Investing with IFC in Emerging Markets

Investing with IFC in
Emerging Markets
Aleksandar Mihajlovic, Senior Investment Officer,
Manufacturing, Agribusiness & Services
Rimas Puskorius, Chief Credit Officer, Risk Management
Tallinn, Estonia – February 8, 2013
Outline
• IFC: Who We Are, What We Do
• IFC in the ECA Region
• Working with IFC
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Who We Are, What We Do
• IFC is the largest global development institution focused exclusively on the
private sector – the global leader in private sector development finance
• We create opportunity for people – to escape poverty and improve their lives
• Driven by our vision and purpose, we make a unique contribution
to development
• We invest, advise, mobilize capital, and manage assets – providing solutions for
an inclusive and sustainable world
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IFC in the World Bank Group
The World Bank Group consists of five closely related institutions:
• IBRD: The International Bank for Reconstruction and Development
• IDA: The International Development Association
• IFC: International Finance Corporation
• MIGA: The Multilateral Investment Guarantee Agency
• ICSID: The International Center for the Settlement of Investment Disputes
Building Prosperity, Eradicating Poverty
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IFC’s Structure
• Owned by 184 member countries
• IFC is the main driver of private sector development in the
World Bank Group
• Collaborates with other members of the group, including the
World Bank (IBRD and IDA, MIGA and the International
Centre for Settlement of Investment Disputes)
• Global: Headquartered in Washington, D.C.
• Local: More than 100 offices worldwide in 95 countries
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IFC’s Global Reach
104 country and regional offices worldwide, 3,763 staff of which 56% are outside of Washington
Moscow
Almaty
Washington
Istanbul
New Dehli
Cairo
Mexico City
Hong Kong
Santo Domingo Dakar
Bogota
Nairobi
Johannesburg
São Paulo
Buenos Aires
IFC HQ/Regional Hub
IFC Hub Offices
IFC Regional Operations Center
IFC Country Offices
World Bank Group Hub Office
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Singapore
ONE IFC
• IFC lends to and invests in productive private enterprises in
emerging markets. We also provide advice across the spectrum to
establish, improve, and expand private sector activity.
• Our innovative work transforms lives and spurs economic growth.
• We work through a unique combination of three businesses—
IFC Investment Services, IFC Advisory Services, and
the IFC Asset Management Company (AMC).
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Strategic Priorities
• Strengthening the focus on frontier markets – IDA countries,
poorer regions of middle-income countries, fragile and
conflict-affected situations
• Building long-term client relationships in emerging markets
• Addressing climate change and ensuring environmental and
social sustainability
• Promoting private sector growth in infrastructure, health, and
education, and the food supply chain
• Developing local financial markets
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IFC’s Three Complementary Businesses
IFC Investment Services
IFC Advisory Services
• Loans
• Advice
• Equity
• Problem-solving
• Other forms of financing
• Training
Investment
Services
IFC Asset
Management Company
• Wholly owned subsidiary of
IFC
• Private equity fund manager
• Invests third-party capital
alongside IFC
Advisory
Services
Asset
Management
o Equity/ Quasi Equity
o Investment Climate
o Loans
o Access to Finance
o IFC Capitalization Fund
o Trade Finance
o Sustainable Business
o Africa/
o Risk Management
o Infrastructure
o Others to come. . .
Latin America
o Mobilization
$56.5 b
portfolio
$200 m
per year
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$4.5 b
under
mgmt
Fiscal Year 2012 Highlights
• Investments: 576 new projects in 103 countries
• Advisory services: Nearly $200 million in program expenditures
• $20.3 billion in financing: $15.4 billion for IFC’s own account,
$4.9 billion mobilized
• $56.5 billion committed portfolio, representing investments in
1,825 firms
• IDA countries account for almost half of IFC projects overall:
$2.7 billion invested in Sub-Saharan Africa
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Investments by Region, FY12
Commitments for IFC’s Account: $15.4 Billion
Global >1%
Middle East and North Africa 14%
Sub-Saharan Africa 18%
East Asia and Pacific 16%
Latin America and the
Caribbean 24%
South Asia 8%
Europe and Central Asia 19%
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Advisory Services by Region, FY12
Total Project Expenditures: $197 Million
Middle East and
North Africa 9%
Global 5%
Sub-Saharan
Africa 29%
Latin America
and Caribbean 11%
Europe and
Central Asia 17%
East Asia and Pacific 14%
South Asia 14%
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Outline
• IFC: Who We Are, What We Do
• IFC in the ECA Region
• Working with IFC
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IFC in Europe and Central Asia (ECA)
IFC Operations Center
IFC Regional Office
IFC Sub-Regional Offices
Moscow
Minsk
Kiev
Zagreb
Sarajevo
Tirana
Belgrade
Bucharest
Sofia
Skopje
Istanbul
Almaty
Bishkek
Tbilisi
Yerevan
Baku
Tashkent
Dushanbe
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IFC Strategy in Europe & Central Asia
SHORT TERM:
MEDIUM TO LONG TERM:
Economic Stabilization
Inclusive Growth & Jobs
Crisis Recovery & Resilience
Increase Access
to Finance
Financial Sector
Real Sector
Strengthen MSMEs
Sustain and Support Growth:
Risk capital to banks; LTF for SME
& priority sector lending.
Advisory for NPL and risk
management and investment in
NLPs.
Provide local
currency, STF,
equity & mezzanine
capital to support
both portfolio
clients & new
clients with strong
fundamentals.
Targeted credit
lines to the
priority sectors
(agribusiness,
energy efficiency)
Supply liquidity: Working capital
& STF to maintain supply chains
& trade flows.
Includes support to Western
European Bank subsidiaries in ECA
to diminish the impact of
deleveraging
Advisory in risk
management.
Support for
regional banks
Banking sector
consolidation
Improve
Infrastructure
Services
Develop PPPs and
municipal finance
Invest in private
sector
infrastructure in
transport,
logistics, and
renewables.
Improve access to
services
NBFIs
Boost
Competitiveness
Increase value
added of
production
(especially in
manufacturing and
agribusiness)
Enable the
growth of SMEs
Investment
climate and
corporate
governance
Mitigate Climate Change
Support Portfolio Clients
Increase Regional Integration
Mobilization
Mobilization
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ECA is IFC’s largest global exposure
ECA Portfolio Highlights
Largest regional portfolio in IFC; 22% of total
US$10.1 bn committed (US$8.3 bn outstanding) with 334 clients
By Product
ECA Committed Portfolio has nearly tripled in 10 years
By Sector
ECA Accounts for 25% of IFC Mobilization
IFC mobilization
FY07-FY13 YTD
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Annual Commitments by Sub-Region in ECA
Commitments, US$ bn
114
4.3
103
88
Regional
114
4.1
3.6
3.3
W. Balkans, Romania,
Bulgaria & Moldova
Caucasus&C.Asia
Belarus&Ukraine
Russia&Turkey
Total (OA+Mob)
Project count
FY09
FY10
17
FY11
FY12
Recent Projects in ECA
• IHH (Hospitals & Clinics) - $9.5 m equity in a Malaysia-based
healthcare and medical education company expanding in emerging
markets in ECA (FYROM, Turkey). Impacts: transfer of expertise to
lower income markets, improving access to quality healthcare.
• ALH Retail (Clothing retail) - $13.5 m loan to Saudi retailer to expand
operations into Kazakhstan and other ECA markets. Impacts: broader
consumer choice, and employment creation.
• Vino Zupa (Beverages) – EUR12.5 m loan to a Serbian fruit juice
manufacturer operating in FYR Macedonia for working capital,
expansion of bottling capacity, and wastewater treatment
improvements.
• IXCellerate (IT/Telecom) - Early stage $2.6 m equity investment to
develop a greenfield data center in Moscow, designed and constructed
on par with the leading North American and European DC co-location
facilities, to expand availability of IT infrastructure, services and
solutions in Russia.
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IFC in Estonia
• Member of IFC since 1992. Joined EU 2004. Graduated IBRD 2007.
• Between 1999 and 2008, IFC invested around $138 million in eighteen projects
in Estonia, plus additional volume through regional funds. No active portfolio.
EVR (1999)
• IFC: $0.5 m equity; $6.1 m A loan
• Post privatization investment in
Baltic Railway Services, including
replacement of locomotive fleet,
track replacement and renovation,
signaling and communications, and
station renewals.
Reval (2000)
• IFC: $7.8 m A loan; $2 m Equity
• Debt and equity for expansion,
strategic
development,
and
financial re-structuring of Reval
Hotel Group.
Kunda Tsement (2000)
• IFC: $6 m A loan
$4 m equity
• 2nd stage privatization &
renovation of Kunda cement mill;
construction of a 6 MW cogeneration plant; expansion of the
existing Kunda port.
EUP House Loan (1999)
• IFC: $18.2 m Loan
• Convertible loan with proceeds to
be used to provide residential
mortgage loans to individual
Estonian homebuyers.
Krenholm (2001)
• IFC: $4.9 m A loan; $2.5 m QE
• Loan and QE to modernize
operations and reduce
environmental impacts of a
vertically integrated Estonian
producer of cotton based textiles.
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Elcoteq Tallinn (1996)
• IFC: $7.7 m Loan
• To expand production capacity
and product range of a leading
electronics contract manufacturing
company in Tallinn.
Outline
• IFC: Who We Are, What We Do
• IFC in the ECA Region
• Working with IFC
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IFC: An Integrated Approach to Financing
Global Sector
Expertise
Risk
Management /
Insurance
Expertise
Flexible Long
Term Financing
Solutions
Environmental
and Social
Expertise
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IFC’s Value Added
•Long Term Financing
• Corporate / Project /
Acquisition
• Foreign / Local currencies
• Equity / Quasi-equity
• Carbon Finance
Industry knowledge
Relationship with /
understanding of
local authorities
IFC’s Products
Expertise in
emerging markets
• Capital Mobilization
• B loan program
• Credit enhancement (Partial
Credit Guarantee)
• Pre-IPO stamp of approval
•Advisory Services
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IFC Customer Profile:
Multinationals, Regional and Local
What is important about IFC to a company, by size and location
What IFC brings to an investment
Multinational
Regional
Local
Quality stamp of approval
Country risk mitigation
Exposure to country risk volatility
Good contacts/knowledge
Competitive cost
Always
Long tenors
Often
Access to local currency funding
Sometimes
Complementary funding source
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Eligible Applicants for IFC Financing
• IFC invests in private enterprises: companies, financial
institutions, and other businesses that are majority owned by
the private sector and that operate in developing countries.
• IFC does not lend directly to micro, small, and medium
enterprises or individual entrepreneurs, but many of our
investment clients are financial intermediaries that on-lend to
smaller businesses.
• IFC also seeks partners for joint ventures and raises
additional financing from other institutions to invest in IFC
projects.
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How We Finance Projects: Project Criteria
• Investments must be located in a developing country that is a
member of IFC.
• Investments must:
• be in the private sector
• be technically sound
• have good prospects of being profitable
• benefit the local economy
• be environmentally and socially sound
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How We Finance Projects: Financial Products
Senior Debt
& Equivalents
•
•
•
•
•
•
Senior Debt (corporate finance, project finance, short-term finance, trade)
Fixed/floating rates, US$, Euro and local currencies available
Commercial rates, repayment tailored to project/company needs
Long maturities: 8-20 years, appropriate grace periods
Range of security packages suited to project/country
Mobilization of funds from other lenders and investors, through
co-financing, syndications, underwritings and guarantees
Mezzanine /
Quasi Equity
•
•
•
•
Subordinated loans
Income participating loans
Convertibles
Other hybrid instruments
•
•
•
•
•
Corporate and JV
Typically 5-15% shareholding (not to exceed 20% of total equity)
Long-term investor, typically 6-8 year holding period
Not just financial investor, adding to shareholder value
At times, board seat
Equity
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Financial Products:
Mobilizing Financing Syndication
Loan Agreement
IFC
Borrower
A + B Loans
Participation
B Loan
Agreement
• A loan is for IFC’s own account
• B loan is for the account of participant commercial banks
Participants
• Only one loan agreement signed by the borrower and IFC
• IFC is the lender of record for the entire loan (A+B)
• Structure allows participants to benefit from IFC
privileges and immunities
• Better pricing/tenors than otherwise available; preferred
creditor access to foreign exchange
• IFC Loans exempt from withholding taxes
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How We Finance Projects: Amount of IFC Financing
• IFC investments range from $1 million to more than $100 million
•
IFC’s total financing (for its own account) must be less than 25% of total company capitalization, and
IFC does not manage or have largest stake.
•
IFC’s equity investment typically cannot exceed 20% of total share capital and cover no more than
25% of estimated project costs.
Project Type
IFC Investment
Up to 35% of project cost
for IFC’s account
Greenfield, total cost
less than $50 m
Up to 25% of project cost
for IFC’s account
Greenfield, total cost
more than $50 m
Up to 50% of project cost
for IFC’s account
Expansion or rehabilitation
•
Umbrella for participants in IFC’s syndication program: IFC lender of record, immunity from
taxation and provisioning requirements.
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How We Finance Projects: Priority Sectors
Infrastructure & Natural Resources
•Power
• Renewables
•Transport
•Utilities
•Water
•Telecoms
•
•
•
•
Oil & Gas
Mining
Chemicals
Sub-national
Finance
FY12 Commitments by Sector
Financial Markets
• Banking
• Sustainability and
Climate Change Fin.
• Private Equity/
Funds
• Housing Finance
•
•
•
•
•
Insurance
Microfinance
SME Banking
Trade Finance
Securities
Markets
Manufacturing, Agribusiness & Services
•
•
•
•
•
Agribusiness
Forestry
Healthcare
Life Sciences
Education
• Manufacturing
Industries
• Energy Efficient
Machinery
• Other Services
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Infrastructure & Natural
Resources: 14%
Manufacturing,
Agriculture and
Services: 24%
Financial
Markets: 63%
IFC’s Project Cycle
Monitoring
Early Review
• Client needs
determined
• Assessment
of project’s
impacts and
development
contributions
• Policy
Committee
approval
• Mandate letter
Due Diligence
Disclosure
Commitment
and
Disbursement
• Assessment of
business
opportunities
and risks
• Disclosure of
environmental
and social
information
• Negotiation
and agreement
of principal
terms
• Analysis of
environmental
and social
opportunities
and risks
• Opportunity
for public
comment
• Board approval
• Signing of legal
documents
Monitoring
• Annual review
of project
performance
• Financial
• Environment &
Social Report
• Disbursement
• Appraisal
• Credit
Committee
approval
We Agree on a Specific Timeline to Meet Client’s Needs
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Project Example: NMC, Russia
Sponsor: Scanfert Oy, a Finnish health company, owns and operates health centers and clinics in Portugal,
Latvia and Russia.
Projects with IFC:
1.
Establishment of a medical center (outpatient and inpatient - 18 beds) in St. Petersburg providing: (i)
family medicine, (ii) laboratory and imaging diagnostic services, and (iii) surgical services.
2.
Refurbishment and operation of 40 bed hospital in Kazan with focus on mother and child service
specialities, jointly with Kazan municipality and establishment of 10 outpatient satellite clinics across
St.Petersburg.
Project Cost: 1) $10 million; 2) $36 million.
IFC Support:
• IFC provided a US$2.1 million senior loan for the first project; IFC provided a RUR 305 million senior loan for
the second project.
• IFC provided advice on financial and accounting management, restructuring and merger negotiations,
insurance coverage and corporate governance issues.
Results:
• NMC successfully completed the first medical center, which is currently operating at optimal capacity.
• The repeat project established the first health partnership between a private health sector operator and
Kazan municipality and is increasing access to essential primary care services.
• NMC was able to raise cost-effective local currency financing to support expanding its operations in Russia in
second project.
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Contacts
Team Member
Position
Aleksandar
Mihajlovic
Senior Investment Officer
Manufacturing, Agribusiness & Services
[email protected]
Moscow, Russia
Chief Credit Officer
[email protected]
Washington, DC
Rimas Puskorius
Contact Info
IFC Risk Management
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