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
IFC A-Loan
IFC B-Loan
IFC C-Loan
IFC Guarantees (partial
credit structures –
offshore & local
financing)
Interest Rate and
Currency swaps
MIGA
Political Risk Insurance
• expropriation
• transfer restriction
• breach of contract
• war & civil disturbances
IBRD/IDA
IBRD Loan
IDA Credit and
Grants
Guarantees
• partial risk
• partial credit
Tech. Assistance
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
Guarantee
IBRD
Loan
Loan Repayment
Guarantee
IDA-Only
COUNTRY
Offshore Escrow Account
Project Revenues
Power Company
Equity
Sponsors
8
Throughput
Purchaser
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
Colombia
(P. Credit)
Thailand
(P. Credit)
5
Philippines
(P. Credit)
1Spreads
6.5%
5%
10
0
8.5%
10
Lebanon
(P. Credit)
Jordan
(P. Credit)
Interest Spread
2.9%
5
3%
10
1%
2
3%
7
1%
7
3%
15
at the time of the guarantee issuance
2.5%
without Guarantee
16
with Guarantee
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 nonaccelerable
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
Vietnam
(P. Risk)
5
2%
1
3%
14
2%
3%
1
Cote d’Ivoire
(P. Risk)
1Spreads
5%
16
Bangladesh
(P. Risk)
Lao PDR
(P. Risk)
Interest Spread1
12
2.75%
0
16.5
without Guarantee
at the time of the guarantee issuance
19
N/A
2.25 %
with Guarantee
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.
Project
Company
Project Agreement
(Government
Undertakings)
Loans
Commercial
Lenders
Guarantee
Agreement
Indemnity
Agreement
World Bank
Government
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
Guarantee
Reserve Account
Loan
Agreement
Guarantee
Fee
Government
Limited Government
Obligations:
• Permits/consents
• Change in law
• Political events
• Expropriation
Export
Concession
Contract
FX
Enclave Project
(up to 25%)
23
Creditworthy
Purchaser
Examples of different Guarantee Structures
Debt
•
•
L/C
Deferred
Loan
Usually most suited for new infrastructure projects
following project finance structure
Active PF commercial banks are usually aware of PRG
structures
•
•
•
Beneficiary of L/C is project, not lenders
Catalyze equity and lending
Provide liquidity to project if needed
•
Can cover investors if there is no Commercial
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
Upfront charges
Initiation Fee1
Fee charged to the borrower
15 bp on the guaranteed
amount or USD 100,000
(whichever is higher)
Processing Fee1,2
Recurring charges
Guarantee Fee
Up to 50 bp of the guaranteed
amount
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.
2.
3.
For all private sector borrowers, i.e. only applicable to Partial Risk Guarantees.
Determined on a case by case basis. Exceptional projects can be charged over 50 bps of the guaranteed amount.
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 charged to the borrower3
Fee Type
Upfront charges
Initiation Fee1
15 bp on the guaranteed amount or
USD 100,000
(whichever is higher)
Processing Fee1,2
Recurring charges
Guarantee Fee
Up to 50 bp of the guaranteed amount
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.
2.
3.
For all private sector borrowers, i.e. only applicable to Partial Risk Guarantees
Determined on a case by case basis. Exceptional projects can be charged over 50 bps of the guaranteed amount.
Fee charges net of applicable waivers.
27
For detailed fees please consult with the Guarantees Group at the Bank.