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Debt and Asset Recovery Program (“DARP”)

Debt and Asset Recovery Program (“DARP”). IFC Presentation to Covinoc June 3, 2010. For Information Proposes Only. Market Context Development Impact of Debt and Asset Resolutions IFC DA Investment Program - DARP DARP Investment Models Program Update Sample Projects – DPE, ADM

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Debt and Asset Recovery Program (“DARP”)

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  1. Debt and Asset Recovery Program (“DARP”) IFC Presentation to Covinoc June 3, 2010 For Information Proposes Only

  2. Market Context Development Impact of Debt and Asset Resolutions IFC DA Investment Program - DARP DARP Investment Models Program Update Sample Projects – DPE, ADM Annex - Statistics Outline For Information Purpose Only 2

  3. Market Context/Opportunity • Market Trends: • Recent global financial crisis is one of the worst economic downturn in almost 80 years • Slowdown is adversely impacting banks and other financial institutions as default rates on credit portfolios spiked significantly and liquidity became scarce • To date, global financial institutions have reported losses and write-downs totaling over US$1.75 trillion not counting for EU crisis • Size of emerging market’s distressed assets which was earlier estimated at around US$1.5 trillion could now range between US$2.0 - 2.5 trillion • Financing needs of emerging economies approx $700 billion in 2010 • Existing and potential IFC real and financial sector clients facing distress and restructuring needs. Many of these clients have a significant impact on local and regional economies • Market Players: • Traditional distressed debt/special situations investors have disappeared or are now focused on developed markets leading to a funding gap for emerging markets for needed investment in the sector • Governments reaching out to the WBG for solutions for insolvency and corporate debt rollover problem For Information Purpose Only

  4. NPLs Potential Market Size Figures in US$ Billion unless indicated Source: IMF, Countries Central Bank, NPL Industry Reports (Deloitte, E&Y, PWC) NPLs have almost double in past 2 years and could reach US$3 trillion in 2010.

  5. Development Impact of Debt and Asset Resolutions • Impact on distressed companies • De-leverage balance sheets, restructure debts to sustainable levels • Redeploy idle collateral assets back to productive use • Preserve/create employment • Induce managerial and operational improvements • Impact on financial markets • Provide liquidity and risk capital (through investment) to the market place • Clean FI/system balance sheets, improve capital rations, allowing for reallocating resources to productive companies • Build infrastructure for continued DA absorption/disposition/resolution • Develop secondary debt market • Impact on business environments • Improve and promote credit culture • Provide investors with risk mitigation, divestment routes, out-of-court resolution – better mitigation would ultimately provide for cheaper funding costs for corporates, SMEs • Promote international insolvency standards and creditors' rights • Accelerate compliance with environmental and accounting standards, corporate governance For Information Purpose Only

  6. IFC’s Investment Program: Strategic Regions • IFC approved its distressed assets investment program, Debt and Asset Recovery Program – “DARP”), in August 2009. Approval comprises an Investment envelope of US$1.5 billion for its own account. And seek to mobilize an additional US$4 billion from partners. • IFC to focus its DA efforts on specific regions and countries based on selection criteria that include: • susceptibility to the crisis (using Vulnerability Index among others benchmarks) • level of IFC’s engagement in the banking sector • potential scale to ensure successful investment program • Consistency with regional strategic priorities • Given the above criteria, initial IFC investment activities will concentrate on the following regions/countries: • ECA - Russia, Ukraine, Turkey and Kazakhstan Initial Asset Focus – Retail, SME • CEA – Indonesia, Vietnam and China Initial Asset Focus – SME, Corp • LAC - Mexico, Brazil, Colombia and Argentina Initial Asset Focus – Retail, SME, Corp • MENA - Pakistan Initial Asset Focus – SME, Corp For Information Purpose Only

  7. Distressed pool and servicing company/platform investments. In this mode, IFC would be investing in/lending to vehicles that have acquired or will acquire DA pools for resolution. Third party servicers would be contracted to resolve assets. Direct investments in select servicing companies/platforms is also key part of this component. Total estimated IFC direct pool and servicer investments: US$700 million. Direct IFC investments in discrete private entities, in both the real and financial sectors, with a good business model, that need financial restructuring. This is part of IFC’s mainstream business and would have a emphasis on mobilizing private capital - a short to medium term strategy based on the response to the financial crisis. Total estimated IFC Direct company investments: US$500 million. Fund Investments – traditional investments in fund vehicles – with a sector focus on distressed assets - where IFC’s primary role would be that of investment catalyst and financial investor (e.g., an LP). Total estimated IFC Fund investments: US$200 million. Partnerships for debt re-profiling and restructuring. In Partnerships, IFC would play an more active role in the operations and activities of the investment company/vehicle. Total estimated IFC Partnership investments: US$200 million. DARP Investment Models For Information Purpose Only 7

  8. DARP Program Update General Summary: Since its program launch in August 2009, the Debt and Asset Program has been very successful and continues to make progress. Approvals: IFC has approved eleven projects under DARP for a total of approximately US$640 million for IFC’s own account. These project span the LAC, CEA and ECA regions. Countries include Colombia, Thailand, Ukraine, and several Eastern Europe regional projects. Commitments: Of the above approved projects, nine have been committed for a total of US$300 million. Pipeline: Two other projects are at advanced stages: One in Russia/Ukraine and one in Argentina which expected to be obtain Board approval sometime in April. The two projects involve IFC investments of about US$70 million in total. In addition, other early stage DARP pipeline projects involve investments in India, the Caribbean, Nigeria and the East Asia Region. Mobilization:The program is partnering with a number of experienced and well-regarded entities in the DA space such asStandard Bank, PineBridge, EOS and ADM. The overall DARP program expects to mobilize about 3-5 times IFC’s investment amount in the program.

  9. DARP Program Update (cont’d) Advisory: Going forward, the AS program intends to raise awareness on responsible finance among FIs involved in collections and servicing, and influence the market towards the increasing adoption of best practices in responsible collections. This component is expected to launch before the end of FY10. DARP/AMC: IFC is exploring ways to enhance/scale DARP activities by collaborating with the IFC AMC. Challenges: E&S-Given the scope of the program, the sectors involved and other related activities (e.g., AS), IFC recognizes the need for careful monitoring and management of risks related to E&S and conflicts of interest at the program level. Also key factor to monitor includes reputation risk. Utilization- Though IFC is optimistic about the expected utilization of some of the projects/facilities, some transactions/asset classes may develop slowly. As such, IFC is taking a more active role in pipeline development at the project level.

  10. IFC DA Experience (pre-DARP) Overall investment Direct investments Over US$400 million in the DA sector through 12 projects spanning six countries (Russia, Slovakia, China, Philippines, Colombia and Thailand). China: first major AMC NPL pool auction • Spurred numerous subsequent successful sales by other AMCs. • Helped to transfer over 1,000 NPLs from state entities to the private sector with a combined face value of over US$1.3 billion (Orient, Huarong). Philippines: key structuring agent and investor in the sale of over 55,000 mortgages . • Helped to establish an important local mortgage servicing company -BFS. CIS Region: Established a investment facility with First NIS Fund • Facility provided crisis financing for companies needing much needed capital. • Sectors reached included telecoms, oil and gas, confectionaries and other consumer products. • All closed investments - IFC loans were fully repaid and equity returns were in excess of 15% • Current portfolio investments are performing well and are also expected to be profitable. Investment returns 10

  11. DPE (assigned) Project Summary/Description: The Project consists of co-investments with DPE Partners in DA portfolios primarily in the ECA region. Target countries: Russia, Ukraine, Poland, Romania, Hungary and others. DA portfolios can include several asset classes: retail, SME, corporate, real estate Key Partner(s)/Sponsor: DPE Partners, L.P is a leading investor and specialist in DA and public securities. 15-year track record. Invests in US and Europe, expanding to Asia and other markets. Medium-term investment horizon. IFC Investment and Project Size: Total co-investment amount of up to EURO450 million: IFC will fund up to EUR100 million and Värde will fund approx. EUR350 million. IFC co-investment will be via SPV for financing DA pools acquired for resolution by IFC/Värde and serviced by approved servicers. Project Structure: Each co-investment in an NPL pool will be committed over a 2-year period, with a tenor of up to 4 years for principal repayment, while cash flows may continue to come for 6 years. IFC to co-finance up to 49% of each co-investment for Russia and Ukraine; and up to 20% for all other countries. IFC to take pari-passu risk with Värdeand share the waterfall accordingly. Unique/Interesting/Innovative Aspects of Project: (i) IFC to take pari-passu risk withVärde; (ii) IFC approval for an envelop amount to be co-invested in different countries.

  12. ADM CEECAT Recovery Fund Project Summary/Description: ADM CEECAT Recovery Fund L.P., a fund that will invest in recovery situations in Central & Eastern Europe, Central Asia and Turkey, targeting small and mid-cap companies with strong fundamentals that can survive the crisis. Key Partner(s)/Sponsor: Asia Debt Management Hong Kong Limited (ADM Capital), an experienced distressed asset fund manager based in Hong Kong. Total Project Size: EUR101.3 million at first closing in March, EUR300 million targeted for final closing. IFC Investment: EUR20 million at first closing, EUR35 million at final closing. Project Structure: Private equity fund that will make debt and/or equity investments in distressed companies. Fund life of five years, with a three year investment period. Four cornerstone investors at first closing: IFC, EBRD, FMO and PGGM (Dutch pension fund). Unique/Interesting/Innovative Aspects of Project: Secured lending with equity upside. Supporting ADM’s expansion from Asia and Turkey to Central and Eastern Europe. Project Challenges: Expected returns are modest compared to mainstream private equity funds due to the credit profile of the Fund. Mitigating factor - IFC secured additional economics together with other cornerstone investors.

  13. Annex - NPL Statistics – End 2009 (IMF figures) Emerging Economies: CEE • Albania – 9.7 • Bulgaria - 6 • Croatia – 6.4 • Estonia – 5.2 • Hungary – 5.9 • Latvia – 16.4 • Lithuania – 19.4 • Macedonia – 9.5 • Montenegro – 12.4 • Poland - 7 • Romania – 14.8 • Serbia – 15.5 • Turkey – 5.7 Advanced Economies Czech Republic – 5.3 France – n/a Germany – n/a Greece – 7.2 Ireland – 7.5 Italy – 6.2 Spain – 5.1 United Kingdom – 3.3 (June) United States – 5.4 Germany – n/a

  14. Annex - NPL Statistics – End 2009 cont’d (IMF figures) Emerging Economies: CIS Georgia – 7.3 Kazakhstan – 21.2 Moldova – 16.6 Russia – 9.6 Ukraine – 33.8 Developing Asia Pakistan – 12.2 Middle East / North Africa Egypt – 14.7 Jordan – 6.4 Lebanon – 6 Morocco – 5.5 Sub-saharan Africa • Gabon – 9.8 • Ghana – 14.9 • Kenya – 8 • Nigeria – 6.6 • Rwanda – 13.6 • Senegal – 18.7 • Sierra Leone – 10.6 • South Africa – 5.5 • Swaziland – 8.1 • Latin America • Brazil – 4.5 • Colombia – 4.6 • El Salvador 4.4

  15. Disclaimer • This presentation is solely for the use of the recipient and shall be held in strict confidence. No part of this presentation may be circulated, quoted, or reproduced for distribution outside the recipient's organization without prior written approval from the International Finance Corporation (“IFC”). • This presentation is solely for purposes of discussion to assist the recipient in determining whether they have a preliminary interest in participating in the program described herein. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of an offer to buy, any security. Recipients are not to construe this presentation as investment, legal or tax advice. While the information contained herein has been obtained from various sources which IFC believes to be reliable, IFC does not represent that it is accurate or complete and it should not be relied upon as such. Any track record information included herein is thought to be representative of the type of investments IFC will seek to make under the program, but there is no guarantee that IFC will be able to invest in assets such as those reflected in the track record information or that such investments would be profitable. • Nothing contained herein shall be deemed to be binding against, or to create any obligations or commitment on the part of the International Finance Corporation. For Information Purpose Only

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