Asian, African emerging nations sounded out

The BRICS bloc comprising Brazil, Russia, India, China and South Africa will offer 45 per cent stake in the proposed New Development Bank (NDB) to non-BRICS developing countries, a top Indian government official said on Wednesday.

There would be no cap on the number of non-BRICS shareholders or their shareholding. But the BRICS members’ total shareholding will not be diluted below 55 per cent at any point of time, unless otherwise decided in future. All non-BRICS shareholders will be co-opted into the bank’s board of governors.

“Non-BRICS members can even hold the bank chairman’s position at some point of time and every shareholder will have one vote,” said Charanjeet Singh, joint secretary at India’s external affairs ministry. The idea is to broadbase the equity holding, board of governors and operations of the new bank, he said.

Singh said the bank would primarily focus on providing long-term finance for long-gestation infrastructure projects in the developing countries, especially BRICS nations.

Other developing countries in Asia, Africa and South America are seen as potential shareholders. Some of the non-BRICS countries that have been sounded out to become partners in NDB include large developing countries like Turkey, Indonesia and Mexico.

Several West Asian countries like the United Arab Emirates (UAE), Qatar, Bahrain, Kuwait and Iran are also being seen as potential partners, who may pick up stakes in the bank through their sovereign wealth funds (SWFs), officials clued into the negotiations told Financial Chronicle.

The five founding BRICS members are expected to complete the ratification process and secure Parliamentary approvals for the bank over the next few months.

The BRICS members have not taken a final call on the linkages that NDB might have with various multi-lateral development institutions like the World Bank and Asian Development Bank (ADB).

Other multi-lateral banks are unlikely to be invited to join the NDB board of governors or allowed any say in the running of the bank. But they would play a complementary role in development finance, another official said on the condition of anonymity.

NDB is expected to start operations on a modest scale to begin with. The BRICS members may chip in $16-18 billion towards equity holding and reserve fund in the first year, and scale it up to $100 billion over five years. Out of this, $50 billion would be towards equity and $50 billion would go into creating a reserve fund.

Officials who didn’t want to be identified said the member-countries were discussing several options for financing NDB. The first option is to depend on promoters’ capital for financing infrastructure projects. The second could be to finance business through issue of bonds on the strength of promoters’ capital. And a third model could be for promoters to underwrite the business risk from shareholders’ equity holding and leverage the robust credit ratings enjoyed by China and Russia, which have huge budget surpluses.

NDB will have one regional headquarter in South Africa, while the possibility of having a second regional office in the West Asian region is also being considered.