By Laura MacInnis

GENEVA (Reuters) - Strong investor demand for a bond used to fund vaccines for the poor shows a novel way to tap money markets to back aid projects in the developing world.

Alan Gillespie, chairman of the International Finance Facility for Immunisation (IFFIm), told Reuters there was "almost limitless" demand for highly-rated bonds like those his institution sells to help develop and distribute vaccines.

His group has raised more than $1 billion in capital markets to immunise poor children against preventable diseases such as measles, meningitis, hepatitis, yellow fever, tetanus and polio.

"The investor interest is there. The only limiting factor right now is the amount of money we need," he said.

IFFIm, which has the World Bank as a financial adviser, uses more than $5 billion in long-term pledges it has received from Britain, France, Spain, Italy, Norway, Sweden and South Africa as collateral to issue top rated or AAA bonds.

Selling bonds enables it to get its hands on cash more promptly and in large enough chunks to put it to work, rather than waiting for money pledged in national governments' aid budgets to come rolling in.

Gillespie said the model could work for other projects -- for instance a clean-water bond whose proceeds give up-front cash to build wells, pipes and other infrastructure.

"The capital that the governments have pledged right now has been pledged specifically for immunisation. Today's IFFIm can only be used for that," Gillespie said.

"We have a structure that works and is flexible, and in my view is expandable. I very much hope that the IFFIm structure finds other applications."

NEW BOND PLANNED

IFFIm plans to invest $4 billion over the next decade to immunise 500 million people who would not otherwise be protected from diseases that no longer represent public health threats in richer countries where vaccines are more easily available.

Its bonds are offered on regular commercial terms, and are guaranteed by the pledges donor governments have made over a 20-year period.

"We are not asking investors to make a charitable gift to us. We are asking them to invest their savings," he said. "The cash that we raise is private capital and will be paid off eventually out of public funds."

Proceeds from bond sales support the GAVI Alliance, a Geneva-based body working to improve access to vaccines.

GAVI sponsors the development of vaccines made by companies such as Crucell, Novartis, GlaxoSmithKline, Merck & Co., Sanofi Pasteur and Wyeth and helps poor countries finance vaccine programmes.

IFFIm generated $1 billion in its inaugural bond offering in November 2006, which was sold to institutional investors such as pension funds and insurance companies, and another $222 million in debt sold last month to retail investors in Japan.

Gillespie said IFFIm plans to float another vaccine bond for the European retail market in mid- to late 2008. The recent credit crisis and financial market upset has only amplified interest in the top-grade securities, he said.

"I think there is almost limitless demand in the market today for triple-A sovereigns," he said.

"We are really benefiting right now from the flight to quality because of all that has gone on in the markets with mortgage-backed bonds and highly complex structures."