The World Bank Guarantee Program

1
The World Bank Guarantee Program
Partial Credit Guarantees
2
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

3
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

4
Variety of Guarantees

• IBRD Guarantees for private and public borrowers
• PRG
• PCG (PBG)
• IDA Guarantees for private borrowers
• PRG

5
Partial Credit Guarantees

• 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

6
PCG Bond Issue
PCG
100
PV
Maturity extension
10 years
0
5 years
(e.g. Hungary, Lebanon, Philippines)
7
PCG Syndicated Bank Loans for China

• Borrower Ertan Power
• Amount US150 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

8
China Ertan Power Project
150 million
50 million
0
3
6
9
12
15
Average financing term for China without World
Bank Guarantee
Additional uncovered risk taken by commercial
banks
World Bank Guaranteed
Total risk assumed by commercial banks
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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)

10
Policy-Based Guarantees

• 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

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Policy Based Guarantees Eligibility

• 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

12
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
Exposure to the Bank
Banks maximum exposure is US 250 million
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Ratings on the Argentine Bonds
Republic or Argentina Argentina Serial Zero
Coupon Notes
Foreign Local Series A Series B Series C
Series D-F Currency Currency

• SP 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

Each of the Series B F Notes will receive AAA
ratings once the Guarantee rolls to such Series
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PCG Impact on Maturity and Pricing