the world bank guarantee program “ partial credit guarantees ”
TRANSCRIPT
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The World Bank The World Bank Guarantee ProgramGuarantee Program
“Partial Credit Guarantees”
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Evolution of Guarantee Programs
B-loan program -1980s ECO Program -1988 Mainstreamed in 1994 IBRD “Enclave Guarantees” for IDA countries -
1997 IDA Guarantees - 1998 Policy Based guarantees – 1999 CAS envelope counting-2004
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World Bank Guarantee Objectives
“Leveraging” Bank resources “Catalyzing” private finance in support
of developmental objectives Facilitating member countries access to
the international debt and capital markets
“Guarantor of Last Resort”
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IBRD Guarantees for private and public borrowers
•PRG •PCG (PBG)
IDA Guarantees for private borrowers•PRG
Variety of Guarantees
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Guarantees portion of debt service (Not 100% of debt service)
Supporting commercial banks and investors Examples:
Late maturities Roll-over guarantee under a put option Take-out Financing Rolling guarantees for a fixed number of
payments
Partial Credit Guarantees
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PCG: Bond Issue
0 10 years
$100
PV
5 years
PCG
(e.g. Hungary, Lebanon, Philippines)
Maturity extension
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Borrower: Ertan Power Amount: US$150 million Spread: 30 bp over LIBOR Project Cost: US$ 2.9 billion World Bank Guaranteed:
Principal on accelerable basis during years 12-15
Guarantee Release Option
PCG: Syndicated Bank Loans for China
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China: Ertan Power Project
$150 million
Average financing term forChina without
World Bank Guarantee
Additional uncoveredrisk taken by
commercial banks
World BankGuaranteed
Total risk assumed by commercial banks
$50 million
0 3 6 9 12 15
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Advantages of the Guarantees
Market instrument (Bank loan is off-market instrument)
Flexibility - market, currency, interest rate Better terms (funding cost, maturity) Market access and exposure Procurement flexibility CAS envelope counting (25%)
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An extension of partial credit guarantee beyond investment projects to adjustment/ sector programs
Facilitates borrowings in support of structural and social policy reforms
Alternative / Complementary to an adjustment loan
Policy-Based Guarantees
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Strong performers: The country has a strong track record of
performance Satisfactory macroeconomic, social, and structural
policies Policy impact:
Eligible for adjustment program Linkage to up-front conditionalities
Value added: Improve market access and terms Sustainable external financing plan
Policy Based Guarantees: Eligibility
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Argentina: PBG Bond Issue
Borrower: Republic of Argentina Amount: US$ 250 million Issued on October 15, 1999 Maturity: 1, 1.5, 2, 3, 4 and 5 years Priced at 94.202, 88.485, 83.450, 74.897, 66.421,
and 58.701 respectively World Bank PBG: Zero coupon bonds at stated
maturities on a rolling basis
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Rolling Guarantee Structure
Structure of the Argentine Notes
$220
$230
$240
$250
0.0 1.0 1.5 2.0 3.0 4.0 5.0
Tenor (yrs)
US$
mil
lion
s
Exposure to the Bank*
*Bank’s maximum exposure is US$ 250 million
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S&P BB BBB- AAA BBB BBB BBB BBB BBB
Duff BB BBB- AAA A A- BBB+ BBB+ BBB+
Fitch IBCA BB BB+ AAA BBB+ BBB+ BBB+ BBB+ BBB+
Republic or Argentina Argentina Serial Zero Coupon Notes*
Foreign Local Series A Series B Series C Series D-F Currency Currency
* Each of the Series B – F Notes will receive AAA ratings once the Guarantee rolls to such Series
Ratings on the Argentine Bonds
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PCG Impact on Maturity and Pricing
Colombia(PBG) 10
6.5%
5%
Philippines(PCG) 15
7
2.5%3%
5
Thailand(PCG)
010 2.9%
8.5%
Lebanon(PCG)
Jordan(PCG)
510
3%1%
72 3%
1%
with Guarantee
without Guarantee