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The World Bank Guarantee Program

The World Bank Guarantee Program. “ Partial Credit Guarantees ”. 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

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The World Bank Guarantee Program

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  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: US$150 million • Spread: 30 bp over LIBOR • Project Cost: US$ 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 World Bank Guaranteed Additional uncovered risk taken by commercial banks Total risk assumed by commercial banks

  9. 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

  11. 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

  13. Rolling Guarantee Structure Exposure to the Bank* *Bank’s maximum exposure is US$ 250 million

  14. Ratings on the Argentine Bonds S&P 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+ Republic or Argentina Argentina Serial Zero Coupon Notes* Foreign Local Series A Series B Series C Series D-F Currency Currency * Each of the Series B – F Notes will receive AAA ratings once the Guarantee rolls to such Series

  15. Colombia (PBG) 5 6.5% 5% 10 Thailand (PCG) 0 8.5% 10 2.9% Lebanon (PCG) 5 3% 10 1% Jordan (PCG) 2 3% without Guarantee 7 1% with Guarantee Philippines (PCG) 7 3% 15 2.5% PCG Impact on Maturity and Pricing

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