International Financial and Economic Organizations GEED 151

1. International Financial and Economic OrganizationsGEED 151

2. The European Bank of Reconstruction and Development (EBRD)Lecture 4

3. The EBRD-Overview • The EBRD is established in 1991 • The reason for establishment was to provide funding for the reconstruction and development of the eastern and central European countries after the collapse of communism • EBRD is owned by 60 countries and two intergovernmental institutions. • mainly invests in private enterprises, usually together with commercial partners.

4. The EBRD-Overview • provides project financing for • banks, • industries and • businesses, • both for new ventures and investments in existing companies. • Also works with publicly owned companies, • to support privatisation, • restructuring state-owned firms and • improvement of municipal services. • Uses its close relationship with governments in the region to promote policies that will bolster the business environment. • The mandate: • EBRD must only work in countries that are committed to democratic principles.

5. The EBRD-Overview • Every EBRD investment must • Help move a country closer to a full market economy: the transition impact • Take risk that supports private investors and does not crowd them out • Apply sound banking principles • Functioning as a catalyst of change, the EBRD • Promotes co-financing and foreign direct investment • Mobilises domestic capital • Provides technical assistan

6. The EBRD-Overview • Through its investments, the EBRD promotes • Structural and sectoral reforms • Competition, privatisation and entrepreneurship • Stronger financial institutions and legal systems • Infrastructure development needed to support the private sector • Adoption of strong corporate governance, including environmental sensitivity

7. The EBRD-Ownership • The EBRD is owned by its member/shareholder countries, the European Community and the European Investment Bank. The Bank's share capital is provided by its members. Voting power is in proportion to the number of shares.

8. The EBRD-Ownership

9. The EBRD – Capital Structure • How the EBRD is funded? • Equity: • Subscribed capital totaling EUR 20 billion • 5 billion paid-in and • 15 billion callable. • Apart from the high equity base EBRD also borrows in international markets very easily with its good credit rating • Credit Rating of AAA (S&P) & Aaa (Moodys) • The EBRD finances project lending and operational needs by borrowing funds on the international capital markets instead of utilizing shareholders' capital.

10. The EBRD – Capital Structure • By raising funds on competitive terms, EBRD can structure loans which best match the requirements of its clients in its countries of operations. • EBRD's securities are sold to investors, such as central banks, pension funds, insurance companies and asset managers around the world. • Manages its liabilities such that it does not incur foreign exchange nor interest rate risk in its funding operations. • It interacts with all major capital market participants on a daily basis in order to ascertain which market, currency or structure of debt can provide the EBRD with the most efficient cost of financing.

11. The EBRD – Capital Structure • Treasury department • responsible for: • funding the Bank in the international capital markets • managing liquid assets held in anticipation of disbursements and overall asset and liability management • The Treasury ensures that the Bank has a stable source of income at all times.

12. The EBRD – Investments • The EBRD is the largest single investor in central and eastern Europe and the CIS. • investments have risen 27% in 2006 • Investments to Sept. 2006 = €2.568 billion • Investments 2005 = €2.023 • Sectors EBRD most actively invests in • Agribusiness • Municipal & Environmental Infrastructure • Property • Telecoms, informatics & Media • Energy • Natural resources • Shipping • Transport

13. The EBRD – Investments • EBRD's core business is project finance • Direct investments generally range from €5 million to €230 million. • Smaller projects are financed both directly by the EBRD and through financial intermediaries. • EBRD also helped finance over 1 million smaller projects by supporting local financial institutions: • commercial banks, • micro-business banks, • equity funds and • leasing facilities. • The EBRD provides • loan and equity finance, • guarantees, • leasing facilities and • trade finance.

14. The EBRD – Investments • A typical deal takes three to six months from initial contact to signing. • The total project cycle, from initiation to repayment, can range from • one year for working capital or trade financing projects to • 15 years for long-term sovereign infrastructure projects. • Every projects receives an early screening for potential environmental impact even before the project review

15. The EBRD – Investments • Project Review process includes • Concept Review • Final Review • Board Review • Signing – The EBRD and the client sign the deal and it becomes legally binding. • Disbursements – Once repayment conditions are agreed and the Bank’s conditions met, the funds are transferred from the Bank’s account to the client’s account. • Repayments – The client repays the loan amount to the EBRD under an agreed schedule. • Sale of equity – The Bank sells its equity investments on a non-recourse basis. • Final maturity – The final loan amount is due for repayment to the Bank. • Completion – The loan has been fully repaid and/or the EBRD’s equity investment divested.

16. The EBRD – Environment • The EBRD has had an environmental mandate since its inception. • The mandate commits the Bank to finance projects that are environmentally sound and sustainable. • 'Environment' is defined by the Bank in its broadest sense to encompass not only • ecological impacts but also • worker, • health, • safety and • community issues.

17. The EBRD – Environment • Strategies to promote environmentally sound and sustainable development: • Integrate environmental considerations into every project. • Promote environmentally oriented investments across all sectors. • Incorporate the environmental mandate in all sector and country strategies. • Build partnerships to address regional and global environmental issues.

18. The EBRD – Environment • Where the EBRD invests directly in a project the project must comply with: • National law for environment, health, safety and employment; • European Union environment, health and safety standards, where applicable; and • The International Labour Organization's Conventions concerning the • abolition of harmful child labour, • the elimination of discrimination at the workplace; • and the elimination of forced and compulsory labour.