May 4, 2017 9:00 am JST

AIIB hopes to win international credit rating by end of third quarter

Chinese-led bank moving closer to issuing its own bonds

SHOTARO TANI, Nikkei staff writer

YOKOHAMA -- The Asian Infrastructure Investment Bank hopes to obtain an international credit rating by the end of the third quarter of this year, a move which will take it a step closer to being able to issue bonds.

"We recently finished talking to the international credit rating agencies," Soren Elbech, the director general and treasurer of AIIB, who joined the bank in December last year, told Nikkei Asian Review on Wednesday. "We have a clear expectation to be rated before the end of the third quarter this year." He added that the bank expects to obtain "the highest rating that we can achieve," given its financial and business profile.

The AIIB, a Chinese-led initiative, has so far approved approximately $2.5 billion in loans, funding the disbursements with the paid-in capital from the member countries. Elbech said that the AIIB was in no rush to issue bonds to finance the loans, as it had received around $9 billion in paid-in capital up to now, which gives the bank "more than enough and ample capital" to service the loans for the next four to five years.

But Elbech, former treasurer of the Inter-American Development Bank, said the AIIB would look to issue bonds to "build up the bank's credibility in the market, pricing, [and] awareness with the investors." The Dane did not give a specific schedule on issuing the bonds, saying it depended on market conditions, but the size of the issue will be "a minimum of a billion [U.S. dollars]".

Issue 'has to be credible'

"My experience tells me that [for] a name like ours, the newest multilateral financial institution, to be positioned within its peer group, the size of the issue has to be credible. We want to firmly establish the bank's name," he said. "ADB just did a $4 billion three-year deal -- its largest ever. In order to be recognized within our peer group, we don't need to do these kinds of sizes, not yet at least."

Despite China's heavy involvement, Elbech said he expected the bank to issue its initial bonds in dollars, not renminbi. "U.S. dollar is our functional currency so that points to the initial issue to be in dollars," he said. "However, I'm sure we are going to be issuing in renminbi also at some stage and when it makes sense for the bank." He believed AIIB bonds would be attractive for international investors as they offered an opportunity to invest in a multilateral development bank other than the likes of the World Bank and the Asian Development Bank.

AIIB added 13 new member countries in March, expanding its roster to 70 nations. However, the U.S. and Japan have thus far not applied for membership, out of concern that the international lender will be a tool to fund Chinese ambitions. China has contributed about 30% of the AIIB's $100 billion in capital and has around 25% of the voting rights, holding effective veto power over key projects.

Elbech dismissed these claims. The AIIB "is there to finance projects in all our member countries -- as long as it benefits Asia." He said he expected that lending to projects in China would be modest and, predominantly, to non-sovereign borrowers.

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