The World Bank Group Instruments

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IBRD provides market-based loans, guarantees, and advice to governments in middle-income countries

IDA provides concessional loans and guarantees to governments of the poorest countries

IFC finances private businesses in developing countriesMIGA provides political risk insurance for foreign direct

investment into developing countries

a group of institutions with a common goal:poverty reduction through economic development

the World Bank Group

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World Bank Group financing and risk mitigation instruments

IFC MIGA IBRD/IDA

IFC A-Loan

IFC B-Loan

IFC C-Loan

IFC Guarantees (partial credit structures – offshore & local financing)

Interest Rate and Currency swaps

Political Risk Insurance• expropriation• transfer restriction• breach of contract• war & civil disturbances

IBRD Loan

IDA Credit and Grants

Guarantees• partial risk• partial credit

Tech. Assistance

World Bank Loans and Credits

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Loans and Credits

Basic Structures:

• To Gov. with onlending to Project Company

• To Project Company with Gov. Guarantee

• IBRD Enclave Loans

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Equity

IBRDIBRD

BanksBanks

Loans

COUNTRYCOUNTRY

Loan/Credit

Sponsors Sponsors

Power CompanyPower Company

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Equity

IBRDIBRD

COUNTRYCOUNTRY

Guarantee

Sponsors Sponsors

IBRD Loan

BanksBanks

Commercial Loans

Power CompanyPower Company

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Equity

Sponsors Sponsors

IBRD Enclave Loan for IDA-Only Country

Offshore Escrow AccountOffshore Escrow Account

Project Revenues

Loan Repayment

Throughput PurchaserPurchaser

Loan

Guarantee

IDA-OnlyCOUNTRY

IDA-OnlyCOUNTRY

Guarantee

IBRDIBRD

Power CompanyPower Company

World Bank Guarantees

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World Bank Guarantees:key features

• IBRD/IDA balance sheet• available to all countries eligible for borrowing from IBRD or IDA • Bank Guarantees back government obligations • Bank Guarantees cover private debt against a government’s (or

government entity’s) failure to meet specific obligations to a private or public project

• mobilize private sector participation and help catalyze debt with extended maturities and lower financing costs

• flexibility – structured to meet borrower and project requirement• an integral part of Country Assistance Strategy• counter guarantee from Member Country

– Bank Articles requirement – indicates project priority for Government and Bank

• benefits from the ongoing sector and country engagement of the Bank

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Benefits of World Bank Guarantees

for governments…

• catalyzes private financing for key sectors such as infrastructure• provides access to capital markets as well as commercial banks• reduces cost of private financing to affordable levels• facilitates privatizations and public private partnerships• reduces government risk exposure by passing commercial risk to the

private sector• encourages cofinancing  for the private sector…

• reduces risk of private transactions in emerging countries• mitigates risks that the private sector does not control• opens new markets• improves project sustainability

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Rationale for the Guarantee Program and Basic Structures

“To help extend the reach of private financing by mitigating perceived risk and encourage private sector involvement in developing countries.”

• Two Basic Structures

– Partial Risk Guarantees– Partial Credit Guarantees

• Five instruments:– IBRD Partial Risk Guarantees– IDA Partial Risk Guarantees– IBRD Enclave Guarantees for IDA-only countries– IBRD Partial Credit Guarantees– IBRD Policy Based Guarantees

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• Guarantees can be considered in the following situations:

– Sectors in early stages of reform – Larger size/riskier operations – Operations highly dependent on support/undertakings of

governments

• Structure and coverage set at the lowest level to mobilize financing

• IDA– conserves IDA resources– Provides a better allocation of risk

Principles of Deployment

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WB Guarantees do not increase the government’s contingent liabilities

“The host government’s indemnity of the World Bank does not increase the government’s liabilities when the government is already directly obligated to the private sector on the same liabilities.”

“Involving the Private Sector in Forestalling and Resolving Financial Crises – Private Project Finance Flows to Developing Countries,” IMF Board Paper SM/99/211, August 20, 1999, page 21.

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Partial Credit Guarantees (PCGs): Key Features

• Cover private lenders against all risks during a specific period of the financing term of debt for a public investment

• Specially designed to extend maturity and improve market terms

• Lengthen the maturity of the private debt financing beyond that available in private markets by covering a part of the scheduled repayments of private loans or bonds against all risks

• PCGs are flexible, allowing different structures for meeting different client needs, such as:

– Bullet guarantee

– Latter maturities

– Rolling non-reinstatable

– Amortizing syndicated loan

• At present, partial credit guarantees are available only for countries eligible for loans from IBRD.

• No overlap with MIGA or IFC instruments

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Debt Maturity Interest Spread

Colombia(P. Credit)

10

6.5%

5%

Philippines(P. Credit)

15

7

2.5%

3%

5

Thailand(P. Credit)

0

10 2.9%

8.5%

Lebanon(P. Credit)

Jordan(P. Credit)

510

3%

1%

7

2 3%

1%

PCGs help access finance at sustainable terms

1Spreads at the time of the guarantee issuance with Guaranteewithout Guarantee

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Partial Risk Guarantees (PRGs): Key Features

• Covers private lenders against the risk of a public entity failing to perform its obligations with respect to a private project.

• Reinforces obligations of the Government – does not add to them.

• Structured to provide minimum coverage necessary to mobilize private financing

• The World Bank also offers enclave guarantees which are PRGs structured for export oriented foreign exchange generating commercial projects in IDA-only countries.

• A flexible instrument – various structures available

• New developments: – Letter of Credit Structure for Greenfield projects– Privatization Guarantees– Guarantee Facilities– Local Currency Guarantees

• IBRD guarantees can be accelerable, and IDA guarantees are non-accelerable

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Which risks can be covered by a PRG?

• tariff

• regulatory risk

• collection risk

• arbitration

• change in law

• convertibility

• transferability

• subsidy payments (e.g. Output-Based Aid)

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PRGs help access finance at sustainable terms

Debt Maturity Interest Spread1

Vietnam(P. Risk)

5%

2%

5

16

Cote d’Ivoire(P. Risk)

112

3%

2.75%

1Bangladesh(P. Risk)

3%

2%14

with Guaranteewithout Guarantee1Spreads at the time of the guarantee issuance

Lao PDR(P. Risk) 16.5

0

2.25 %N/A

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Partial Risk Guarantees Structuresfor IDA only countries

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Partial Risk Guarantee structure

•Guarantees cover lenders in the event that the Government does not meet its commitments•Counter-guarantee of the member country is normally in the form of an Indemnity Agreement.

Commercial Lenders

Project Company

Government

GuaranteeAgreement

Indemnity Agreement

Project Agreement(Government Undertakings)

Loans

World Bank

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IBRD Enclave Guarantees in IDA-only Countries

• Framework

– Export-oriented commercial private projects in IDA-only countries expected to generate foreign exchange outside of the country

– Country should have adequate foreign exchange to meet the payments due to IBRD resulting from a call on the guarantee

– Guarantee amount limited to 25% of the financing required for the project

– Generally non accelerable

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IBRD Enclave Guarantees in IDA Countries

Limited GovernmentObligations:

• Permits/consents• Change in law• Political events• Expropriation

IDA Country “Off-Shore”

LendersGuarantee

CounterGuarantee

LoanAgreement

CreditworthyPurchaser

Enclave Project(up to 25%)

Export

Guarantee Fee

ConcessionContract

FX

Government

Reserve Account

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Examples of different Guarantee Structures

Debt

L/C

Deferred Loan

• Beneficiary of L/C is project, not lenders• Catalyze equity and lending• Provide liquidity to project if needed

• Can cover investors if there is no Commercial Bank debt

• Catalyze equity and lending• Covers Termination Payments

• Usually most suited for new infrastructure projects following project finance structure

• Active PF commercial banks are usually aware of PRG structures

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Pricing of World Bank Guaranteesfor FY07

For detailed fees please consult with the PFG team.

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IDA Partial Risk Guarantee Fee Charges (in basis points) for FY07

1. For all private sector borrowers, i.e. only applicable to Partial Risk Guarantees.2. Determined on a case by case basis. Exceptional projects can be charged over 50 bps of the guaranteed amount.3. For guarantees approved in FY07.

Fee Type Fee charged to the borrower

Upfront charges Initiation Fee1 15 bp on the guaranteed amount or USD 100,000

(whichever is higher)

Processing Fee1,2 Up to 50 bp of the guaranteed amount

Recurring charges Guarantee Fee(on the maximum aggregate disbursed and outstanding guaranteed debt)

75 bp per annum

Standby Fee3

(on the maximum guaranteed debt committed but undisbursed)

20 bp per annum

The World Bank reserves the right to change fees at anytime. For detailed fees please consult with the Guarantees Group at the Bank.

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IBRD Enclave Partial Risk Guarantee Fee Charges (in basis points) for FY07

Footnotes

1. For all private sector borrowers, i.e. only applicable to Partial Risk Guarantees2. Determined on a case by case basis. Exceptional projects can be charged over 50 bps of the guaranteed amount.3. Fee charges net of applicable waivers.

Fee Type Fee charged to the borrower3

Upfront charges Initiation Fee1 15 bp on the guaranteed amount or USD 100,000

(whichever is higher)

Processing Fee1,2 Up to 50 bp of the guaranteed amount

Recurring charges Guarantee Fee(on the maximum aggregate disbursed and outstanding guaranteed debt)

Up to 300 bp per annum

Standby Fee(on the maximum guaranteed debt committed but undisbursed)

75 bp per annum

For detailed fees please consult with the Guarantees Group at the Bank.