Asia Infrastructure Investment Bank Makes First Equity Investment

(Beijing) — The China-backed Asian Infrastructure Investment Bank (AIIB) has approved its first equity investment, which will see $150 million being channeled to a fund focusing on infrastructure development in India, the bank said.

The investment will be made in the India Infrastructure Fund, which aims to drive private capital to invest in infrastructure projects in the South Asian nation. The fund will in turn help finance companies that invest in energy, utilities, transportation, telecommunications and other infrastructure projects.

The AIIB’s commitment accounts for 20% of the $750 million in total capital that the fund is seeking, the Beijing-based bank said in a statement on Thursday.

The deal marks the AIIB’s first equity investment since it began operating in January 2016. It has so far approved 16 projects worth around $2.5 billion in total — mostly in the clean-energy and transportation sectors — but the other 15 were funded through loans.

“Approving our first equity investment is another milestone for the Bank and will enhance our potential to source and fund high quality, private sector projects,” D.J. Pandian, the bank’s vice president and chief investment officer, said in the statement.

It is unclear whether the fund has any links to the Indian government, but the AIIB said the initiative will benefit local infrastructure development by enhancing private capital inflows from global long-term investors, such as public pension funds, endowments and insurance companies.

The announcement came after the AIIB in May gave the nod to its first loan to India, granting $160 million to a power project endorsed by New Delhi. More spending in the country is in the pipeline, as the bank’s data show about half of the 10 projects currently being evaluated are in the world’s second-largest developing economy.

The AIIB now has 80 members, and India is the second-largest shareholder, having paid $8.4 billion for a stake of about 9%. China is the largest shareholder, with 32.1% of the equity, according to the bank’s latest data.

India is seeking investment to develop its decrepit infrastructure to boost economic growth. It supported China in setting up the AIIB and the New Development Bank, formerly known as the BRICS Development Bank, which was set up by Brazil, Russia, India, China and South Africa in 2014.

But New Delhi has been wary of Beijing’s “Belt and Road” initiative, especially the $55 billion China-Pakistan Economic Corridor (CPEC), a particular concern over its perceived potential strategic and economic threats to India. One of the largest Belt and Road projects, the CPEC runs through Kashmir — a region divided between India, Pakistan and China, and which both India and Pakistan claim in its entirety.

Prime Minister Narendra Modi did not attend the Belt and Road Forum for International Cooperation in Beijing last month, where the leaders of 29 countries, including Russian President Vladimir Putin, along with diplomats, financiers and officials from international organizations gathered to discuss President Xi Jinping’s initiative.

Relations between China and India have not always been smooth. The neighbors fought a brief but traumatic war in 1962 over disputed border territories, including the southern Tibet area that India calls Arunachal Pradesh. Sovereignty over the region remains a thorny issue between the two countries.

Contact reporter Fran Wang (fangwang@caixin.com)