and Special Fund Resources

Operations of the Bank consist of ordinary operations financed from ordinary resources (“Ordinary Resources”) and special operations financed from special fund resources (“Special Fund Resources”).

Ordinary Resources include (i) the authorized capital stock of the Bank, comprising paid-in and callable shares of its members, (ii) funds raised by the Bank through borrowing or other means, (iii) funds received in the repayment of loans and guarantees, as returns on equity investments or from other types of financing as may be determined by the Board of Governors, (iv) income derived from loans or guarantees made from the above-mentioned funds and (v) any other funds or income received from the Bank which are not Special Fund Resources.

Special Fund Resources are (i) funds accepted by the Bank for inclusion in any special fund (a “Special Fund”), (ii) funds received in respect of loans or guarantees and proceeds of any equity investments financed from the resources of a Special Fund, (iii) income derived from the investment of resources of a Special Fund and (iv) any other resources placed at the disposal of a Special Fund. Special Funds must serve the purpose and come within the functions of the Bank and may only be used under terms and conditions consistent with such. Ordinary Resources and Special Fund Resources may separately finance elements of the same project or program. The two types of resources, however, must be held, used, committed, invested or otherwise disposed of entirely separately from each other. In no circumstances may Ordinary Resources be charged with, or used to discharge, losses or liabilities arising out of Special Fund Resources. The Bank must adopt special rules and regulations for the establishment, administration and use of each Special Fund.

 

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To date, the Bank has established one Special Fund: the AIIB Project Preparation Special Fund. See “– AIIB Project Preparation Special Fund.”

Financial Instruments

To implement the Bank’s purpose, the Bank may provide or facilitate financing to any member, or any agency, instrumentality or political subdivision of a member, or any entity operating in the territory of a member, as well as to international or regional agencies or entities concerned with economic development of Asia. In limited circumstances, and subject to a Super Majority Vote (see “Governance and Administration – Board of Governors”), the Bank may also provide assistance to other recipients, provided such assistance (i) serves the purpose and comes within the functions of the Bank and is in the interest of the Bank’s membership and (ii) is of a type of assistance that the Bank is permitted to provide pursuant to Article 11(2) of the Articles of Agreement.

The Bank may offer a range of financial products, including loans, equity investments and guarantees of loans for economic development (either as primary or secondary obligor). The Bank may also deploy Special Fund Resources (See “– Ordinary Resources and Special Fund Resources”), technical assistance and other types of financing as may be determined by the Board of Governors.

For the Bank to agree to provide financing, the project in question must meet a variety of conditions, including the following:

 

•

it must have clearly defined development objectives consistent with the Bank’s purpose that permit appropriate evaluation of the project’s impact;

 

•

it must provide for specific productive activities necessary to meet these development objectives;

 

•

alternative sources of finance, in particular private capital, must be unavailable for the project on terms and conditions that the Bank considers reasonable; and

 

•

it must be in compliance with all applicable Bank policies.

Sovereign-backed Financing

Sovereign-backed financing refers to the following:

 

•

a loan to, or guaranteed by, a member of AIIB; or

 

•

a guarantee that:

(i) covers debt service defaults under a loan that are caused by a government’s failure to meet a specific obligation in relation to a project or by a borrower’s failure to make a payment under the loan; and

(ii) is accompanied by a counter-guarantee and indemnity provided by the AIIB member in whose territory the relevant project is located, in connection with such guarantee.

Sovereign-backed financings are subject to terms and conditions that are uniform across all sovereign-backed borrowers.

For sovereign-backed loans, these terms and conditions include the following:

 

•

all loans are currently denominated in U.S. dollars;

 

•

pricing comprises the interest rate, front-end fee and commitment fee. For fixed-spread loans, the interest rate consists of a market-based reference rate and a fixed spread equal to a

 

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contractual lending spread, the Bank’s projected funding costs over the life of the loan and a market risk premium. For variable-spread loans, the interest rate consists of a market-based reference rate and a variable spread equal to a contractual lending spread and an actual funding cost margin. For both types of loans, depending on the maturity of the loan, a maturity premium may also be charged;

 

•

all loans must have a weighted average maturity of no more than 20 years and a final maturity of no more than 35 years; and

 

•

each loan that is not made to a member of the Bank must be secured by a guarantee from the relevant member.

Sovereign-backed guarantees include the following terms and conditions:

 

•

all guarantees are currently denominated in U.S. dollars;

 

•

all guarantees must have a weighted average maturity of no more than 20 years and a final maturity of no more than 35 years (unless the Board of Directors determines otherwise);

 

•

pricing consists of three fees: (i) a standby (i.e., commitment) fee, (ii) a guarantee fee equal to the contractual lending spread and, if applicable, a maturity premium and (iii) a front-end fee charged based on the maximum amount of the guarantee;

 

•

the Bank may also charge a processing charge, as appropriate, to cover its internal and external processing costs; and

 

•

the member in whose territory the project is located or for whose benefit the guarantee is made is required to indemnify the Bank for any payments the Bank makes under the guarantee and for all liabilities and expenses the Bank incurs in connection with the guarantee.

The Bank may make an advance (a “Preparation Advance”) to finance preparatory activities for a project to be supported by a sovereign-backed financing. A Preparation Advance is made only when there is a strong probability that the financing for which it is granted will be extended. Granting a Preparation Advance does not obligate the Bank to finance or otherwise support the project in question. The maximum aggregate principal amount of all approved Preparation Advances for any given project may not exceed the lesser of: (i) 10% of the total estimated amount of financing for the project or (ii) US$10.0 million equivalent. The President decides whether to approve each Preparation Advance.

Non-sovereign-backed Financing

Non-sovereign-backed financing means any financing to, or for the benefit of, a private enterprise or a sub-sovereign entity (such as a political or administrative sub-division of an AIIB member or a public sector entity) that is not backed by a guarantee or counter-guarantee and indemnity provided by a member to the Bank.

Non-sovereign-backed financings may take the form of loans, guarantees, credit lines to financial intermediaries, direct equity investments or indirect equity investments. The Bank may finance out of its own funds no more than 35% of the project’s value (including interest during construction). On an exceptional basis, if co-financing is unavailable, the Board of Directors may decide to approve a higher level of financing for the project.

Non-sovereign-backed financings are subject to terms and conditions that are set in accordance with market-based principles. Pricing is based on several factors, including (i) the intrinsic and

 

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macroeconomic risks of the project, (ii) the cost of funds to the Bank and (iii) the need to earn an appropriate return on the Bank’s capital, including on funds invested in direct and indirect equity of private entities.

The Bank may offer a range of options and features to meet the specific needs of the project.

Non-sovereign-backed Loans and Guarantees; Credit Lines to Financial Intermediaries

Non-sovereign-backed loans may be offered on a limited recourse basis, backed only by the existing and future cash flows and assets of the beneficiary of the project. The Bank may also extend non-sovereign-backed loans with the credit support of a third party; for example, the Bank may have recourse to designated assets or the balance sheet of the sponsor of the project or to a bank guarantee. Non-sovereign-backed loans are typically extended as senior loans and may require certain credit enhancements, such as guarantees or security arrangements. Subject to appropriate pricing, the Bank may also extend loans that are subordinated to the prior payment of other debt of the beneficiary of the project or subordinated in repayment in the event of the beneficiary’s bankruptcy. The Bank may provide non-sovereign-backed loans in the form of loan participations or loan syndications. In a loan participation, while remaining the lender of record for the full amount of the loan, the Bank transfers full commercial and business risk with respect to a part of the amount to other lenders, allowing them to partially finance the loan. In a loan syndication, the Bank joins a syndicate of commercial banks, whereby the Bank and other members of the syndicate undertake to lend specified portions of the total loan amount. The Bank may also offer non-sovereign-backed guarantees against default regardless of the cause or against default arising from specified events.

Non-sovereign-backed loans and guarantees are denominated in U.S. dollars (although the Bank may in the future issue loans and guarantees in local currencies). The Bank charges front-end fees, commitment fees (or standby fees in respect of guarantees) and fees for appraisal, prepayment, syndication or activities and services related to the financing (or guarantee fees in respect of guarantees), all typically at prevailing market rates. Unless the Board of Directors determines otherwise, the final maturity of a non-sovereign-backed loan must not exceed 18 years.

The Bank may also extend credit lines to financial intermediaries for on-lending in respect of projects that otherwise meet the Bank’s eligibility requirements for direct financings. In these cases, the Bank’s recourse is typically to the balance sheet of the financial intermediary, but the Bank may also require an assignment, by way of security, of the sub-loans granted by the financial intermediary.

Equity Investments

The Bank may make direct equity investments in private- or public-sector companies. It may invest either in a new enterprise or an existing enterprise. The investment may take a variety of forms, including subscriptions to ordinary shares or preference shares (or a combination of both).

The Bank’s investment may generally not exceed 30% of the company’s ownership holdings. In exceptional circumstances, the Board may decide to approve a higher, but not controlling, share or (if the Bank’s investment is in jeopardy) the Bank may take control of the company in order to safeguard its investment.

The Bank may also selectively make equity investments through financial intermediaries, such as equity funds, choosing those managed by professional managers with relevant track records and remuneration arrangements in line with market practices.

In both direct and indirect equity investments, the Bank seeks credible exit strategies.

 

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Financing Portfolio

As of December 31, 2018, the Bank had 35 Board of Directors-approved financings (including 30 loans, three investments in funds, one equity financing and one investment in fixed-income securities).

As of December 31, 2018, the loans totaled US$3,328.1 million in committed amounts and US$1,381.4 million in disbursed amounts. Committed amounts are amounts the Bank has approved and committed to provide pursuant to legally-binding documentation, but has not yet disbursed. For sovereign-backed loans, these amounts are further limited to financings for which all conditions precedent required for disbursement have been satisfied. Disbursed amounts represent the gross carrying amount of the loans (i.e., including the transaction costs and fees that are capitalized through the effective interest method). Of all Board of Directors-approved loans as of December 31, 2018, 25 are sovereign-backed and 5 are non-sovereign-backed loans; 19 are co-financings and 11 are stand-alone financings. See “ – Approved Financings – Loans.”

As of December 31, 2018, two investments in funds had a total fair value of US$32.9 million, including US$32.4 million in respect of the LLP Fund and US$0.5 million in respect of the India Infrastructure Fund. The Board of Directors also approved the investment of US$100.0 million in a third fund, the National Investment and Infrastructure Fund (the “NIIF”), regarding which the Bank entered into legally binding documentation in March 2019. See “ – Approved Financings – Investments in Funds.”

As of December 31, 2018, the Board of Directors approved an equity financing of US$50.0 million. The committed amount of this investment is subject to the entry into legally-binding documentation. See “ – Approved Financings – Equity.”

As of December 31, 2018, the Board of Directors approved one investment in fixed-income securities with an approved amount of US$500.0 million. The committed amount of this investment is subject to the entry into legally-binding documentation. See “ – Approved Financings – Investments in Fixed-Income Securities.”

In 2019, the Board of Directors approved three loans totaling US$320.0 million and the President, pursuant to his delegated authority to approve certain projects, approved one loan totaling US$120.0 million. See “ – Approved Financings – Loans” and “ – Non-Sovereign-Backed Financings – Approval and Preparation of Documentation.”

 

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Geographic Distribution of Loans

The following table sets forth AIIB’s loan portfolio classified by geographic distribution:

 

		As of December 31, 2018								As of December 31, 2017								As of December 31, 2016
		Amount (in millions of US$)(1)				As a percentage of total loan portfolio				Amount (in millions of US$)(1)				As a percentage of total loan portfolio				Amount (in millions of US$)(1)				As a percentage of total loan portfolio
Committed Amounts
Central Asia			71.2				2	%			27.4				1	%			27.4				8	%
Eastern Asia			200.0				6	%			—				0	%			—				0	%
South-Eastern Asia			820.7				25	%			422.5				22	%			216.5				65	%
Southern Asia			992.4				30	%			1,013.7				52	%			90.4				27	%
Western Asia			1,201.5				36	%			336.9				17	%			—				0	%
Total Regional			3,285.8				99	%			1,800.5				92	%			334.3				100	%
Total Non-Regional			42.3				1	%			147.0				8	%			—				0	%
Total Committed			3,328.1				100	%			1,947.5				100	%			334.3				100	%
Disbursed Amounts
Central Asia			16.5				1	%			0.1				0	%			0.1				1	%
Eastern Asia			47.0				3	%			—				0	%			—				0	%
South-Eastern Asia			98.6				7	%			38.5				5	%			—				0	%
Southern Asia			413.6				30	%			98.6				13	%			9.7				99	%
Western Asia			701.4				51	%			641.4				82	%			—				0	%
Total Regional			1,277.2				92	%			778.5				100	%			9.8				100	%
Total Non-Regional			104.2				8	%			0.0				0	%			—				0	%
Total Disbursed			1,381.4				100	%			778.5				100	%			9.8				100	%

 

Note:

 

(1)	The amounts indicated for a particular geographic location include both sovereign and non-sovereign-backed loans.

 

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Loans by Sector

The following table sets forth AIIB’s loan portfolio by sector:

 

		As of December 31, 2018								As of December 31, 2017								As of December 31, 2016
		Amount (in millions of US$)(1)				As a percentage of total loan portfolio				Amount (in millions of US$)(1)				As a percentage of total loan portfolio				Amount (in millions of US$)(1)				As a percentage of total loan portfolio
Committed Amounts
Energy			1,562.1				47	%			778.3				40	%			—				0	%
Finance			199.5				6	%			—				0	%			—				0	%
ICT(2)/others			125.2				4	%			—				0	%			—				0	%
Transport			620.6				18	%			751.5				39	%			117.8				35	%
Urban			249.7				8	%			296.3				15	%			216.5				65	%
Water			571.0				17	%			121.4				6	%			—				0	%
Total Committed			3,328.1				100	%			1,947.5				100	%			334.3				100	%
Disbursed Amounts
Energy			945.0				68	%			672.5				86	%			—				0	%
Finance			0.1				0	%			—				0	%			—				0	%
ICT(2)/others			(1.1	)			0	%			—				0	%			—				0	%
Transport			358.3				26	%			83.0				11	%			9.8				100	%
Urban			67.6				5	%			19.7				3	%			—				0	%
Water			11.5				1	%			3.4				0	%			—				0	%
Total Disbursed			1,381.4				100	%			778.5				100	%			9.8				100	%

 

Notes:

 

(1)	The amounts set forth in this table include both sovereign and non-sovereign-backed loans.

(2)	ICT means the information, communication and technology sector.

Loan Maturity

As of December 31, 2018, based on final repayment date of the loans, none of AIIB’s disbursed and committed loans is scheduled to mature through 2022, US$1,470.9 million is scheduled to mature in 2023-2033 and US$3,238.5 million is scheduled to mature from 2034 onwards.

 

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Ten Largest Borrowers

The following table sets forth the aggregate principal amount of loans (including both committed and disbursed amounts) to AIIB’s 10 largest borrowers (including both sovereign-backed and non-sovereign-backed borrowers) as of December 31, 2018:

 

Borrower		Amount (in millions of US$)				As a percentage of total loan portfolio
Ministry of Finance of Indonesia			692.1				15	%
Ministry of Finance of India			630.8				13	%
Southern Gas Corridor Closed Joint Stock Company of Azerbaijan			601.0				13	%
Boru Hatları ile Petrol Taşıma A.Ş. (BOTAŞ) of Turkey			598.8				13	%
Ministry of Finance of Pakistan			400.6				9	%
Special Economic Zone Authority of DUQM of Oman			265.3				6	%
Beijing Gas Group Company Limited of China			247.0				5	%
Ministry of Finance of Bangladesh			226.0				5	%
Ministry of Finance of Philippines			207.8				4	%
Oman Broadband Company SAOC of Oman			124.1				3	%

Approved Financings

Set out below are descriptions of all the Bank’s approved financings as of May 6, 2019:

Loans

Azerbaijan

 

•

Trans-Anatolian Natural Gas Pipeline – The Board of Directors approved US$600.0 million of financing, with additional funds being provided by the World Bank (US$800.0 million), other international financial institutions (US$2.1 billion) and other financing sources (US$5.1 billion). The project is an 1,850 km pipeline system running across Turkey to transport 16 billion cubic meters per year of natural gas produced at the Shah Deniz 2 field in Azerbaijan for consumption in Turkey and the South Eastern European market. The financing for this project was approved by the Board of Directors on December 21, 2016.

Bangladesh

 

•

Bhola Independent Power Producer – The Board of Directors approved US$60.0 million of financing. The project is to increase power generation capacity in Bangladesh by approximately 1,300 gigawatt hours annually. The financing for this project was approved by the Board of Directors on February 9, 2018.

 

•

Distribution System Upgrade and Expansion – The Board of Directors approved US$165.0 million of financing, with a total project cost of US$262.3 million. The project is to upgrade two grid substations and convert 85 kilometers of overhead distribution lines into underground cables in north Dhaka. The financing for this project was approved by the Board of Directors on June 24, 2016.

 

•

Natural Gas Infrastructure and Efficiency Improvement Project – The Board of Directors approved US$60.0 million of financing. The project is to improve efficiency in gas production in Titas Gas Field and expand gas transmission pipeline capacity between Chittagong and Bakhrabad. The financing for this project was approved by the Board of Directors on March 22, 2017.

 

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