Singapore, June 29, 2017 -- Moody's Investors Service ("Moody's") has today assigned
to the Asian Infrastructure Investment Bank ("AIIB") a long-term
foreign currency issuer rating of Aaa and a short-term foreign
currency issuer rating of Prime-1. The rating outlook is
stable.
The rating reflects Moody's assessment of AIIB's current and
future creditworthiness, as it ramps up its operations over the
next 5-10 years.
The Aaa rating takes into account the strength of AIIB's governance
frameworks, including its policies on risk management, capital
adequacy and liquidity. Very robust capital adequacy will support
AIIB's credit profile. We expect AIIB's liquidity position
to be as strong as that of other highly rated multilateral development
banks (MDBs). The availability of substantial callable capital
illustrates the contractual and extraordinary support Moody's expects
would be forthcoming in extremis.
RATINGS RATIONALE
RATIONALE FOR THE Aaa RATING
Moody's expects AIIB's capital base to remain very large in
relation to its assets throughout the ramp up of its balance sheet over
the next 10 years. Subscribed capital—both $20 billion
of capital to be largely paid in by 2019 and fully paid in by 2024,
and $80 billion in callable capital—is already larger than
at more established Aaa-rated MDBs, and will provide ample
financial capacity to support the expansion of AIIB's activities
towards the fulfilment of its mandate to invest in infrastructure in Asia.
While AIIB's financial and risk management policies will no doubt
continue to develop as the organization matures, Moody's expects
adherence to existing policies to ensure that AIIB maintains very high
capital adequacy and a very strong liquidity position.
AIIB's portfolio of loans, equity investments and treasury
holdings is likely to expand in line with parameters that mitigate credit
risk, preserve profitability, and contain leverage.
We expect that AIIB will, like other MDBs, enjoy preferred
creditor status, which will contribute to very high asset quality.
AIIB has implemented a conservative liquidity policy which is in line
with, and in some cases more stringent than, those of Aaa-rated
peers. This policy requires the maintenance of liquidity at a level
at least equal to 40% of the projected net cash flow requirements
for the coming 36 months, plus an additional buffer. The
net cash requirement in the liquidity policies of other highly rated MDBs
typically covers 100% of projected needs over a period of 12 months.
Moody's expects that AIIB's adherence to its policy will ensure
that it sustains strong market access, supported by a deep and large
pool of liquid assets.
Shareholders' current and future commitment to AIIB is illustrated
by the high level of paid-in and callable capital to which shareholders
have subscribed. Moody's expects AIIB to abide by statutory
requirements that limit the size of its development portfolio to the sum
of its unimpaired subscribed capital, reserves, and retained
earnings, which would obviate the need for shareholder support beyond
that furnished by callable capital.
Nevertheless, Moody's believes that the likelihood of further,
extraordinary, support being made available in extremis, at
least by those shareholders with a strategic interest in sustaining the
bank's operations -- including but not limited to China --
further enhances AIIB's credit profile. In addition,
AIIB's broad shareholder base—at over 80 countries,
its membership is larger than that of some other Aaa-rated regional
MDBs—mitigates concentration risks arising from economic and financial
linkages that could impede the provision of extraordinary support in the
event of need.
Moody's assessment of the quality of AIIB's risk management
framework, and the quality and diversity of its loan and investment
portfolio, rests on the assumption that AIIB will retain full operational
autonomy from its largest shareholders including China, and that
its development strategy will remain broadly focused on infrastructure
development across a wide range of emerging markets. Full autonomy
also implies immunity from expropriation, moratoria, and capital
account restrictions.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects our expectation that AIIB's large capital
base and strong shareholder support will allow for an expansion of its
development activities, while maintaining its capacity to service
any forthcoming financial obligations. This view assumes that AIIB
will maintain the health of its standalone credit metrics beyond its initial
growth phase into the next decade.
WHAT COULD CHANGE THE RATING DOWN
The rating could face downward pressure if AIIB's underwriting and
risk management processes were to fail to evolve in a manner consistent
with the highest-rated MDBs. That could include evidence
of shortcomings in corporate governance such as operational interference
by shareholders, or by a shift in strategy which resulted in greater
geographic concentration of lending and investment activities than currently
expected. Other signs would be a deterioration in asset performance
beyond current expectations. Evidence of diminished capacity or
willingness to support from key shareholders, and in particular
China, would also be credit negative.
The principal methodology used in these ratings was Multilateral Development
Banks and Other Supranational Entities published in March 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Christian de Guzman
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Atsi Sheth
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
