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Capital Markets and Resource Mobilization IFC presentation to: THIRD REGIONAL CONSULTATION ON

Capital Markets and Resource Mobilization IFC presentation to: THIRD REGIONAL CONSULTATION ON “RETHINKING THE ROLE OF NATIONAL DEVELOPMENT FINANCE INSTITUTIONS IN AFRICA” By Louis-B. Ngassa Batonga Principal Investment Officer IFC-Johannesburg Office November 2006.

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Capital Markets and Resource Mobilization IFC presentation to: THIRD REGIONAL CONSULTATION ON

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  1. Capital Markets and Resource Mobilization IFC presentation to: THIRD REGIONAL CONSULTATION ON “RETHINKING THE ROLE OF NATIONAL DEVELOPMENT FINANCE INSTITUTIONS IN AFRICA” By Louis-B. Ngassa Batonga Principal Investment Officer IFC-Johannesburg Office November 2006

  2. Growing interest of major international financial institutions in financing private sector

  3. Changesin the allocation of IFI resources over the recent years • Declining share of the Sub-Saharan Africa (9.7% of total allocations of US$23.6 billion in 2005 as compared to 12.1% of the year 2000 US$10.3 billion allocations) • Increased shares of the Europe and Middle-East North Africa regions, with Europe now accounting for 50.8% of total allocations • More resources being channeled into Financial Markets: 45.1% of the allocations in 2005 as compared to 29.5% in 2000. Such changes create new challenges to DFIs and for institutions such as IFC. Hence the need to rethink their strategies.

  4. IFC’s Five Strategic Priorities • Strengthen the focus on Frontier Markets, in particular Africa, with emphasis on technical assistance, investment climate and SMEs • Build Long-term partnerships with emerging global players (South-South) capitalizing on the strengths of clients in China, India, Brazil, South Africa, etc. • Help expand the sustainability agenda • Address constraints to private sector growth in infrastructure, health and education • Continue to emphasize local financial market development

  5. Top 6 Reasons African Borrowers Work with IFC IFC Role in Mobilization and capital Markets • Mobilization of 3rd party capital, a major IFC role • Investment criteria limits IFC participation, forcing mobilization • Capital Market development, also seen as a major role for IFC • Development of sustainable financing • Clients want IFC to mobilize funding

  6. How IFC does Mobilization • B Loans - Open local markets to foreign banks and introduce them to clients - Help to demonstrate mis-perceptions of risk in these markets • Local Currency • Helps to increase the depth and liquidity of cross border swap markets • Swap market development is an important factor for overall capital market development • Securitization and Guarantees Help to deepen and broaden domestic financial markets Help to improve risk appetite of domestic financial institutions

  7. IFC Mobilization:B Loan Program • Began in 1957 • Has mobilized US$25 billion • Maintains a portfolio of US$ 5.1 billion • Mobilized over US$1.6 billion in FY06 (US$1.1 billion in FY05) • In FY06: • Average B Loan Size: US$60m • Average Tenor: 7.1 years

  8. B Loan Structure Loan Agreement Borrower A + B Loans Participation Agreements • One loan agreement - IFC is lender of record and administers entire loan • IFC fully shares project risks with participants • Offshore participants, not per se local currency B Loan Participants

  9. IFC’s Local Currency Financing Instruments Using Derivatives • Two main local currency alternatives • Local currency swaps • Overlay swaps • Local Currency Swap: IFC swaps its own hard currency financing for local currency at time of disbursement • Overlay Swap: IFC assists in obtaining local currency swap for existing third party loans • Need the following to implement • Existence of long term swap market • Regulatory approval • IFC able to provide swaps in 8 African countries

  10. IFC’s Local Currency Loans and Swaps • South Africa : Up to 20 years, fixed and floating rate based on JIBAR and Prime • Nigeria : Up to 10 years, fixed and floating rate based on 90 / 180 Day T-Bills • Ghana : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-Bills • Kenya : Up to 10 years, fixed and floating rate based on 90 / 180 Day T-Bills • Botswana : Up to 15 years, fixed and floating rate based on government bond yields • Tanzania : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-Bills • Zambia : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-Bills • Uganda : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-Bills • (*) For variable rate instruments other indexes than the ones mentioned above • can be considered on a case by case basis

  11. IFC’s Existing Portfolio and Pipeline of Local Currency Transactions Existing Portfolio • 21 projects in 4 countries • 1st transaction was in 1997 • US$210 million equivalent committed • US$162 million disbursed • Transactions completed for financial institutions and the general manufacturing sector, agribusiness and oil & gas sectors Current Pipeline • Over 10 projects in about 6 countries • Current local currency transactions in the pipeline are targeting the financial services industry, the housing sector, agribusiness companies and the health & education sector

  12. Structured Finance and Guarantees • Partial Credit Guarantees (PCGs) • IFC irrevocably guarantees a portion of the debt service due on a local currency bond or loan • Partial debt service coverage insures that domestic investors take at least a portion of the borrower credit risk • Risk-sharing Facilities • Provides portfolio insurance for banks lending local currency to domestic borrowers. • IFC guarantees part of the principal balance of an on-balance sheet portfolio of loans • Securitization • Allows clients to raise local currency funding through sale of assets from their balance sheet • Can be used to issue debt at ratings higher than that of the borrower itself • IFC credit enhances securitization through provision of guarantees on part of the capital structure or through purchase of subordinated tranches.

  13. Structured Finance at IFC • Completed 62 transactions in 22 different countries • Mobilized a total of US$5,434mn (US$1,579mn during FY06) with IFC’s credit exposure of only US$1,034mn

  14. Capital Market Development • B Loans • Opens market to foreign banks and introduces them to clients • Helps to demonstrate mis-perceptions of risk in markets • Local Currency • Helps to increase the depth and liquidity of cross border swap markets • Swap market development important for overall capital market development • Securitization and Guarantees • Helps to deepen and broaden domestic financial markets • Helps to improve risk appetite of domestic financial institutions

  15. IFC Financial Markets Strategy for the Future • Continue to develop existing products • B Loans, Local Currency, Structured Finance • Work on direct development of capital markets • Development of the Nigeria Bond Market through Technical Assistance • Maintain strong collaboration with other financial institutions, including DFIs

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