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AIIB floats $500m fund to finance infrastructure corporate bonds

Deal Street Asia 2019-01-09 23:03:22

The said on Wednesday that it has set up a $500-million fund to invest in corporate bonds linked to infrastructure projects.

“AIIB’s board of directors has approved $500 million for a managed credit portfolio that aims to develop infrastructure as an asset class, develop debt capital markets for infrastructure and promote the integration of environmental, social and governance (ESG) principles in fixed income investments in emerging Asia,” AIIB said in a statement.

The Beijing-headquartered multilateral lender further said that its ‘Asia ESG Enhanced Credit Managed Portfolio’ will comprise corporate bonds issued by infrastructure-related issuers, including quasi-sovereign bonds and green bonds where proceeds are directed to sustainable infrastructure and other productive sectors.

Bonds purchased under this portfolio will be screened, assessed and managed based on ESG investing principles that have been informed by AIIB’s Environmental and Social Framework, it said.

“If only a small fraction of the trillions of dollars currently under management by institutional investors were allocated to infrastructure projects, there would be a catalyzing impact on Emerging Asia’s growth potential,” said Dong-Ik Lee, Director General for Investment Operations, AIIB.

“By setting up this portfolio, we hope to develop a proof of concept that over time will mobilize other like-minded investors to join us in cultivating an ESG market in Asia,” he added.

AIIB said it would initially deploy its own capital to build awareness for ESG investing and would support other investors to set up similar platforms or participate in AIIB initiatives, with the goal of establishing an ESG market in the region.

Infrastructure investment in Asia, both in economic and social infrastructure, faces a massive financing gap despite the region’s high savings. Asian Development Bank (ADB) in 2017 estimated a financing gap in the economic infrastructure of $459 billion per year for Asia.

In November last year, Mint reported that private equity major KKR and Co. is gearing up to raise $1.5-2 billion for maiden Asia-focused infrastructure fund. The Saudi-based Islamic Development Bank (IDB) plans to launch two funds worth $1 billion focused on Africa and Asia this year to help fill a gap in infrastructure investment among its member countries, Reuters in October.

AIIB is also investing $200 million in India’s National Investment and Infrastructure Fund (NIIF).