OVERSEAS PRIVATE INVESTMENT CORPORATION

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OVERSEAS PRIVATE INVESTMENT
CORPORATION
OPIC Supports U.S. Investors During Challenging
Times James Polan, Vice President Small and
Medium Enterprise Finance

Bankers Association for Finance Trade,
Nairobi, Kenya, July 1, 2009
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What is OPIC?

• Independent agency of the United States
  Government
• Helps U.S. businesses invest overseas
• Fosters economic development in new and emerging
  markets
• Supports local investors in joint ventures with
  U.S. business partners
• Provides liquidity in difficult economic times

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OPICs Mission

• mobilize and facilitate the participation of
  U.S. private capital and skills in the economic
  and social development of less developed
  countries and areas, and countries in transition
  from non-market to market economies.

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OPICs Role

• Differs from Ex-Im Bank in that OPIC supports the
  investment side of an international transaction,
  which often includes a sizeable component of U.S.
  exports of goods and services to make the project
  possible.
• OPICs investment helps U.S. businesses of all
  sizes invest in more than 150 emerging markets
  markets where private sector finance or insurance
  is not available to American investors.
• In its nearly 40-year history, OPIC has supported
  5.6 billion worth of investments, in some 387
  projects in Africa.

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Why is OPIC important?

• Complements the U.S. and local private sector
• Opens and expands new markets for U.S. businesses
• Provides access to capital
• Promotes sustainable and responsible economic and
  social development
• Supports U.S. foreign, economic and development
  policy

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How to use OPIC

• Four ways to get a project financed
• Direct loans and loan guarantees
• Political risk insurance for lenders and for U.S.
  equity investors helps mobilize debt capital and
  equity
• OPIC-backed private equity funds can invest in
  local projects
• Utilize an OPIC-backed facility in Africa to
  finance your project

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Policy Issues

• Provide positive U.S. effects and host country
  social and economic development effects
• Complement the private sector and capital markets
• Assure that the projects it supports are
  consistent with sound environmental and worker
  rights standards

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Tools to Support U.S. Investors

• Finance (Debt)
• Political Risk Insurance
• Investment Funds (Equity)
• Enterprise Development Network (EDN)

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What is OPIC Finance?

• Limited recourse, long-term finance through
  direct loans and loan guaranties
• Available to wholly-owned U.S. investments or
  joint ventures (at least 25 U.S. equity)
• Must have experience in the same or a similar
  industry and contribute sufficient equity
• Terms
• Loans from 100,000 up to 250 million
• 5-15 year terms
• Generally, up to 50-65 of the total project cost
  for new ventures up to 75 for expansions

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Recent examples

• OPIC committed to provide up to 250 million in
  financing to help banks expand their lending to
  small businesses
• SEAF SME Debt Facility 30 million to help
  underwrite SME loans
• Blue Financial OPIC provides 70 million to
  expand SME lending in Kenya, Uganda and Tanzania
• BRAC Africa Loan Fund 28 million in funding to
  support SME lending in East Africa
• Ghana Home Loans 30 million to support
  mortgage lending
• Liberia Enterprise Development Fund 20 million
  in OPIC debt finance to support loans to Liberian
  small businesses

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What is Political Risk Insurance?

• Political Risk Insurance covers U.S. Investors
  against
• Inconvertibility Inability to convert and
  transfer local currency into U.S. dollars.
• Expropriation Losses due to expropriation,
  nationalization or confiscation by a foreign
  government.
• Political Violence Losses due to war,
  revolution, insurrection or political motivated
  strife.
• PRI does not cover commercial risk or currency
  devaluation risks

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Support for U.S. Financial Institutions

• OPIC can insure U.S. lenders against loan payment
  defaults due to inconvertibility, expropriation,
  or political violence.
• Borrowers must be private-sector enterprises in
  the foreign country.
• Other banking activities that can be insured
  include debt-for-equity investments and commodity
  price or interest rate swaps.
• On a limited basis, OPIC can insure against the
  risk of default of a sovereign guaranty in
  support of the payment obligations of a
  parastatal.

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What are Investment Funds?

• OPIC has supported 40 privately managed and owned
  equity funds that represent 3 billion in
  aggregate debt and equity capital.
• The funds investments must meet OPICs U.S. and
  host country economic impact, environment and
  workers rights policy standards.
• In 2008 alone, these funds made 7 investments in
  African financial services transactions.

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New Africa Social Development Funds

• AfricInvest Fund II
• 175 million total capitalization
• Africa Healthcare Fund
• 100 million in total capitalization
• Africa Telecom, Media Technology Fund
• 100 million total capitalization
• GEF Africa Growth Fund
• 150 million total capitalization
• Numerous other Funds can invest in African
  companies

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EDN mobilizing the private sector

• Enterprise Development Network
• A strategic alliance of business consultants,
  loan originators, and network investors that
  assist SMEs package and fund investment projects.
• -- 9 loan originators specialize in Africa
• -- 3 have offices located in Africa
• -- new Africa technical assistance facility with
  USAID to support small businesses

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EDN Supports African SMEs

• Pre-investment support through the Africa
  Technical Assistance facility
• Loan application packaging by Loan Originators
  (LOs)
• EDN Program Manager assures application package
  is complete
• Possible funding by OPIC Designated Lender (DL),
  or other Network investors
• Funding provided by OPIC
• http//www.ednaccess.com The new EDN Website!

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USAID African Entrepreneurs Facility Empowering
Local BDSPs - East West AfricaThrough OPICs
Enterprise Development Network (EDN)
PARTNERS
EDN Program Manager
Oversight USAID Dir. AEF OPIC Dir. EDN
African Entrepreneurs Facility TA Funding
Interagency Agreement 632(b) - USAID to OPIC
USAID
Development Credit Authority Facilities
Investment PRI Facilities
Technical Assistance
OPIC
Matched TA Funding
Designated Lending and Equity Facilities, Direct
Loans Political Risk Insurance (PRI)
MCC
Debt Equity Investments PRI
Business Development Service Providers
(BDSPs) (EDN Originators)
Credit Facilities
OTHER Govt Private Debt and Equity
Facilities
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More information on OPIC Finance

• Direct loans and investment guaranties
• Direct loans available to U.S. firms with under
  250 million in sales or 67 million in net worth
• Medium to long-term funding
• Minimum 3-5 years
• Average loan tenor 6-9 years
• Up to 15-20 years
• Loans from 100,000 up to 250 million per
  project
• Loan is a term loan based upon the estimated
  Total Project Cost (TPC)
• 50-65 possible OPIC participation for a new
  venture
• Up to 75 possible OPIC participation for an
  expansion of a successful existing operation

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How is the TPC calculated?

• Pre-investment/feasibility studies
• Organizational expenses
• Land and buildings
• Construction
• Equipment, machinery
• Financing costs
• Training and market development expenses
• Start-up expenses, including initial losses
• Adequate working capital
• Inventory expenses
• Legal costs

Total Project Cost (USD)
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What is needed to qualify?

• Financially and commercially-sound project
  producing an adequate cash flow to
• Pay all operational costs
• Service all debt
• Provide owners with adequate return on their
  investment
• Significant U.S.-ownership
• Sufficient equity
• Track record of success in the same or similar
  industry
• A solid business plan!

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How is the direct loan structured?

• The Sponsor and the Borrower
• Project finance
• OPIC loan made directly to the overseas venture
  for the defined investment project
• Repayment from project cash flows
• Corporate finance
• OPIC loan made to the parent company, the
  proceeds of which are used to fund a defined
  investment project abroad

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What does the loan cost?

• Cost of financing is based on OPICs assessment
  of the risks involved and a U.S. treasury note
• Base rate reflects like or similar termed U.S.
  Government debt instruments
• Guarantee fee or risk spread is added
• Other costs include a retainer fee, commitment
  fee, and an annual maintenance fee
• Outside legal counsel and the services of experts
  or consultants can also be charged

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What collateral is required?

• Security may consist of
• Perfected senior liens on fixed assets
• Pledge of shares
• Assignment of contracts
• Concessions or licenses
• Escrow and other accounts
• Project Completion Agreement that guarantees the
  OPIC loan in the event of
• Late completion
• Cost overruns
• Early operating problems
• Definition of completion
• Includes certain financial, legal, operation, and
  commercial tests as well as physical completion

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What are the repayment terms?

• Repayment schedule is based upon
• Purpose of the loan
• Projected cash flows
• Quarterly or semi-annual payments
• Generally a suitable grace period on principal
• Normally no early repayment charges

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How do I apply?

• Contact OPIC to discuss your project with an OPIC
  representative (see Checklist)
• Prepare a brief executive summary of your
  business plan and submit for an information
  review. The summary should include
• Project description
• Ownership chart
• Description of sources and uses of funding
• Track record and management expertise
• Prepare/update the full business plan
• Submit a finance application package

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Components of a Business Plan

• a description of the project
• the identity, background and audited financial
  statements of the projects proposed principal
  owners and management
• financial statements of each investor (audited
  corporate financial statements or certified
  personal net worth statements of individuals,
  using the SBA Personal Financial Statement Form
• planned sources of supply, anticipated output and
  markets, distribution channels, competition, and
  the basis for projecting market share
• a summary of project costs and anticipated
  suppliers of capital goods and services
• a financial plan, including the sources and uses
  of funds for the project
• pro forma financial statements of the proposed
  project or corporate borrower and accompanying
  assumptions and
• a description of the contribution the business is
  expected to make to local economic and social
  development

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Approval process

• Submit completed application package
• Screening
• Due Diligence
• Credit Policy Approval
• 3 policy clearances environment, workers rights,
  and U.S. effects
• Loan Agreement
• Disbursement
• Monitoring
• Repayment
• Timing Once a completed application is
  received, a standard project may expect a
  commitment from OPIC, if eligible, in 3-6 months.

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For more information on OPIC

• Visit us on the web www.opic.gov
• Contact the Information Officer
• info_at_opic.gov
• 202 336-8799 (Hotline)
• 202 336-7949 (Fax)

Thank you for your interest in OPIC!