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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

The World Bank Guarantee Program

“Partial Credit Guarantees”

evolution of guarantee programs
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
world bank guarantee objectives
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”
variety of guarantees
Variety of Guarantees
  • IBRD Guarantees for private and public borrowers
      • PRG
      • PCG (PBG)
  • IDA Guarantees for private borrowers
      • PRG
partial credit guarantees
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
pcg bond issue
PCG: Bond Issue

PCG

$100

PV

Maturity extension

10 years

0

5 years

(e.g. Hungary, Lebanon, Philippines)

pcg syndicated bank loans for china
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
slide8

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

advantages of the guarantees
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%)
slide10

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
policy based guarantees eligibility
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
argentina pbg bond issue
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
slide13

Rolling Guarantee Structure

Exposure to the Bank*

*Bank’s maximum exposure is US$ 250 million

slide14

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

pcg impact on maturity and pricing

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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