Finance, Technology and Macroeconomics

International Finance Corporation

A. Background

1. As the private sector arm of the World Bank Group, the International Finance Corporation (IFC), takes a leadership role in areas such as capital markets development, new models of public-private partnership for infrastructure, environmental and social sustainability, corporate governance, environmental finance, and investment climate research.

2. So far, it is the largest multilateral source of loan and equity financing for private sector projects in the developing world. It invests in for-profit ventures and charges market rates for its products and services, which are the following:

(a) Equity and Quasi-Equity: IFC buys shares in project companies, other project entities, financial institutions, and portfolio or private equity funds. They generally subscribe to between 5 and 20 percent of a company’s equity. They do not normally hold more than a 35 percent stake or be the largest stakeholder in a project. With quasi-equity instruments, they invest through products that have both debt and equity characteristics.

(b) Loans and Intermediary Services: IFC finance projects and companies through their A-loans, which maturities generally range between 7 and 12 years at origination, but some loans have been extended to as long as 20 years. IFC’s loans are provided in major currencies and in an increasing number of emerging market currencies. They also make loans to intermediary banks, leasing companies, and other financial institutions through credit lines that result in further on-lending. These credit lines are often targeted to smaller businesses.

(c) Syndicated Loans: Through syndicated loans, or B-loans, financial institutions share fully in the commercial credit risk of projects, while IFC remains the lender of record. Participants in IFC’s loans benefit from the status of IFC as a multilateral development institution, including their de facto preferred access to foreign exchange.

(d) Structured Finance: IFC also offers structured finance solutions to clients, enabling them to raise a significantly larger amount of capital than that represented by IFC’s own exposure. Through partial credit guarantees of debt instruments, the triple-A rating of IFC help clients diversify their funding sources, extend maturities, and obtain financing in their currency of choice. IFC also helps clients structure securitizations and risk-sharing facilities, transactions that allow a client to sell off part of the risk associated with a pool of assets.

(e) Risk Management: IFC’s risk management products provide clients with access to long-term derivatives markets. Currency hedging instruments allow clients to hedge foreign exchange exposures typically related to foreign currency borrowings.

(f) Technical Assistance and Advisory Services: Technical assistance complements IFC’s investment activities by offering advisory and training services to governments and private companies in developing countries. They deliver many of these services through donor-supported technical assistance facilities that focus on either a region or a strategic aspect of development. They also manage trust funds supported by donor governments and have established a funding mechanism that sets aside a portion of the Corporation’s net income as a contribution to donor-funded operations.

3. IFC and the World Bank work together to survey and assess the investment climate of developing countries. An online database makes data from 30,000 firms accessible to governments considering reforms. IFC and the Bank also publish the annual Doing Business report, which provides objective, quantifiable indicators of business regulations in 150 countries. Reform efforts in many countries have been spurred by the data and recommendations.

B. Transactions with IFC

1. Financial Restructuring of Mariwasa Manufacturing Inc. (MMI)/Mariwasa Siam Ceramics Inc.(MSCI): MMI and MSCI had to restructure all its outstanding loans due to financial problems contributed by increased production cost, dampening of domestic demand and depreciation of the peso since the Asian financial crisis.

BSP-Monetary Stability Sector approved the restructuring of the JPY1,257.96 Million (about US$10.37 Million) and US$3 million loans from IFC, which refinanced outstanding FCDU Loans, on 05 March 2007. At the same time, BSP also approved the redenomination to Japanese Yen of the remaining balance of the US$3.0 million IFC loan after restructuring (approximately US$706,161.40 including capitalized interest) to consolidate the IFC loans into one account.

2. IFC Peso Loans Funded by PhP/USD Cross Currency Swaps (CCS[1]). In August 2003, the Monetary Board (MB) approved in principle the proposal of IFC to extend Peso loans to Philippine clients funded by the CCS. The following loans have been approved by MB under the said lending program:

(a) South Luzon Expressway Project Phase 1: US$50 Million 9-year loan to South Luzon Tollway Corporation (SLTC) approved on 16 November 2006.

(b) Financing for the purchase of contracts to sell receivables from real estate developers covering housing mortgages of low and middle income households: PhP1.06 billion (approximately US$20 million) loan to Planters Development Bank (PDB) approved on 22 June 2006

(c) Financing for the purchase of housing mortgages: PhP2.25 billion loan to Filinvest Land Inc. approved on 16 June 2006

(d) Capital investment program: PhP equivalent of the US$15 million loan to Cagayan Electric Power and Light Co.,Inc. (CEPALCO) approved on 05 May 2005

(e) Financing for the purchase of National Home Mortgage Finance Corporation’s non-performing loans: PhP1.65 billion loan to Balikatan Housing Inc. approved on 14 April 2005.

3. Private Enterprise Partnership for the Philippines (PEP-Philippines) : The PEP-Philippines was launched in 2006 and is designed to support the development of small and medium enterprises through the provision of investment and technical expertise to implement projects that would ease small and medium enterprises’ access to finance, strengthen linkages between large and small market players and help improve the overall business environment. This is managed by IFC and co-financed by the Governments of Australia and Canada.

4. Projects provided with Technical Assistance Advisory Services (TAAS) by IFC:

(a) North Luzon expressway on private transport work.

(b) Manila Water Corp. and the Metro Cebu Water District on water and sanitation work.

(c) Light Rail Transit Authority (LRTA) on the extension of the LRT-1 rail line from southern Metro Manila into Cavite province.

(d) Cagayan Electric Power and Light Company (CEPALCO) on private electricity distribution, which is now running on solar-powered photovoltaic cells under the IFC's Global Environment Facility (GEF) in partnership with the international Sustainable Energy and Economy Network.

C. Potential Collaborations

1. IFC may want to consider providing loans with improved terms and conditions for transportation, irrigation, energy and other infrastructure projects to comply with BSP’s external debt management framework that aims to obtain loans at favorable terms and conditions and to channel priority projects and activities. In particular, IFC is encouraged to explore the possibility of waiving some fees to make their proposals at par with those offered by World Bank and Asian Development Bank

2. BSP may also need the support of IFC in the development of a centralized credit information bureau to improve the quality of financial information to investors, expand private sector access to credit and minimize exposure to risks of financial intermediaries.

3. IFC can also be tapped to play an instrumental role in the advocacy program of BSP on microfinance, particularly in promoting the development of sound and sustainable microfinance operations.

[1] IFC swaps its own hard currency financing for local currency at the time of disbursement
--
1. Read on IFC - two hours
9:45 - 11:45

2. Read on BSP - two hours
11:50 - 12:00
12:05 - 12:20
13:30 -15:05

--

Note for me:
1. It would help if you also let the staff know what you are up to. In that way, the staff won't feel that you are just passing the job to him/her.

posted by JD @ 9:39 AM