International Finance Corporation

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International Finance Corporation

• Founded in 1956 to meet the needs of the private
  sector
• Part of the World Bank Group with a shared Board
  and President, but separate developmental
  mandate, staff, capital base and
  operating/financial policies
• Largest multilateral source of debt and equity
  financing for private enterprise in developing
  countries
• Consistent AAA / Aaa credit ratings
• Products and services offered include loans,
  equity, quasi-equity, risk management products
  (including swaps, options, and local currency
  loans), structured products (including partial
  guarantees and securitizations), and advisory
  services

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IFCs Structured Finance Group

• Created in 2000
• Objectives
• Provide clients with long-term local currency
  financing
• Enable clients to access new investors
• Act as a catalyst to mobilize additional
  financing for clients
• Promote development of domestic capital markets
• Provide the minimum amount of credit enhancement
  necessary in order to facilitate a successful
  transaction
• Products Include
• Local currency and cross-border securitization
• Local currency and cross-border partial credit
  guarantees
• Risk sharing and liquidity facilities
• Credit Derivatives

P R O D U C T M A T R I X
Local Currency Partial Guarantee
Cross Border Partial Guarantee
Infrastructure most Large Corporates
Large Exporters some Large Corporates
Asset Size
Mortgages, SME and Consumer Loans
SME Exporters
Local Currency Securitization
CrossBorder Securitization
FX Earnings
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Private Capital Flows to Emerging Markets
Source Institute of International Finance,
January 2003 (billions of U.S. dollars)
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Financial Assets in Selected Countries
Source Financial Market Trends, No. 80,
September 2001, OECD Goldman Sachs
2000 Portfolio Strategy Latin America
(US millions)
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Domestic Securitization
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Domestic SecuritizationMortgages and SMEs
Residential mortgage loans as a percentage of
the consolidated assets of the financial system
grow from next to nothing to 25 at moderate
levels of economic development and up to 40 in
industrial countries. Source Housing Enabling
Markets to Work, IBRD SMEs (small and
medium-sized enterprises) make up over 95 of
enterprises and account for 60-70 of total
employment in most countries. Source SMEs Job
Creation and Growth, OECD
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Domestic SecuritizationUS Bond Markets and
MBS-ABS
1.8T
MBS accounts for 23 and ABS for 8 of the US
bond market. The combined MBS-ABS segment
represents the largest component (31) of the
20.6 trillion US bond market.
4.1T
3.3T
2.5T
2.4T
1.6T
4.9T
Source The Bond Market Association, 2003 Q1
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Domestic SecuritizationBenefits

• For Client
• Reduce capital required to hold financial assets.
• Increase capacity to originate new assets and
  servicing fees.
• Improve key balance sheet ratios, risk
  management, operational efficiency.
• Use cost-effective, alternative funding
  mechanism, which often remains available under
  stress.
• For IFC
• Access to assets that are difficult to originate,
  have a large developmental impact, and are often
  not provided in sufficient quantity by other
  lenders.
• For Investors
• High-quality long-term assets.
• More efficient allocation of risk across the
  financial sector.

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Domestic SecuritizationExample
Securitization Vehicle
School or University
Student Loans or Future Tuition Receipts
Senior Notes
Institutional Investors

Mezzanine Risk
IFC
Cash First Loss Position of Securitization
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Local Currency Partial Credit Guarantees
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Local Currency Partial Credit GuaranteesBasics

• The guarantee can be used for either a loan or
  bond.
• Allows borrower to access new investors for
  long-term local currency financing.
• Allows IFC to provide credit in local currency
  and mobilize additional financing for the client.
• Promotes development of domestic bond market.
• The guarantee is structured to reduce probability
  of default and increase recovery given default.
• IFCs objective is to offer the minimum amount of
  guarantee necessary in order to facilitate a
  successful transaction.

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Local Currency Partial Credit GuaranteesTypical
Structure
8 Year Amortizing Bond with 10 Coupon and 40
Guarantee
80
60
40
Years
1
2
3
4
5
6
7
8
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Local Currency Loans and Hedges
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Local Currency Loans and HedgesBasics

• Available only in countries in which
  cross-currency swap markets exist.
• IFC intermediates the swap on behalf of the
  client.
• With a local currency denominated loan, client
  makes all interest and principal repayments in
  the local currency.
• With a local currency hedge, the client can swap
  either new or existing hard currency loans from
  any lender into local currency obligations.

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Local Currency Loans and HedgesAvailable
Currencies
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IFCS Track Record in Local Currency

• Structured Transactions (Partial Guarantees and
  Securitizations)
• 20 transactions in the last few years (excludes
  cross-border deals)
• 9 different currencies
• Chile, Colombia, India, Korea, Mexico, Saudi
  Arabia, South Africa, Russia, and Thailand
• Local Currency Loans and Hedges
• 60 transactions in the last few years
• 9 different currencies
• Czech Republic, India, Indonesia, Korea, Mexico,
  Philippines, Russia, South Africa, and Thailand
• Bond Issuance
• 29 different currencies
• AUD, CAD, CHF, COP, CZK, DEM, ECU, EEK, EUR, FMK,
  GBP, GRD, HKD, IRS, ITL, JPY, LUF, NLG, NZD, PHP,
  PLN, PTA, PTE, RUR, SEK, SGD, SKK, USD, ZAR

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Track Record

• Completed 26 transactions in 12 different
  countries
• Mobilized a total of US1,952mn (US842mn during
  FY03) with IFCs credit exposure of only US403mn

• Russian Standard Bank (B) (two transactions)

• Garanti Leasing (C)

• Municipality of Tlalnepantla (B)

• KoMoCo (A) (two transactions)
• Sogeko (C)

• Triple A (B)
• Banco Davivienda (B)
• Titulizadora Colombiana (A) (four transactions)

• Banco BBA (D)
• UBB (D)

• TelecomAsia(B)

• Saudi Orix Leasing (B)

• Diego Portales (A)

• Emerging Asia CBO(C)

• Bharti Mobile (B)
• Ballarpur Industries (B)
• NIIT-Citibank (A)

• SAHL (A)
• Kiwane (A)

• Exportadores II (A)

(A) Local currency securitization (B) Local
currency partial guarantee (C) Cross-border
securitization (D) Cross-border partial guarantee