ifc crisis response initiatives april 23, 2009 confidential & information purpose only targeted,...

IFC Crisis Response Initiatives

April 23, 2009

Confidential & Information Purpose Only

Targeted, Temporary and Timely

22

Agenda

1. Overall Strategy2. Advisory Services Financial Crisis Response3. Global Trade Liquidity Program and Trade Finance

Initiatives4. Capitalization Fund (BCF)5. Microfinance Enhancement Facility (MEF)6. Infrastructure Crisis Facility (ICF)7. Global Food Fund8. IFIs Joint Action Plan in Central and Eastern Europe9. Other Projects10. Co- Investments Opportunities


1. Lack of Liquidity: As crisis evolves, money has moved towards low risk (government T bills, large corporates, short-term assets) affecting:

Trade - Availability of trade finance declining Infrastructure - Projects with maturity mismatches coming to a halt Microfinance – A major cutback, not a priority/core business for commercial

lending Agribusiness - As credit is drying up, significant drops in crops next year

expected SME Lending – Drying up but great job creation role once economy starts to

recover

2. Weakened Financial Infrastructure: Weakened financial intermediaries cut back lending, investment; business environment becomes more challenging

3. Bank Recapitalization: As losses mount, recapitalization of the banking sector is needed

4. Debt Restructuring: Even strong businesses in emerging markets struggle to roll over maturing debt

5. Troubled Assets: Collapse of real and financial sector leads to major NPL problem 3 Confidential & Information Purpose Only

Crisis Presents Multiple Challenges

4

Phased Approach Responds to Market Needs

Advisory Support

Trade Finance

Bank Recapitalization

Managing Troubled Assets

3. Capital

4. Troubled Assets

1. Liquidity

Pillars of Success

• Mobilization & working with

Partners

• Job Creation

• Continued Focus on Frontier

Markets & Bottom of the

Pyramid


2. Financial Infrastructu

re

Infrastructure

Agribusiness

Microfinance

55

Agenda




666

Board approval date: December 2008 Where we are: 1. Mobilization: Re-allocating and re-deploying own (FMTASS) resources.

Commitments from Austria - $6.7m, Finland - $1m, Luxembourg - $0.9m, Netherlands - $0.5 m; preparing donor agreements; mobilizing additional donor funds to meet the target of $40-60m over FY09-11

1. Access to Finance: reviewed all existing advisory programs; identified programs to be adjusted and focused on crisis response; identified staff to be re-assigned to a crisis response work; started crisis response advisory work in the regions with client workshops, stress-testing support, and individual assignments for financial institutions; set-up an IFC-WB coordination group on Distressed Assets Resolution

2. Business Enabling Environment: initiated development of new insolvency product and scaling-up of the Doing Business Reform Advisory program; established task force to develop investor aftercare approach; reviewing remainder of the BEE portfolio for necessary adjustments

3. Corporate Advice: with first donor commitments in place, starting roll-out of Board Leadership training program and other corporate governance programs in critical regions (e.g. E. Europe); need additional funding for extending systemic interventions going forward

Delivery platform: IFC’s established advisory services capacity

Advisory Services Financial Crisis Response


77

Agenda

1. Overall Strategy2. Advisory Services Financial Crisis Response3. Global Trade Liquidity Program and Trade

Finance Initiatives4. Capitalization Fund (BCF)5. Microfinance Enhancement Facility (MEF)6. Infrastructure Crisis Facility (ICF)7. Global Food Fund8. IFIs Joint Action Plan for banking sector in Central

and Eastern Europe9. Other Projects10. Co- Investments Opportunities


888

GTLP and GTFP - The Opportunity A. Trade finance is the lifeblood of US$14 trillion annual global commerce

and one of the most fundamental engines for global trade at all stages of the supply chain, especially in emerging markets.

B. Current Market Conditions: Availability of trade finance declining Despite global slowdown, growing shortfall in trade financing continues to

constrain global trade Driven by scarcity of capital, increased costs and liquidity premiums,

heightened risk perceptions, loss of market participants

C. Swiftly aggregating resources under simple and efficient structures can enhance impact in the global markets – economies of scale and timeliness and flexibility (in both setup and wind down).

D. Global Trade Finance Program (GTFP) offers a stand-by letter of credit, which is extended to cover the trade finance risk commercial banks do not want to take.

E. Global Trade Liquidity Program (GTLP) aims to address increased risk and liquidity constraints with a funded trade support program.


9

GTLP – Investment ApproachA. IFC commits US$1 billion and mobilizes 3-4 times over 2-3 years from DFIs =

leverage impact US$45 billion financing

B. Partner with 6-8 global or regional banks each to channel liquidity to i) the bank’s global or regional correspondent trade network, or ii) the bank’s client network in a specific sector(s) = global reach beyond individual DFI capacity

C. Primary investment structure: funding and risk split 40:60 between IFC/DFIs (40%) and global/regional banks (60%); exceptions possible (eg, fully funded loan to a bank).

D. GTLP is designed to fund trade transactions – limited to 270 days and self liquidating. Call of funds ramp-up according to demand

E. IFC will oversee the GTLP under guidelines and criteria agreed with DFIs in a Master Participation Agreement

F. Dialogue ongoing with potential mobilization partners: IFC, CDC-UK, AFDB, CAF, OFID, Proparco. Others under discussions include EIB, SIDA, Canada MoF, Netherlands, Chinese authorities.

G. Initial partner banks could include Standard Bank, StanChart, Rabobank, BNP Paribas, JPMC, Commerzbank, HSBC, and Citibank.

9 Confidential & Information Purpose Only

101010

GTLP : Planned Legal Structure

IFC PRE-APPROVED PARTICIPANT

BANKS

Global Reach

IFC PRE-APPROVED PARTICIPANT

BANKS

Regional Reach

IFC

Utilization

Bank A60%

IFI IFC

20%20%

Utilization

Bank B60%

IFI IFC

20%20%

Utilization

Bank C60%

IFI IFC

20%20%

Framework Agreement

LB

LBLB LB

LBLB

LBPA

PAPA PA

PAPA

PALB

LBLB LB

LBLB

LB

IFC PRE-APPROVED AGRO-EXPORTER

DFI/ECA-2DFI/ECA-1

111111

GTLP - Pipeline

A. IFC advancing with three international banks to launch US$500+ million trade facilities each

• Program Partners provide up to US$500M (~40%) per facility with the Utilization Bank funding the balance (~60%). 100+ emerging market banks in their global networks

Beneficiaries expected to be real sector enterprises in Asia, Africa, E. Europe, Middle East and Latin America.

B. IFC advancing with a global bank to launch a US$250+ million pre-export facility for agri-exports to Asia & Europe

Focus on LATAM producer/exporters in Argentina, Bolivia, Chile, Colombia, Mexico, Paraguay, Peru and Uruguay.

Clients are established exporters in sectors that are considered of systemic important to the participating countries (eg, soybean in Argentina and Paraguay or fishmeal in Peru).

C. IFC advancing with a leading African bank to launch a US$250 million fully funded loan program for trade finance transactions

Beneficiaries expected to be SMEs in Kenya, Angola, Ghana, Nigeria, Mauritius, Malawi, Mozambique, Seychelles and Zambia.


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Agenda




13

Bank Capitalization Fund : Opportunity

• The global financial crisis that erupted in the first half of 2008 is now leading to the worst global economic downturn in 80 years

• The slowdown is beginning to hit banks hard as default rates on their credit portfolios rise sharply, leading to higher loss provisions, lower earnings and an eroded capital base

• The crisis poses major challenges for national and global leaders and requires several coordinated action on several fronts

address the liquidity and capital needs of banks avert devastating declines in economic activity that would adversely

and disproportionally impact low-income groups

• RF aims to address the capital shortfalls that emerging market banks are likely to face over the coming months as a result of the knock-on effects of the global financial crisis, while generating attractive financial returns


14

Bank Capitalization Fund: Investment Approach

• BCF is a global private-equity fund managed by a subsidiary of IFC

• Initial Capital Commitments of US$3 billion, divided as follows:

Vehicles First Closing Investors Maximum Fund Size

Equity Fund (EF)US$1,275

millionIFC: US$775 million

US$2,500 millionJBIC: US$500 million

Subordinated Debt Fund (SDF)

US$1,725 million

IFC: US$225 millionUS$2,500 million

JBIC: US$1,500 million

• Products: equity, equity-related instruments and subordinated loans

• Investment objectives: stabilize vulnerable emerging market banking systems while generating financial returns with an attractive risk-return profile

• Investment strategy: long-term capital appreciation through non-controlling minority stakes in banks

• Target banks: banks that have large market shares and which, while viable or undergoing major restructuring, are in need of additional capital

• Exit strategy: as market conditions improve and alternative sources of capital become available to portfolio banks, the Fund will seek to sell its investments in the public markets or to other private investors


Bank Capitalization Fund Structure for BRF

IFC BRF Equity Fund [Africa Fund]

LP 3 LP n

Co-InvestmentAgreement

Investee Bank 1

Investee Bank 2

… LP 1 LP 2 LP m…

Investee Bank i

SSA Investee Bank 1

SSA Investee

Bank j

SSA Investee Bank 2

… …

Co-Investment

spro rata

15

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Bank Capitalization Fund: Bank Eligibility Criteria

• Private sector systemic banks Minimum 7% market share (according to IMF’s claims on private

sector data)

• Equity Fund (“EF”) not less than 10%, except for banks with market share exceeding

20% where the minimum participation would be 5%

• Subordinated Debt Fund (“SDF”) Only invest if EF invests an amount equivalent to at least 75% of the

SDF investment

• Subject to IFC’s normal Social and Environmental Standards

• Up to 15% of the Fund may be invested in state-owned banks

• Anti-Cherry Picking: IFC will not make stand-alone investments in eligible banks unless the Fund rejects such investments


17

Bank Capitalization Fund: Diversification Criteria

• The diversification criteria are as follows:

Investments per vehicle

EF Maximum amount SDF Maximum amount

US$1,275 million

US$2,500 million

US$1,725 million

US$2,500 million

Per Bank ≤ 10%US$127 million

US$250 million

US$173 million

US$250 million

Per Country

≤ 20%US$255 million

US$500 million

US$345 million

US$500 million

Per Region ≤ 25%US$318 million

US$625 million

US$430 million

US$625 million


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Agenda


Initiatives4. Capitalization Fund (BCF)5. Microfinance Enhancement Facility (MEF)6. Infrastructure Crisis Facility (ICF)7. Global Food Fund8. IFIs Joint Action Plan for banking sector in Central

and Eastern Europe9. Other Projects10. Co- Investments Opportunities


19

• Context Global microfinance sector reached US$30 billion in assets and 130 million

clients. 15 years of very successful growth exposed to various types of crises These were previously regional/country-wide phenomena, which were easier

to counterbalance. However, The greater integration of microfinance into the financial sector & commercialization of the industry – 2 very necessary developments to foster the rapid growth & broad outreach of the industry – have drastically changed the beneficial circumstances, exposing the industry to new threats.

• Impacts of the Financial Crisis Strong MFIs cannot tap commercial refinancing for growth, either through

loans, securitizations or deposit mobilization. Resources for refinancing are quickly drying up locally and internationally. Bank lines are being pulled and in some cases deposits are being eroded. Financings needs reach US$1.8 billion through 2010.

Microfinance Enhancement Facility (MEF) : Opportunity


20

Microfinance Liquidity Facility: Structure

Investors

Subfund Microfinance Liquidity Facility (MLF)

Portfolio A Portfolio CPortfolio B

Subscriptions/redemptions of shares

Charge of asset mgmt fee A

Charge of asset mgmt fee B

Charge of asset mgmt fee C

Investment Manager

General fees (auditing, regulatory fees, TA…)

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The MLF is a SICAV – SIF incorporated in Luxembourg with three asset pools (for each investment manager). MLF will have a board & Investement Committee

Microfinance Liquidity Facility: Structure

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MEF : Pipeline

BiH, 15%

Cambodia, 4%

Ecuador, 7%

Peru, 17%

Tajikistan, 3%

Ukraine, 3%

Moldova, 3%

Mongolia, 6%

Nicaragua, 12%

Bolivia, 10%

Azerbaijan, 4%Armenia, 1%

El Salvador, 6%

Kyrgyzstan, 6% Georgia, 1%

Russia, 2%

Approved 1st Loans to MFIs on February 5, 2009 Targeted Pipeline by Region

Latin America and the

Carribean, 27%

East Asia and the Pacific,

12%

South Asia, 11%

Sub-Saharan Africa, 10%

Middle-East and North-Africa, 8%

Central and Eastern

Europe, 11%

Southern Europe and Central Asia,

21%


2323

Agenda




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ICF: Opportunity

• As a consequence of the global financial crisis, private infrastructure in developing countries is severely affected

Projects under development are delayed/cancelled, existing projects are at risk due to refinancing requirements

Governments and project sponsors reluctant to begin new infrastructure development

Current financing market is unreceptive: slowing world growth, withdrawal of equity and term lending from the private sector, higher interest rates, lower commodity prices in the medium term

IFC and World Bank research shows that between $67-120 billion of existing and/or new projects could be delayed or suspended due to the financial crisis.

• Creation of infrastructure crisis facility (ICF) To act as a substitute for temporarily not available commercial financing To expand resources available to “IFI club” to increase available pool of

funds To signal to sponsors continued availability of term debt


25

ICF: Investment Approach

Components Funding

Min.Commitme

ntPotential

Partners/InvestorsMaximum

Size

Debt Trust

Mezzanine loans, grants, senior concessional loans

US$1.5billion

Governments or their designated institutions

US$10.0billion

Equity Fund

Straight equity or non reimbursable grants

US$0.5billion

IFC: US$300 million

US$1.5billionGovernments, IFIs, commercial investors

• Investment objectives: Stabilize viable existing infrastructure projects which are facing temporary liquidity problems, and enable some continuation of new project development in private infrastructure

• Debt Trust – passive vehicle to provide loans for existing and new infrastructure projects. Senior secured loans on a “club matching” basis. loan terms will be those of originating IFI loan except pricing. Projects must meet eligibility criteria of originating IFI.

• Equity Fund – global infrastructure private equity fund to invest in viable projects facing distress


2626

Agenda




Global Food Fund – Opportunity

• The recent food and financial crisis have caused significant financial distress in the agribusiness industry with rippling effects to food supply chains across the globe. Global food crisis threatens social and political stability and years of improvements in poverty reduction and nutrition.

• Create a Global Food Fund Crisis response with short-term debt. Long-term impact with equity. Catalyze investments in Agribusiness. Increase liquidity in Agribusiness value chain to meet seasonal working

capital needs. Increase global supply of agriculture commodities and food. Develop necessary global, regional ad local agriculture infrastructure. Play a pro-active role in responding to the food crisis.

Leverage IFC’s global expertise and local presence to mobilize investments in Agribusiness.

Confidential & Information Purpose Only27

IFC Global Food Fund – Investment Approach

• Debt

Self liquidating debt fund for short-term working capital, trade and export financing transactions with a tenor of less than 1 year.

Facility will address shortage of liquidity faced by agribusiness players whose business is being impacted in the short term.

• Equity in agribusiness production, processing and farm land investments

Confidential & Information Purpose Only28

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Agenda


Initiatives4. Bank Capitalization Fund (BCF)5. Microfinance Enhancement Facility (MEF)6. Infrastructure Crisis Facility (ICF)7. Global Food Fund8. Other Projects9. Regional Action Plans10. Other Projects11. Co- Investments Opportunities


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Regional Action Plans


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IFIs Joint Action Plan in Central and Eastern Europe : Investment Approach

• As part of the Joint IFI Action Plan: IFIs would act within their own mandates and procedures, and according to their

respective product strengths, in a flexible way. Subject to each IFI’s internal approval processes, IFIs may commit up to €24.5 billion

over the next two years in support of the JIBSI.

Proposed IFI contributions coordinated through the Joint IFI Action Plan

EBRDEIBWorld Bank Group

IFC: €2 bn• through the Bank Recapitalization Fund

(equity/quasi-equity finance), GTFP (trade finance) and other Crisis Response Initiatives

Other

IBRD: €3.5 bn• through an ECA-wide banking sector

strengthening facility and SME/ Export facility

MIGA: €2 bn• through political risk insurance (PRI)

€6 bn•through

equity, debt and trade finance

•Part of 2009-10 Financial Institutions Business Plan

To be defined

€7.5 bn•through debt

finance


3232

Agenda


Initiatives4. Bank Capitalization Fund (BCF)5. Microfinance Enhancement Facility (MEF)6. Infrastructure Crisis Facility (ICF)7. Global Food Fund8. Other Projects9. IFIs Joint Action Plan in Central and Eastern Europe10. Co- Investments Opportunities


33

Other Projects

• Distressed Asset Recovery Program (DARP) To create private sector program for addressing financial sector and systemic

clean-up of banking systems resulting from increased distressed assets given financial crisis.

As an initial step, an investment program of about US$50 million for IFC account to expand servicer / platforms network and at a later stage, a Distressed Asset Investment Facility of potentially up to $500 million for IFC’s account to create a bigger facility through mobilization.

• SME Initiatives Expand Private Equity Funds directed to SMEs - Expand investment in SME-

targeted funds during FY10-12. The size of the program will be subject to capital availability

Expand IFC’s Small Direct Investment Initiative in real sector with focus on IDA countries

Continue implementation of IFC SME Ventures Fund Closer alignment between Advisory Services & Investment


ifc crisis response initiatives april 23, 2009 confidential & information purpose only targeted,...

Documents

global trade liquidity

trade finance initiatives

availability of trade

trade availability

trade financing

crisis response advisory

crisis response work

global food fund