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“Sustainable infrastructure is the priority in funding any project”

“Sustainable infrastructure is the priority in funding any project”

In an exclusive interview, Najeeb Haider, Principal Strategy Officer, Asian Infrastructure Investment Bank (AIIB) tells RAHUL KAMAT about the bankÂ’s future strategies and the key sectors for investments in India.

How is AIIB mobilising private investment capital to fund infrastructure projects?
Private capital mobilisation is one of the three thematic priorities for AIIB. The others are connectivity and sustainable infrastructure. For us, focusing on these three elements is an important strategy because it touch-base with all aspects of business. Since we are just a 48-months-old multilateral bank, in a bid to be sure in our investments, we consult project developers, commercial banks, institutional investors, law firms, and consultants. We conduct roundtable conferences with the stakeholders in the industry to get useful inputs.

In the entire process of funding, we have identified a three-tier approach. Given that we are just a two-year-old institution, we have started co-financing projects with other financial institutions like Asian Development Bank, International Finance Corporation etc. In fact, we would continue with this exercise. At present, what we are very focused on is building our own pipeline of transactions. We are structuring such transactions in a manner that we attract private capital to fund sustainable projects.

What is the rationale behind focussing only on attracting private capital?
The reason to focus on private capital is that there is continued stress on government projects across emerging markets. The demand for infrastructure across the world is way beyond what the governments can think of. This demand will lead institutional investors and multilateral banks to play a much bigger role as we go further. In activity two, we have done reasonably well in creating our base in new and emerging markets, wherein products, and transactions can be replicated not only in a particular country but also across regions where we have already ventured into.

According to a study by McKinsey, by 2020, over $6 trillion assets will be under management and a small portion is expected to be deployed in infrastructure. So we are working on strategies to encourage institutional investors to invest in emerging markets. Hopefully, our strategies will result in mandates over the coming years. Once we execute these mandates, we believe they will attract another pool of institutional investments.

How are you looking at the needs arising here in this country and which are the ones that interest you?
India is an important country for us as it is the second largest shareholder in AIIB. Currently, as an institution, our largest exposure is in India compared to any other country.

We have set thematic priorities. Sustainable infrastructure is one priority that is key in selecting our project. The projects have to be economically, environmentally, and socially sustainable. These are some of the key criteria we look at. We also have sector priorities. Energy, transport, and sustainable cities are three sectors we have prioritise. They will grow over time. So, we have a combination of projects in one or two of the categories we are focussed on and also what the country needs. It is the government that has to bring the sustainable projects on table, so that we can take them forward for funding. In India, we have six projects with a commitment of over $1.7 billion.

Tell us about your current investments in India?
We have plans to invest around Rs 127 billion in projects including transport (metro), rural (road upgradation), energy (renewables), and water and waste management. The proposed projects by AIIB are: a rural road project and a water and waste management project in Andhra Pradesh; Mumbai Metro Line 4; a major irrigation and flood management project in West Bengal; and projects in Amaravathi, the proposed capital of Andhra Pradesh. The total investment would be Rs 127 billion. Earlier, we had committed Rs 75 billion in projects like a rural connectivity project in MP, the Bengaluru Metro, power transmission in Tamil Nadu, rural roads in Gujarat, and the power-for-all project in Andhra Pradesh. That apart, we are investing $200 million in National Investment and Infrastructure Fund (NIIF).

Out of six projects for which AIIB has committed investment, three are specifically in Andhra Pradesh. Does it portray a picture of other states lacking in sustainable projects?
I do not think it is correct to say that other states are lacking in sustainable projects. But it is a question of how the state governments approach AIIB. We do not develop our own projects. I think the states which are very active have approached us and we are funding their projects. We are not neglecting any state; whichever state is proactive, we are responding to it first.

In India, logistics and housing (affordable) have been termed under infrastructure sector. Are you considering funding affordable housing projects in India?
The bank is open for consideration of any project that is well-structured and can be categorised as infrastructure. We do not consider education, health, and agriculture per-se, but do consider infrastructure in those sectors. We will probably be open to fundaffordable housing. The issue is that we are lenders, so we expect our money back. So affordable housing probably needs to be supported by the government. It has to be well-structured as a public–private partnership.

Do you see a sense of competition for AIIB with other lenders, since well-structured and bankable projects are hard to find in India?
I think you have a good point. There is a dearth of bankable projects, and that hopefully will change over time with the help of institutions like World Bank, IFC, and AIIB. But we do not compete with other lenders. On the private sector side, we manage to bring in substantial amount of private capital investments and that is our strategy.

In India, there are projects funded by multilateral agencies. But one of the concerns over here with the government agencies is interest rates of AIIB. Are you open for renegotiation?
I think we have two pools of capital: one is for public sector projects and one for private sector. Public sector projects are priced as per the consensus among multilateral agencies. Our rates are competitive and reasonable, which is 0.75 basis point of Libor. It then goes to a maximum of 1.45 for a 35-year tenure. For private sector projects, we provide financing at market rates, and not at subsidised rates.

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