Presentation on theme: "Capital Markets and Resource Mobilization"— Presentation transcript:
1 Capital Markets and Resource Mobilization IFC presentation to:THIRD REGIONAL CONSULTATION ON“RETHINKING THE ROLE OF NATIONALDEVELOPMENT FINANCE INSTITUTIONS IN AFRICA”By Louis-B. Ngassa BatongaPrincipal Investment OfficerIFC-Johannesburg OfficeNovember 2006
2 Growing interest of major international financial institutions in financing private sector
3 Changes in 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 allocationsMore 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 SMEsBuild 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 agendaAddress constraints to private sector growth in infrastructure, health and educationContinue to emphasize local financial market development
5 IFC Role in Mobilization and capital Markets Mobilization of 3rd party capital, a major IFC roleInvestment criteria limits IFC participation, forcing mobilizationCapital Market development, also seen as a major role for IFCDevelopment of sustainable financingClients want IFC to mobilize fundingTop 6 Reasons African Borrowers Work with IFC
6 How IFC does Mobilization B Loans- Open local markets to foreign banks and introduce themto clients- Help to demonstrate mis-perceptions of risk in thesemarketsLocal CurrencyHelps to increase the depth and liquidity of cross border swap marketsSwap market development is an important factor for overall capital market developmentSecuritization and GuaranteesHelp to deepen and broaden domestic financial marketsHelp to improve risk appetite of domestic financial institutions
7 IFC Mobilization: B Loan Program Began in 1957Has mobilized US$25 billionMaintains a portfolio of US$ 5.1 billionMobilized over US$1.6 billion in FY06 (US$1.1 billion in FY05)In FY06:Average B Loan Size: US$60mAverage Tenor: 7.1 years
8 Extra slide in case of questions. B Loan StructureLoan AgreementBorrowerA + B LoansParticipationAgreementsOne loan agreement - IFC is lender of record and administers entire loanIFC fully shares project risks with participantsOffshore participants, not per se local currencyB LoanParticipantsExtra slide in case of questions.
9 IFC’s Local Currency Financing Instruments Using Derivatives Two main local currency alternativesLocal currency swapsOverlay swapsLocal Currency Swap: IFC swaps its own hard currency financing for local currency at time of disbursementOverlay Swap: IFC assists in obtaining local currency swap for existing third party loansNeed the following to implementExistence of long term swap marketRegulatory approvalIFC 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 PrimeNigeria : Up to 10 years, fixed and floating rate based on 90 / 180 Day T-BillsGhana : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-BillsKenya : Up to 10 years, fixed and floating rate based on 90 / 180 Day T-BillsBotswana : Up to 15 years, fixed and floating rate based on government bond yieldsTanzania : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-BillsZambia : Up to 7 years, fixed and floating rate based on 90 / 180 Day T-BillsUganda : 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 abovecan be considered on a case by case basis
11 Note to presenter: list the products you will discuss IFC’s Existing Portfolio and Pipeline of Local Currency TransactionsExisting Portfolio21 projects in 4 countries1st transaction was in 1997US$210 million equivalent committedUS$162 million disbursedTransactions completed for financial institutions and the general manufacturing sector, agribusiness and oil & gas sectorsCurrent PipelineOver 10 projects in about 6 countriesCurrent local currency transactions in the pipeline are targeting the financial services industry, the housing sector, agribusiness companies and the health & education sectorNote to presenter: list the products you will discuss
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 loanPartial debt service coverage insures that domestic investors take at least a portion of the borrower credit riskRisk-sharing FacilitiesProvides portfolio insurance for banks lending local currency to domestic borrowers.IFC guarantees part of the principal balance of an on-balance sheet portfolio of loansSecuritizationAllows clients to raise local currency funding through sale of assets from their balance sheetCan be used to issue debt at ratings higher than that of the borrower itselfIFC 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 countriesMobilized 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 LoansOpens market to foreign banks and introduces them to clientsHelps to demonstrate mis-perceptions of risk in marketsLocal CurrencyHelps to increase the depth and liquidity of cross border swap marketsSwap market development important for overall capital market developmentSecuritization and GuaranteesHelps to deepen and broaden domestic financial marketsHelps to improve risk appetite of domestic financial institutions
15 IFC Financial Markets Strategy for the Future Continue to develop existing productsB Loans, Local Currency, Structured FinanceWork on direct development of capital marketsDevelopment of the Nigeria Bond Market through Technical AssistanceMaintain strong collaboration with other financial institutions, including DFIs