Thursday, June 29, 2017

Moody's thumbs-up gives AIIB global cred

Top rating lowers fundraising cost for China-led development bank

ISSAKU HARADA, Nikkei staff writer

Jin Liqun, president of the Asian Infrastructure Investment Bank, spoke at the opening ceremony of the lender's second annual meeting June 16 in South Korea. © Kyodo

BEIJING -- The Asian Infrastructure Investment Bank earned a top-notch rating from Moody's Investors Service thanks to factors such as a solid capital base and good management, an endorsement that should give the lender easier access to global bond markets.

The Aaa rating with a stable outlook reflects "the strength of AIIB's governance frameworks, including its policies on risk management, capital adequacy and liquidity," the U.S.-based ratings agency wrote Thursday. With the highest credit rating, which came just a year and a half after its formation, the Beijing-led bank now stands shoulder to shoulder with more established international institutions such as the World Bank and the Asian Development Bank.

The AIIB's $100 billion capital base "is already larger than at more established Aaa-rated" multilateral development banks, Moody's noted. Outstanding financing totals around $2.5 billion, just 2.5% of available capital, and consists largely of low-risk syndicated loans with peers including the World Bank. The lender's liquidity policy is also "in line with, and in some cases more stringent than, those of Aaa-rated peers," the agency said.

The awarding of a rating from an internationally respected agency like Moody's surprised many. The New Development Bank -- the so-called BRICS bank established by Brazil, Russia, India, China and South Africa -- has garnered investment-grade ratings from only Chinese agencies, whose standards are seen by some as lax. The bank has so far only issued yuan-denominated bonds in China.

The high rating from Moody's will enable the AIIB to issue debt overseas more easily as well as raise funds more cheaply, letting it offer financing at lower interest rates. The lender also will gain easier access to currencies besides the yuan, including dollars.

The triple-A rating is also a surprise in itself. Some had expected the assessment to be affected by Moody's downgrade last month of China, which contributes about 30% of the lender's capital.

Other ratings agencies likely will weigh in as well. AIIB President Jin Liqun predicted after an annual meeting this month that the bank could get ratings from the three big agencies this year.

AIIB probably will tout Moody's positive assessment of its risk management and finances as an international stamp of approval. But the lender cannot rest on its laurels. The agency warned that the rating could fall if "underwriting and risk management processes were to fail to evolve" as those of top-rated peers have, or if China or other key shareholders become less willing or able to provide financial support.

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