2. 1 Creating Opportunities with World Bank Guarantees Banking and Debt Management (BDM) World Bank Treasury January 7, 2010

3. Why use guarantees? 2  Guarantees mobilize private sector capital for development by sharing risks  Guarantees can help clients to:  access longer financing terms  lower financing costs  Increase/diversify private sector sources  develop capital markets

4. 77 3 5 5 7 0 1 5 1 5 15 10 15 10 12 10 14 16 0 2 4 6 8 10 12 14 16 18 China Philippines Pakistan Lebanon Morocco Russia/Ukraine Thailand Cote d'Ivoire Colombia Bangladesh Vietnam Maturity (years) without Guaranteewith Guarantee 0 16.5 Laos 16 Uganda 2 Guarantees can help extend tenors

5. 3.0% 4.5% 3.0% 3.4% 8.5% 6.5% 3.0% 5.0% 0.6% 2.0% 2.8% 0.75% 3.0% 2.0% 2.9% 2.0% 2.5% 5.0% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% China Philippines Pakistan Uganda Morocco Thailand Cote d'Ivoire Colombia Bangladesh Vietnam Interest Spreads over UST/Libor without Guaranteewith Guarantee 2.25% Laos 2.25% Guarantees also help reduce borrowing costs

6. Opportunities for Guarantees A sovereign might be approaching the capital markets for the first time, or re-entering the market after a disruption A government might want to attract private sector finance to support PPP programs A government may be interested in mobilizing private finance in support of developing its infrastructure 5

7. Two main types of Bank guarantees Partial Risk Guarantees Partial Credit Guarantees 6

8. 7 Covers debt service default resulting from a government’s non performance of contractual obligations Covered risks may include: Government payment obligations Contractual performance of public counterparties Availability or convertibility of foreign exchange Changes in law, regulatory risk Expropriation and nationalization War and civil disturbance Political force majeure Partial Risk Guarantees (PRG) Partial Risk Guarantees IBRD PRG IBRD Enclave IDA PRG

9. Romania used a PRG to support the privatization of electricity distribution companies 8 Government of Romania/MPF Government Support Agreement License Agreement / Regulatory Contract Regulator Indemnity Agreement Project Agreement L/C Guarantee Agreement Citibank Romania L/C* L/C Reimbursement & Credit Agreement ENEL 51% Electrica 49% Privatization Agreement Electricity Distribution Companies Equity ?

10. 9 Cover part of principal and/or interest payments of bond or loan against all risks Support public investment projects and development policy operations Can be structured to fit to specific instruments or market conditions IBRD Partial Credit Guarantees cover debt service obligations Principal cover for bullet maturity Rolling coupon Amortizing syndicated loan with cover for later maturities IBRD PCG IBRD PBG IBRD Enclave Partial Credit Guarantees

11. 10 PCG’s PV: $121m Principal Guarantee Amount: $243m Loan Amount: $825m Botswana Morupule B Power Project used a PCG to gain access to longer term funds 1-15 years 15-20 years IBRD guaranteed Leverage of 1:7

12. New policy for counting against IBRD exposure limits 11  Guarantee exposure now counts just 25% against country exposure limit  Remainder charged against USD 1.5 billion pool of capital set aside for guarantees

13. WBG Guarantee and Insurance Products Private investors are protected against risks of nonperformance by: PCGSimilar to IBRD’s PRG Governments or public sector IBRD, IBRD enclaves in IDA countries, (proposed for IDA) IBRD, IDA, IBRD enclaves in IDA countries, MIGA political risk insurance Private sectorIFC 12

14. YOU DO. Task team leaders lead projects. In house expertise: guarantees specialists assist project task team leaders in project structuring Contact your Treasury (BDM) banker to mobilize specialized experts to help you analyze the potential for a guarantee and move through the implementation process Who does guarantees? bdm@worldbank.org

15. Summary Guarantees  Attract additional private investment  Leverage Bank credit lines  Lower costs of private financing and lengthen financing terms PCGs support governments’ debt payment obligations PRGs provide financial compensation if a government fails to perform contractual obligations in a project Front-line staff are expected to recognize opportunities for clients to benefit from guarantees Contact BDM in Treasury to help mobilize the right resources if your client has interest in a guarantee 14