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The World Bank Guarantee Program

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Title: The World Bank Guarantee Program Author: Jyoti Azad Last modified by: Andres Londono Created Date: 2/4/2000 8:37:44 PM Document presentation format – PowerPoint PPT presentation

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Title: The World Bank Guarantee Program


1
The World Bank Guarantee Program
Partial Credit Guarantees
2
Evolution of Guarantee Programs
  • B-loan program -1980s
  • ECO Program -1988
  • Mainstreamed in 1994
  • IBRD Enclave Guarantees for IDA countries -
    1997
  • IDA Guarantees - 1998
  • Policy Based guarantees 1999
  • CAS envelope counting-2004

3
World Bank Guarantee Objectives
  • Leveraging Bank resources
  • Catalyzing private finance in support of
    developmental objectives
  • Facilitating member countries access to the
    international debt and capital markets
  • Guarantor of Last Resort

4
Variety of Guarantees
  • IBRD Guarantees for private and public borrowers
  • PRG
  • PCG (PBG)
  • IDA Guarantees for private borrowers
  • PRG

5
Partial Credit Guarantees
  • Guarantees portion of debt service
  • (Not 100 of debt service)
  • Supporting commercial banks and investors
  • Examples
  • Late maturities
  • Roll-over guarantee under a put option
  • Take-out Financing
  • Rolling guarantees for a fixed number of payments

6
PCG Bond Issue
PCG
100
PV
Maturity extension
10 years
0
5 years
(e.g. Hungary, Lebanon, Philippines)
7
PCG Syndicated Bank Loans for China
  • Borrower Ertan Power
  • Amount US150 million
  • Spread 30 bp over LIBOR
  • Project Cost US 2.9 billion
  • World Bank Guaranteed
  • Principal on accelerable basis during years 12-15
  • Guarantee Release Option

8
China Ertan Power Project
150 million
50 million
0
3
6
9
12
15
Average financing term for China without World
Bank Guarantee
Additional uncovered risk taken by commercial
banks
World Bank Guaranteed
Total risk assumed by commercial banks
9
Advantages of the Guarantees
  • Market instrument (Bank loan is off-market
    instrument)
  • Flexibility - market, currency, interest rate
  • Better terms (funding cost, maturity)
  • Market access and exposure
  • Procurement flexibility
  • CAS envelope counting (25)

10
Policy-Based Guarantees
  • An extension of partial credit guarantee beyond
    investment projects to adjustment/ sector
    programs
  • Facilitates borrowings in support of structural
    and social policy reforms
  • Alternative / Complementary to an adjustment loan

11
Policy Based Guarantees Eligibility
  • Strong performers
  • The country has a strong track record of
    performance
  • Satisfactory macroeconomic, social, and
    structural policies
  • Policy impact
  • Eligible for adjustment program
  • Linkage to up-front conditionalities
  • Value added
  • Improve market access and terms
  • Sustainable external financing plan

12
Argentina PBG Bond Issue
  • Borrower Republic of Argentina
  • Amount US 250 million
  • Issued on October 15, 1999
  • Maturity 1, 1.5, 2, 3, 4 and 5 years
  • Priced at 94.202, 88.485, 83.450, 74.897, 66.421,
    and 58.701 respectively
  • World Bank PBG Zero coupon bonds at stated
    maturities on a rolling basis

13
Rolling Guarantee Structure
Exposure to the Bank
Banks maximum exposure is US 250 million
14
Ratings on the Argentine Bonds
Republic or Argentina Argentina Serial Zero
Coupon Notes
Foreign Local Series A Series B Series C
Series D-F Currency Currency
  • SP BB BBB- AAA BBB BBB BBB BBB BBB
  • Duff BB BBB- AAA A A- BBB BBB BBB
  • Fitch IBCA BB BB AAA BBB BBB BBB BBB BBB

Each of the Series B F Notes will receive AAA
ratings once the Guarantee rolls to such Series
15
PCG Impact on Maturity and Pricing
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