The Silk Road Fund

_ JSC “KPMG”. Moscow, 2016.

One Belt One Road Initiative

In 2013 China announced its plans for a new Silk Road — the project aimed to improve infrastructure connectivity and boost trade and investment fl ows between the countries involved. Today this initiative goes by various names, most commonly used is One Belt One Road (OBOR). It covers, but is not limited to, the area of the ancient Silk Road. The initiative should ultimately lead to the emergence of new markets for Chinese companies and foreign companies operating in China.

End of March 2015, “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road” was issued by the National Development and Reform Commission, Ministry of Foreign Affairs and Ministry of Commerce of China. This marked the transition from top-level conception to practical cooperation. China will work with countries along the Belt and Road to carry out joint research, forums and fairs, trainings, exchanges and visits.

Being a part of China’s economic diplomacy, the OBOR initiative enjoys strong financial support. A number of Chinese fi nancial institutions have already allocated over USD1.3 trillion to fi nance more than 1,200 projects in the next years:

Silk Road Fund

Recently one of the most often referred Chinese fi nancial institutions is the Silk Road Fund (hereinafter — SR Fund), a medium- to long-term development and investment fund established in December 2014. Unlike the large Chinese banks, providing credit resources both in dollars and in yuan, SR Fund supports projects only with foreign currency (USD, Euro). SR Fund has the total capital of USD40 bln which shall be made in installments. The fi rst installment of USD10 bln is the registered capital of SR Fund. The graph shows structure of this capital.

Investments of the Silk Road Fund

According to the Charter, SR Fund invests in infrastructure, resources and energy development, industrial capacity cooperation and fi nancial cooperation along the OBOR, with the focus on providing funding for major infrastructure development projects and projects that improve connectivity in this region. SR Fund invests in equity, debts and other funds. SR Fund can also work with international development organizations, domestic and overseas fi nancial institutions to jointly set up funds. SR Fund manages entrusted assets and commissions others to invest.

SR Fund has defi ned an investment decision making mechanism, which includes project selection, project reserve, preliminary review, preliminary approval, final approval and post investment management. It covers all front, middle and back offi ce functions.

Project selection: SR Fund pays attention to cooperation with industrial partners to make joint investment in project that promote connectivity and international industrial capacity cooperation and does not seek to have a controlling stake as a fi nancial investor.

Project reserve: SR Fund actively looks for new projects, seeking investment opportunities through multiple channels, including proposal from target companies and reference from other organizations. The Fund also seeks out projects on its own and already has a reserve of potential projects.

As for the project preliminary review, preliminary approval and fi nal investment decision, SR Fund has defi ned an internal protocol for thorough evaluation of the projects by the project investment team. The results of assessment are reported together with the negotiated deal terms to the Investment Committee for fi nal review and approval.

Project execution and management: the middle offi ce is in charge of risk control and postinvestment management, and the back offi ce is responsible for transaction settlement and management of SR Fund’s investment.

Overall last year SR Fund allocated around USD4 –5 bln. The geography and types of its activities are diversified, SR Fund itself is modeled after the western type of investment institutions.

Leave a Reply

Your email address will not be published. Required fields are marked *