Main features in AIIB Financing
- investments in regional members
- supports longer tenors and appropriate grace period
- mobilize funding through insurance, banks, funds and sovereign wealth (like the China Investment Corporation (CIC) in the case of China)
- funds on economic/financial considerations and on project benefits, eg. global climate, energy security, productivity improvement etc.
- sovereign-backed financing (sovereign guarantee)
- non-sovereign-backed financing (private sector, State Owned Enterprises (SOEs), sub-sovereign and municipalities)
- loans and equity
- bonds, credit enhancement, funds etc.
—— portfolio is expected to grow steadily with increasing share of standalone projects from 27% in 2016 to 39% in 2017 and 42% in 2018 (projected)
—— share of non-sovereign-backed projects has increased from 1% in 2016 to 36% of portfolio in 2017. share of non-sovereign-backed projects is projected to account for about 30% in 2018
- To appropriate (expropriate) the potential of hinterlands
- increasing industrialization
- increasing GDP
- increasing trade
- infrastructure development
- Energy and Minerals in order to bring about a changing landscape
- Container: regional collaboration and competition
AIIB wishes to change the landscape of infrastructure funding across its partner countries, laying emphasis on cross-country and cross-sectoral investments in the shipping sector — Yee Ean Pang, Director General, Investment Operations, AIIB.
He also opined that in the shipping sector there is a need for private players to step in, with 40-45 per cent of stake in partnership being offered to private players.
Projects aligned with Sagarmala are being considered for financial assistance by the Ministry of Shipping under two main headings:
1. Budgetary Allocations from the Ministry of Shipping
a. up to 50% of the project cost in the form of budgetary grant
b. Projects having high social impact but low/no Internal Rate of Return (IRR) may be provided funding, in convergence with schemes of other central line ministries. IRR is a metric used in capital budgeting to estimate the profitability of potential investments. It is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. NPV is the difference between the present value of cash inflows and present value of cash outflows over a period of time. IRR is sometimes referred to as “economic rate of return” or “discounted cash flow rate of return.” The use of “internal” refers to the omission of external factors, such as the cost of capital or inflation, from the calculation.
2. Funding in the form of equity by Sagarmala Development Co. Ltd.
a. SDCL to provide 49% equity funding to residual projects
b. monitoring is to be jointly done by SDCL and implementing agency at the SPV level
c. project proponent to bear operation and maintenance costs of the project
i. importantly, expenses incurred for project development to be treated as part of SDCL’s equity contribution
ii. preferences to be given to projects where land is being contributed by the project proponent
What are the main financing issues?
- Role of MDBs and BDBs for promotion of shipping sector in the country
- provision of long-term low-cost loans to shipping companies for procurement of vessels
- PPPs (coastal employment zones, port connectivity projects), EPCs, ECBs (port expansion and new port development), FDI in Make in India 2.0 of which shipping is a major sector identified, and conventional bank financing for port modernization and port connectivity
the major constraining factors, however, are:
- uncertainty in the shipping sector, cyclical business nature
immature financial markets