The Overseas Private Investment Corporation – An Overview

1. The Overseas Private Investment Corporation – An Overview Forrest Metz Investment Research Analyst National Association of Realtors Legislative and Research Workshop May 14, 2003 (Washington, D.C.)

2. The Overseas Private Investment Corporation – An Overview • What is OPIC? Why Do Businesses Use OPIC? OPIC and Housing New Small Business Center 2

3. What Is OPIC? Self-sustaining government agency that enables U.S. businesses to succeed in emerging markets • Promotes sustainable development overseas and creates U.S. jobs • Supports foreign policy objectives of President Bush’s Administration • Operates at no net cost to the taxpayer Supports private sector growth in developing countries • Provides long term financing for U.S. businesses in emerging markets • Most experienced provider of political risk insurance in the world • Brings equity capital and to developing countries by supporting private equity investment funds 3

4. OPIC’s Mission To mobilize and facilitate the participation of United States private capital and skills in the economic and social development of less developed countries and areas, and countries in transition from non-market to market economies, thereby complementing the development assistance objectives of the United States. 4

5. Current Portfolio by Region 5

6. Current Portfolio by Sector 6

7. The Overseas Private Investment Corporation – An Overview What is OPIC? • Why Do Businesses Use OPIC? OPIC and Housing New Small Business Center 7

8. Want to build their business and need finance for a new project, joint venture, expansion or modernization Want to protect their investment against the political risks of doing business in developing countries Want the backing of the U.S. Government behind their foreign investment Want to partner with experts who have supported successful businesses in almost every sector in over 140 developing countries Why Do Businesses Use OPIC? OPIC Finance OPIC Political Risk Insurance OPIC Investment Funds 8

9. Maximizing the Opportunities OPIC Finance 9

10. OPIC Finance - Benefits Access to scarce capital • Active in countries that do not attract traditional sources of funding • OPIC loans encourage cooperation among investors, partners and other lenders • Longer tenor, market rates and significant capacity • Tenor 3-15 years • Rates based on cost of funds plus risk spread • $250 million loan capacity Unique terms and conditions Flexible programs • Project and corporate finance models • Franchise program • New Small Business Center Promote corporate citizenship • Screening criteria ensures that your project upholds environmental, worker rights, human rights and anti-corruption guidelines 10

11. OPIC Finance – Eligibility and Terms Terms Loan term* • Amortization of up to 15 years Amount of OPIC participation • $100k to $250 million per project • Up to 50% of total project costs for new projects • Up to 75% of total project costs for expansions Leverage* • 60% debt to 40% equity Pricing • Market rates of interest (+fees) Limited recourse financing • Project completion support Eligibility • Commercially viable business plan and successful track record • At least 25% U.S. equity ownership • No adverse impact on U.S. jobs • Projects meet environmental, labor and human rights standards, anti-corruption guidelines • OPIC eligible country • Limited government participation (<50%) * Terms and leverage vary 11

12. OPIC Finance Process Profits! Disbursement & Monitoring Credit & Policy Approval Due Diligence Screening Application Disbursement Pre-Screening Screening 12

13. Direct Loan Example – Construction Project Cash, land, and local support Local Partner 75% Project Company Cash, technology, management & financing U.S. Partner 25% OPIC loan 60-70% tpc 13

14. Key Issues in Construction Finance Purpose – for rent or for sale? Collateral – land, completion guaranty, pledge of shares in project company “Off-take” arrangement and marketing plan Target low and lower-middle income clients Composition of equity – what does the U.S. partner have at risk? Capacity to buy – how will clients pay? Experience of project team 14

15. Construction Finance Project Timeline Pre-Development and PreSales Phase Two Houses Phase Three Houses Initial Infrastructure Phase One Houses Sales Revenue OPIC LOAN DISBURSEMENTS • OPIC Finances 60 – 70% of project costs, for 3 years or more • Infrastructure cost generally 25% of total • Draw funds over 18 – 36 months – interest only payments 15

16. Minimizing the Risks OPIC Political Risk Insurance 16

17. OPIC Insurance - Benefits Access to scarce capital Protects your investment • Replace losses resulting from terrorism or war • Protect your income and operating expenses • Provides predictability through long-term fixed rates Eliminates risk of unfair interference Prevents foreign governments from violating agreements or taking over your business Guarantees your ability to repatriate dividends, profits and capital Facilitates access to credit OPIC support is signal of security to lenders Flexible programs for specific business needs (ex. contractors and exporters) Avoid obstacles of resolving investor disputes through use of U.S. Government influence Ensures that contract dispute resolution procedures and payments are honored Strengthens your local presence Promote corporate citizenship 17

18. OPIC Insurance – Eligibility U.S. citizens Corporations, partnerships or other associations created under laws of the U.S., over 50% U.S. owned OPIC Political Risk Insurance Foreign corporations at least 95% owned by U.S. citizens, corporations, or partnerships. Other foreign entities 100% U.S. owned 18

19. OPIC Insurance –Terms and Coverage Coverage Up to 90% coverage Inconvertibility: earnings, return of capital, principal and interest payments, technical assistance fees, and similar remittances on insured investments Expropriation • equity: book value of investment at time of expropriation • loans :based on outstanding principal and accrued interest Political violence: replacement cost of assets and income (up to 1yr) of destroyed assets Terms • Policy terms up to 20 years. Premium rates locked in. • May be canceled by insured, but not by OPIC • Typical amount is up to $250 million per project. 10% self-insurance requirement (except for third-party lenders or lessors) 19

20. OPIC Insurance – Construction Project Example Sources of Funding Equity (cash, equipment, land) 3,500,000 Bank Loan6,500,000 Total Project Cost 10,000,000 Equity coverage Debt coverage for loan payments OPIC Insurance protects assets on the ground as well as future profits. 20

21. Maximizing Partnerships OPIC Investment Funds 21

22. Bridging the Equity Gap – OPIC Investment Funds Overview • OPIC supports 26 private equity funds to address lack of equity investment in emerging markets • Funds target various regions and sectors, and invest in new, expanding or privatizing companies • Funds capitalized by OPIC guaranteed debt and private equity Benefits • Provides local enterprises in emerging markets with access to risk capital, management guidance, and financial expertise • Serves as engine of growth in regions most investors consider reluctant to approach • Improves local business climate by supporting adoption of international reporting standards, transparency and environmental and workers rights standards 22

23. How OPIC can Partner with Investors Financing and insuring US - foreign joint ventures, and/or U.S. parent and banks that support them. OPIC Insurance OPIC Investment Funds U.S. Banks Foreign Banks U.S. - Foreign Joint Venture OPIC Finance U.S. Parent Company 23

24. OPIC Product Overview OPIC Political Risk Insurance OPIC Investment Funds OPIC Finance Providing local firms with access to capital, management guidance, and financial expertise Improving business climate by support of international reporting standards, and environmental and workers rights standards Multiplying your returns in international markets Encouraging cooperation among you and your suppliers and other lenders Promoting good corporate citizenship Protecting your investment Defending your right to return profits to U.S. Facilitating access to credit Strengthening your local presence Providing predictability through fixed rates 24

25. The Overseas Private Investment Corporation – An Overview What is OPIC? Why Do Businesses Use OPIC? • OPIC and Housing New Small Business Center 25

26. Housing – An OPIC Strategic Sector • Highly developmental sector – social and economic • Diverse experience and deep capital base in U.S. have export potential (yet to be fully exploited) • Great need for housing construction and finance around the world • Opportunities for excellent returns on investment 26

27. OPIC Recent Housing Experience 27

28. OPIC Direct Loan for Mortgages Local Private Bank Takes First Loss Position (manages portfolio) Special Purpose Company U.S./Local Joint Venture OPIC Long Term Loan (mortgages as collateral) Supporting Infrastructure: • Trustee • Collateral Agent • Paying Bank • Credit Administrator • Possible devaluation reserve 28

29. Issues to Consider with Mortgage Programs OPIC loan is in dollars – can create significant currency risk Needs adequate legal framework for mortgage lending and collateral enforcement Strong bank experience with underwriting and servicing mortgages is necessary Cash is the only equity that works Will incur significant legal costs 29

30. OPIC Capital Markets Programs • Political risk insurance to exceed sovereign ceiling for rating • Financial guarantee to improve credit rating • OPIC can support an issue targeted to local investors so long as 51% is sold to U.S. investor • Back-up sovereign guarantee 30

31. Mortgage Bond Program Allows local currency lending with proper hedges at the SPV level Mobilizes U.S. long term capital and in the long run, local pension fund capital Credit enhancement for mortgage bonds not available for non-investment grade countries New sovereign coverage could support housing agency issues 31

32. Mortgage Bond Model BOND HOLDERS BOND PROCEEDS SEMI ANNUAL BOND PAYMENTS OPIC GUARANTY (US GOVERNMENT) SECOND LOSS EXPOSURE SPV OFFSHORE TRUST BOND ISSUER BOND PROCEEDS FROM SALE OF MORTGAGES SALE OF MORTGAGES (Monthly Mortgage Payments) LOCAL BANK ASSUMES FIRST LOSS EXPOSURE TO SPV MORTGAGE LOANS LOW AND MIDDLE INCOME HOMEOWNERS MONTHLY MORTGAGE PAYMENTS 32

33. Other Applicable Approaches w/ Housing On-lending facilities Direct loans to SPV for long term mortgage funds or warehousing of mortgages pending sale Construction finance Working capital for service or insurance entities (also back-up guarantees, reinsurance) 33

34. Key Issues to Remember w/ Housing Currency risk – OPIC is dollar lender Fixed rate, medium/long term financing Must have U.S. partners “at risk” Bi-lateral agreements and honoring of international arbitration Developmental effects and policy concerns The timing is good – housing is high priority 34

35. The Overseas Private Investment Corporation – An Overview What is OPIC? Why Do Businesses Use OPIC? OPIC and Housing • New Small Business Center 35

36. Greater Flexibility • Finance and Insurance officers working with small business transactions and requirements Increased Small Business Deal Flow • Goal by end of FY-2004: 100% increase in transactions for both Insurance and Finance products OPIC Small Business Center – Highlights Reduced Response Time • Goal of 60 days from complete application to loan agreement 36

37. OPIC Small Business Center – Eligibility Eligibility • Commercially viable business plan and successful track record • U.S. business sponsor with less than $35 million in annual consolidated revenues or $27 million in personal net worth • Loan amounts ranging in size from $100k up to $10m • Insurance coverage up to $15m – no minimum investment size • Projects adhere to OPIC investment policies 37

38. OPIC Small Business Center – Terms Insurance Tenor: From 3 to 20 years Amount of OPIC participation • Up to $15 million of coverage per project Pricing • Fixed rates-based on nature of risk • ex. Manufacturing Services (Annual Base Rates per $100 of Active/Current Coverage) Inconvertibility $0.25 - $0.45 Expropriation $0.50 - $0.70 Political Violence Business Income $0.30 - $0.50 Assets $0.40 - $0.60 Finance Tenor: From 3 to 15 years Amount of OPIC participation • Up to $10 million per project Leverage • Up to 65% debt (35% equity) Security • Minimum - pledge of shares in the project Pricing • Capped at 7% over cost of funds (lower with collateral availability) • Upfront Facility Fee (<2%) and Annual Maintenance Fee (<1%) 38

39. For more information, finance applications and contact information, visit our website: http://www.OPIC.gov To discuss your project, please contact OPIC’s Investment Development and Economic Growth Department at (202) 336-8688 or Debbie Erb – Director of Housing Programs (202 336-8472 dlerb@opic.gov