IFC 2004 Corporate Slideshow

1
Capital Markets and Resource Mobilization IFC
presentation to THIRD REGIONAL CONSULTATION ON
RETHINKING THE ROLE OF NATIONAL DEVELOPMENT
FINANCE INSTITUTIONS IN AFRICA By Louis-B.
Ngassa Batonga Principal Investment
Officer IFC-Johannesburg Office November 2006
2
Growing interest of major international financial
institutions in financing private sector
3
Changes in the allocation of IFI resources over
the recent years

• Declining share of the Sub-Saharan Africa (9.7
  of total allocations of US23.6 billion in 2005
  as compared to 12.1 of the year 2000 US10.3
  billion allocations)
• Increased shares of the Europe and Middle-East
  North Africa regions, with Europe now accounting
  for 50.8 of total allocations
• More resources being channeled into Financial
  Markets 45.1 of the allocations in 2005 as
  compared to 29.5 in 2000.
• Such changes create new challenges to DFIs and
  for institutions such as IFC. Hence the need to
  rethink their strategies.

4
IFCs Five Strategic Priorities

• Strengthen the focus on Frontier Markets, in
  particular Africa, with emphasis on technical
  assistance, investment climate and SMEs
• Build Long-term partnerships with emerging global
  players (South-South) capitalizing on the
  strengths of clients in China, India, Brazil,
  South Africa, etc.
• Help expand the sustainability agenda
• Address constraints to private sector growth in
  infrastructure, health and education
• Continue to emphasize local financial market
  development

5
IFC Role in Mobilization and capital Markets

• Mobilization of 3rd party capital, a major IFC
  role
• Investment criteria limits IFC participation,
  forcing mobilization
• Capital Market development, also seen as a major
  role for IFC
• Development of sustainable financing
• Clients want IFC to mobilize funding

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How IFC does Mobilization

• B Loans
• - Open local markets to foreign banks and
  introduce them
• to clients
• - Help to demonstrate mis-perceptions of risk in
  these
• markets
• Local Currency
• Helps to increase the depth and liquidity of
  cross border swap markets
• Swap market development is an important factor
  for overall capital market development
• Securitization and Guarantees
• Help to deepen and broaden domestic
  financial markets
• Help to improve risk appetite of
  domestic financial institutions

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IFC Mobilization B Loan Program

• Began in 1957
• Has mobilized US25 billion
• Maintains a portfolio of US 5.1 billion
• Mobilized over US1.6 billion in FY06 (US1.1
  billion in FY05)
• In FY06
• Average B Loan Size US60m
• Average Tenor 7.1 years

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B Loan Structure
Loan Agreement
Borrower
A B Loans
Participation Agreements

• One loan agreement - IFC is lender of record and
  administers entire loan
• IFC fully shares project risks with participants
• Offshore participants, not per se local currency

B Loan
Participants
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IFCs Local Currency Financing Instruments Using
Derivatives

• Two main local currency alternatives
• Local currency swaps
• Overlay swaps
• Local Currency Swap IFC swaps its own hard
  currency financing for local currency at time of
  disbursement
• Overlay Swap IFC assists in obtaining local
  currency swap for existing third party loans
• Need the following to implement
• Existence of long term swap market
• Regulatory approval
• IFC able to provide swaps in 8 African countries

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IFCs Local Currency Loans and Swaps

• South Africa Up to 20 years, fixed and floating
  rate based on JIBAR and Prime
• Nigeria Up to 10 years, fixed and floating
  rate based on 90 / 180 Day T-Bills
• Ghana Up to 7 years, fixed and floating rate
  based on 90 / 180 Day T-Bills
• Kenya Up to 10 years, fixed and floating rate
  based on 90 / 180 Day T-Bills
• Botswana Up to 15 years, fixed and floating
  rate based on government bond yields
• Tanzania Up to 7 years, fixed and floating
  rate based on 90 / 180 Day T-Bills
• Zambia Up to 7 years, fixed and floating rate
  based on 90 / 180 Day T-Bills
• Uganda Up to 7 years, fixed and floating rate
  based on 90 / 180 Day T-Bills
• () For variable rate instruments other indexes
  than the ones mentioned above
• can be considered on a case by case basis

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IFCs Existing Portfolio and Pipeline of Local
Currency Transactions

• Existing Portfolio
• 21 projects in 4 countries
• 1st transaction was in 1997
• US210 million equivalent committed
• US162 million disbursed
• Transactions completed for financial institutions
  and the general manufacturing sector,
  agribusiness and oil gas sectors
• Current Pipeline
• Over 10 projects in about 6 countries
• Current local currency transactions in the
  pipeline are targeting the financial services
  industry, the housing sector, agribusiness
  companies and the health education sector

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Structured Finance and Guarantees

• Partial Credit Guarantees (PCGs)
• IFC irrevocably guarantees a portion of the debt
  service due on a local currency bond or loan
• Partial debt service coverage insures that
  domestic investors take at least a portion of the
  borrower credit risk
• Risk-sharing Facilities
• Provides portfolio insurance for banks lending
  local currency to domestic borrowers.
• IFC guarantees part of the principal balance of
  an on-balance sheet portfolio of loans
• Securitization
• Allows clients to raise local currency funding
  through sale of assets from their balance sheet
• Can be used to issue debt at ratings higher than
  that of the borrower itself
• IFC credit enhances securitization through
  provision of guarantees on part of the capital
  structure or through purchase of subordinated
  tranches.

13
Structured Finance at IFC

• Completed 62 transactions in 22 different
  countries
• Mobilized a total of US5,434mn (US1,579mn
  during FY06) with IFCs credit exposure of only
  US1,034mn

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Capital Market Development

• B Loans
• Opens market to foreign banks and introduces them
  to clients
• Helps to demonstrate mis-perceptions of risk in
  markets
• Local Currency
• Helps to increase the depth and liquidity of
  cross border swap markets
• Swap market development important for overall
  capital market development
• Securitization and Guarantees
• Helps to deepen and broaden domestic financial
  markets
• Helps to improve risk appetite of domestic
  financial institutions

15
IFC Financial Markets Strategy for the Future

• Continue to develop existing products
• B Loans, Local Currency, Structured Finance
• Work on direct development of capital markets
• Development of the Nigeria Bond Market through
  Technical Assistance
• Maintain strong collaboration with other
  financial institutions, including DFIs