RISK MITIGATION: What are Updates & Proposals on Risk Mitigation Products?

Product Name Partial Credit Guarantee
Link to Product Website
Provider Name World Bank - IBRD (International Bank for Reconstruction and Development)
Product Definition Partial Credit Guarantees (PCGs) cover private lenders against all risks during a specific period of the financing term of debt for a public investment. PCGs are generally provided for privately funded public projects and are specially designed to extend maturity and improve market terms.


PCGs are usually applied in cases where client countries have limited access to medium and long-term capital or commercial loan markets; and when there is a financing gap for public sector investment projects. By guaranteeing the later debt service payments of a bond or a loan, the PCG extends maturity of the debt beyond what the market would otherwise accept. The lengthening of maturity, as well as significant reduction in borrowing costs as a result of the PCG, substantially improves the commercial borrowing terms and usually results in more affordable tariffs in the case of infrastructure projects.

PCGs are flexible instruments. Different structures have been used and explored to meet clients' needs, such as guarantee coverage of principal for bullet maturity bonds; rolling (non re-instatable) coupon and principal guarantees; and the guarantee of later maturity principal payments of amortizing syndicated loans etc.

Eligible projects: Any projects funded by the government or other public-sector entities meeting Bank’s appraisal criteria for an investment project. There is no sector restriction. Refinancing is normally not eligible.

Eligible borrowers: The borrower of the guaranteed debt can be the sovereign government, its agency, a state-owned entity (e.g. utilities, financial institutions), etc.

Eligible debt: PCGs can be used for any commercial debt instruments (loans, bonds) provided by any private institution. PCGs can cover both foreign currency and local currency debt. Proceeds of the guaranteed debt must be used for the project approved by the World Bank.

PCGs are flexible, allowing different structures for meeting different client needs, such as coverage of principal for bullet maturity bonds, rolling (non-reinstatable) coupon and principal guarantees for bullet maturities, and later-maturity principal payments of amortizing syndicated loans.

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

An Illustration of a Partial Credit Guarantee

China: The Ertan Thermal Power Project

PROJECT DESCRIPTION:

The Ertan Hydro power project involved the construction of a 3,300 MW power plant along the Yalong river in the south west of Sichuan Province, near Panzihua City, an important iron and steel industrial city. The project also included the construction and installation of four 500kV transmission lines and various communication links and site facilities. Total cost:US$ 2.9 billion.

GUARANTEE TERMS & STRUCTURE:

The World Bank provided a US$ 50 million partial credit guarantee to cover a portion of the project's financing. The PCG covers, on an accelerable basis, repayment of principal outstanding from year 12 onward on a US$ 150 million equivalent loan. This means that lenders are taking risk on principal repayments and interest payments due prior to year 12.

Beneficiary: Ertan Hydroelectric Dev. Co. Ltd.

Borrower: People's Republic of China

Financing Mobilized: US$ 150 million

World Bank Exposure Under Guarantee: US$ 20 million (14% of total loan)

Maturity: 15 years

Product Type Partial Credit Guarantee
Defined Risks Covered Comprehensive Risk
More on Risks Covered
Eligible Form of Investments Bonds
Bank Loans
Non-Bank Loans
Shareholder Loans
More on Eligible Investments
Eligible Currency of Underlying Investment Covered by this Product Both local and foreign currency
Eligible Countries & Regions n.a.
More on Eligible Countries
Eligible Applicants PUBLIC: All
MIXED (PUBLIC-PRIVATE): Public Joint Ventures (51% or more state-owned)
MIXED (PUBLIC-PRIVATE): Mixed Joint Ventures (50:50 private:public)
More on Eligible Applicants
Eligible Sector No Specific Sector
Maximum Tenor Over 20+ years
Max. Absolute Amount (USD) Over 350+ MM
Max. % of Project Costs Covered 100%
Max. % of Export Content Covered Over 85+%
Fees Fixed
The Bank charges a guarantee fee, and a front-end fee to provide a guarantee. In addition, the Bank may also charge an initiation fee, and processing fee for a private sector project. Charges are based on the concept of loan equivalency and may differ from one guarantee structure to the other.
More on Fees
Other Conditions Sovereign Counterguarantee: Yes
Anti-Corruption and Governance Standards: Yes
Environmental standards: Yes link
Social standards (incl. Human Rights Standards; Labor Rights Standards): Yes link
Others:
Source(s) n.a.
For more information, contact Pankaj Gupta
Manager - Finance Solutions, The World Bank - Finance Economics and Urban Department
Email: pgupta2@worldbank.org
Phone: (202) 473-6188
Attachments n.a.
Additional Links web.worldbank.org/external/default/ma ... 4&menuPK=64143513&contentMDK=20191700
web.worldbank.org/external/default/ma ... 534&menuPK=542645&contentMDK=20263309
siteresources.worldbank.org/INTGUARAN ... nteeBrochureEnglishApril2010Final.pdf
Deals Botswana - In support of a commercial borrowing by Botswana Power Corporation, a state owned utility, to finance the Morupule B Power Station.


Provider Name World Bank - IBRD (International Bank for Reconstruction and Development)
Institution Type PUBLIC: Multilateral Development Bank
Ownership IBRD is owned by 185 member countries; IDA has 168 member countries.
Head Office 1818 H Street, NW, Washington DC, 20433
Provider Home Country United States
Rating n.a.
Main Risk Mitigation Products n.a.
Attachments n.a.
Additional Links web.worldbank.org/external/default/ma ... 4&menuPK=64143522&contentMDK=20274670
Entered On: 06/29/2007 at 01:06 PM
Updated On: 05/07/2013 at 01:46 PM