Get documents about "World Bank
Document Sample
The World Bank Group
Instruments
the World Bank Group
a group of institutions with a common goal:
poverty reduction through economic development
IBRD provides market-based loans, guarantees, and advice to
governments in middle-income countries
IDA provides concessional loans and guarantees to
governments of the poorest countries
IFC finances private businesses in developing countries
MIGA provides political risk insurance for foreign direct
investment into developing countries
2
World Bank Group financing and risk
mitigation instruments
IFC MIGA IBRD/IDA
IFC A-Loan Political Risk Insurance IBRD Loan
IFC B-Loan • expropriation IDA Credit and
IFC C-Loan • transfer restriction Grants
IFC Guarantees (partial • breach of contract Guarantees
credit structures – • war & civil disturbances • partial risk
offshore & local • partial credit
financing)
Interest Rate and Tech. Assistance
Currency swaps
3
World Bank
Loans and Credits
Loans and Credits
Basic Structures:
• To Gov. with onlending to Project Company
• To Project Company with Gov. Guarantee
• IBRD Enclave Loans
5
IBRD
COUNTRY
Banks
Loans
Power Company
Equity
Sponsors
6
IBRD Guarantee
IBRD Loan
COUNTRY
Banks
Commercial Loans
Power Company
Equity
Sponsors
7
IBRD Enclave Loan for IDA-Only Country
IBRD Guarantee
Loan
IDA-Only
COUNTRY
Loan Repayment
Guarantee
Offshore Escrow Account
Project Revenues
Power Company Purchaser
Throughput
Equity
Sponsors
8
World Bank Guarantees
World Bank Guarantees:
key features
• IBRD/IDA balance sheet
• available to all countries eligible for borrowing from IBRD or IDA
• Bank Guarantees back government obligations
• Bank Guarantees cover private debt against a government’s (or
government entity’s) failure to meet specific obligations to a
private or public project
• mobilize private sector participation and help catalyze debt with
extended maturities and lower financing costs
• flexibility – structured to meet borrower and project requirement
• an integral part of Country Assistance Strategy
• counter guarantee from Member Country
– Bank Articles requirement
– indicates project priority for Government and Bank
• benefits from the ongoing sector and country engagement of the
Bank
10
Benefits of World Bank Guarantees
for governments…
• catalyzes private financing for key sectors such as infrastructure
• provides access to capital markets as well as commercial banks
• reduces cost of private financing to affordable levels
• facilitates privatizations and public private partnerships
• reduces government risk exposure by passing commercial risk to the
private sector
• encourages cofinancing
for the private sector…
• reduces risk of private transactions in emerging countries
• mitigates risks that the private sector does not control
• opens new markets
• improves project sustainability
11
Rationale for the Guarantee Program and
Basic Structures
“To help extend the reach of private financing by
mitigating perceived risk and encourage private
sector involvement in developing countries.”
• Two Basic Structures
– Partial Risk Guarantees
– Partial Credit Guarantees
• Five instruments:
– IBRD Partial Risk Guarantees
– IDA Partial Risk Guarantees
– IBRD Enclave Guarantees for IDA-only countries
– IBRD Partial Credit Guarantees
– IBRD Policy Based Guarantees
12
Principles of Deployment
• Guarantees can be considered in the following
situations:
– Sectors in early stages of reform
– Larger size/riskier operations
– Operations highly dependent on support/undertakings of
governments
• Structure and coverage set at the lowest level to
mobilize financing
• IDA
– conserves IDA resources
– Provides a better allocation of risk
13
WB Guarantees do not increase the
government’s contingent liabilities
“The host government’s indemnity of the World Bank does
not increase the government’s liabilities when the government is
already directly obligated to the private sector on the same
liabilities.”
“Involving the Private Sector in Forestalling and Resolving Financial Crises – Private Project Finance
Flows to Developing Countries,” IMF Board Paper SM/99/211, August 20, 1999, page 21.
14
Partial Credit Guarantees (PCGs): Key Features
• Cover private lenders against all risks during a specific period of the
financing term of debt for a public investment
• Specially designed to extend maturity and improve market terms
• Lengthen the maturity of the private debt financing beyond that
available in private markets by covering a part of the scheduled
repayments of private loans or bonds against all risks
• PCGs are flexible, allowing different structures for meeting different
client needs, such as:
– Bullet guarantee
– Latter maturities
– Rolling non-reinstatable
– Amortizing syndicated loan
• At present, partial credit guarantees are available only for countries
eligible for loans from IBRD.
• No overlap with MIGA or IFC instruments
15
PCGs help access finance at sustainable terms
Debt Maturity Interest Spread
Colombia 5 6.5%
(P. Credit)
10 5%
Thailand 0 8.5%
(P. Credit) 10 2.9%
Lebanon 5 3%
(P. Credit) 10
1%
Jordan 2 3%
(P. Credit) 7 1%
Philippines 7 3%
(P. Credit)
15 2.5%
1Spreads at the time of the guarantee issuance without Guarantee with Guarantee
16
Partial Risk Guarantees (PRGs):
Key Features
• Covers private lenders against the risk of a public entity failing to
perform its obligations with respect to a private project.
• Reinforces obligations of the Government – does not add to them.
• Structured to provide minimum coverage necessary to mobilize
private financing
• The World Bank also offers enclave guarantees which are PRGs
structured for export oriented foreign exchange generating
commercial projects in IDA-only countries.
• A flexible instrument – various structures available
• New developments:
– Letter of Credit Structure for Greenfield projects
– Privatization Guarantees
– Guarantee Facilities
– Local Currency Guarantees
• IBRD guarantees can be accelerable, and IDA guarantees are non-
accelerable
17
Which risks can be covered by a PRG?
• tariff
• regulatory risk
• collection risk
• arbitration
• change in law
• convertibility
• transferability
• subsidy payments (e.g. Output-Based Aid)
18
PRGs help access finance at sustainable
terms
Debt Maturity Interest Spread1
Vietnam 5 5%
(P. Risk) 16 2%
Bangladesh 1 3%
(P. Risk) 14 2%
1 3%
Cote d’Ivoire
(P. Risk) 12 2.75%
0 N/A
Lao PDR
(P. Risk) 16.5 2.25 %
1Spreads
without Guarantee with Guarantee
at the time of the guarantee issuance
19
Partial Risk Guarantees Structures
for IDA only countries
20
Partial Risk Guarantee structure
•Guarantees cover lenders in the event that the Government does not
meet its commitments
•Counter-guarantee of the member country is normally in the form of an
Indemnity Agreement.
Loans
Project Commercial
Company Lenders
Guarantee
Agreement
Project Agreement
(Government Indemnity
Undertakings) Agreement
Government World Bank
21
IBRD Enclave Guarantees in IDA-only
Countries
• Framework
– Export-oriented commercial private projects in IDA-only
countries expected to generate foreign exchange outside of the
country
– Country should have adequate foreign exchange to meet the
payments due to IBRD resulting from a call on the guarantee
– Guarantee amount limited to 25% of the financing required for
the project
– Generally non accelerable
22
IBRD Enclave Guarantees
in IDA Countries
IDA Country “Off-Shore”
Guarantee
Lenders
Counter Loan
Guarantee Guarantee Agreement
Reserve Account
Fee
Government Export
Concession
Limited Government
Contract
Obligations: FX
• Permits/consents
• Change in law Enclave Project Creditworthy
• Political events (up to 25%) Purchaser
23
• Expropriation
Examples of different Guarantee Structures
Debt • Usually most suited for new infrastructure projects
following project finance structure
• Active PF commercial banks are usually aware of PRG
structures
L/C
• Beneficiary of L/C is project, not lenders
• Catalyze equity and lending
• Provide liquidity to project if needed
Deferred
• Can cover investors if there is no Commercial
Loan Bank debt
• Catalyze equity and lending
• Covers Termination Payments
24
Pricing of World Bank Guarantees
for FY07
25
For detailed fees please consult with the PFG team.
IDA Partial Risk Guarantee
Fee Charges (in basis points) for FY07
Fee Type Fee charged to the borrower
Upfront charges Initiation Fee1 15 bp on the guaranteed
amount or USD 100,000
(whichever is higher)
Processing Fee1,2 Up to 50 bp of the guaranteed
amount
Recurring charges Guarantee Fee 75 bp per annum
(on the maximum aggregate
disbursed and outstanding
guaranteed debt)
Standby Fee3 20 bp per annum
(on the maximum guaranteed
debt committed but undisbursed)
1. For all private sector borrowers, i.e. only applicable to Partial Risk Guarantees.
2. Determined on a case by case basis. Exceptional projects can be charged over 50 bps of the guaranteed amount.
3. For guarantees approved in FY07.
The World Bank reserves the right to change fees at anytime.
26
For detailed fees please consult with the Guarantees Group at the Bank.
IBRD Enclave Partial Risk Guarantee
Fee Charges (in basis points) for FY07
Fee Type Fee charged to the borrower3
Upfront charges Initiation Fee1 15 bp on the guaranteed amount or
USD 100,000
(whichever is higher)
Processing Fee1,2 Up to 50 bp of the guaranteed amount
Recurring charges Guarantee Fee Up to 300 bp per annum
(on the maximum aggregate
disbursed and outstanding
guaranteed debt)
Standby Fee 75 bp per annum
(on the maximum
guaranteed debt committed
but undisbursed)
Footnotes
1. For all private sector borrowers, i.e. only applicable to Partial Risk Guarantees
2. Determined on a case by case basis. Exceptional projects can be charged over 50 bps of the guaranteed amount.
3. Fee charges net of applicable waivers.
27
For detailed fees please consult with the Guarantees Group at the Bank.
.
