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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


    The world bank guarantee program

    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%)


    The world bank guarantee program

    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


    The world bank guarantee program

    Rolling Guarantee Structure

    Exposure to the Bank*

    *Bank’s maximum exposure is US$ 250 million


    The world bank guarantee program

    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