Creating Opportunities with World Bank Guarantees
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Transcript of Creating Opportunities with World Bank Guarantees
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Creating Opportunities with World Bank Guarantees
Banking and Debt Management (BDM)World Bank Treasury
January 7, 2010
Why use guarantees?
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Guarantees mobilize private sector capital for development by sharing risks
Guarantees can help clients to:
access longer financing terms
lower financing costs
Increase/diversify private sector sources
develop capital markets
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China
Philip
pine
s
Pakist
an
Leban
on
Mor
occo
Russia
/Ukr
aine
Thaila
nd
Cote d
'Ivoi
re
Colom
bia
Bangl
ades
h
Vietna
m
Mat
uri
ty (
year
s)
without Guarantee with Guarantee
0
16.5
Laos
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Ugand
a
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Guarantees can help extend tenors
3.0%
4.5%
3.0%3.4%
8.5%
6.5%
3.0%
5.0%
0.6%
2.0%
2.8%
0.75%
3.0%
2.0% 2.0%
2.9%
2.0%2.5%
5.0%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
China
Philipp
ines
Pakist
anUganda
Mor
occo
Thaila
nd
Cote d'
Ivoir
e
Colombia
Bangla
desh
Vietnam
Inte
rest
Sp
read
s ov
er U
ST
/Lib
or
without Guarantee with Guarantee
2.25%
Laos
2.25%
Guarantees also help reduce borrowing costs
Opportunities for Guarantees
A sovereign might be approaching the capital markets for the first time, or re-entering the market after a disruption
A government might want to attract private sector finance to support PPP programs
A government may be interested in mobilizing private finance in support of developing its infrastructure
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Two main types of Bank guarantees
Partial Risk Guarantees Partial Credit Guarantees
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•Covers debt service default resulting from a government’s non performance of contractual obligations
•Covered risks may include:
• Government payment obligations
• Contractual performance of public counterparties
• Availability or convertibility of foreign exchange
• Changes in law, regulatory risk
• Expropriation and nationalization
• War and civil disturbance
• Political force majeure
Partial Risk Guarantees (PRG)
Romania used a PRG to support the privatization of electricity distribution companies
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Government of Romania/MPF
Gov
ern
men
tS
uppo
rtA
gre
eme
nt
License Agreement /Regulatory Contract
Regulator
Indemnity Agreement
Project Agreement
L/C
Gu
aran
tee
Agr
eem
ent
CitibankRomaniaL/C*
L/C
Rei
mbu
rsem
ent
&C
redi
t A
gree
men
t
ENEL 51%Electrica 49%
Priv
atiz
atio
n A
gre
eme
nt
Electricity Distribution CompaniesEquity
?
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• Cover part of principal and/or interest payments of bond or loan against all risks
• Support public investment projects and development policy operations
• Can be structured to fit to specific instruments or market conditions
IBRD Partial Credit Guarantees cover debt service obligations
Principal cover for bullet maturity
Rolling coupon Amortizing syndicated loan with cover for later
maturities
IBRD PCG
IBRD PBG
IBRD Enclave
Partial Credit Guarantees
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PCG’s PV: $121m
Principal Guarantee Amount:$243m
Loan Amount:$825m
Botswana Morupule B Power Project used a PCG to gain access to longer term funds
1-15 years 15-20 years
IBRD guaranteedLeverage of
1:7
New policy for counting against IBRD exposure limits
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Guarantee exposure now counts just 25% against country exposure limit
Remainder charged against USD 1.5 billion pool of capital set aside for guarantees
WBG Guarantee and Insurance Products
Private investors are protected against risks of nonperformance by:
PCG Similar to IBRD’s PRG
Governments or public sector
IBRD, IBRD enclaves in IDA countries, (proposed for IDA)
IBRD, IDA, IBRD enclaves in IDA countries, MIGA political risk insurance
Private sector IFC
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YOU DO. Task team leaders lead projects.
In house expertise: guarantees specialists assist project task team leaders in project structuring
Contact your Treasury (BDM) banker to mobilize specialized experts to help you analyze the potential for a guarantee and move through the implementation process
Who does guarantees?
Summary
Guarantees Attract additional private investment Leverage Bank credit lines Lower costs of private financing and lengthen financing terms
PCGs support governments’ debt payment obligations
PRGs provide financial compensation if a government fails to perform contractual obligations in a project
Front-line staff are expected to recognize opportunities for clients to benefit from guarantees
Contact BDM in Treasury to help mobilize the right resources if your client has interest in a guarantee
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