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

Product Name Policy-Based Guarantee
Link to Product Website
Provider Name World Bank - IBRD (International Bank for Reconstruction and Development)
Product Definition Policy Based Guarantees (PBGs) help to improve governments’ access to capital markets in support of social, institutional, and structural policies and reforms as agreed with the Bank. While they are structurally the same with partial credit guarantees, PBGs are offered for general balance of payments support.


Like partial credit guarantees, PBGs cover a portion of debt service on a borrowing (loans or bonds) by an eligible member country from private foreign creditors in support of agreed structural, institutional, and social policies and reform. While the actual structure would be determined on case by case basis, the guarantee could be self-standing or part of a larger package of IBRD financial support.

Eligible country/borrowers: Sovereign governments eligible for IBRD’s fiscal support programs termed as Development Policy Lending (DPL). PBGs are selectively offered to countries with a strong track record of performance with a satisfactory social, structural, and macroeconomic policy framework and a coherent strategy for gaining (or regaining) access to international financial markets.

Eligible debt: PBGs can be used for any commercial debt instruments (loans, bonds) provided by any private institution. PBGs can cover foreign currency debt. Proceeds of the guaranteed debt can be used for any budgetary purposes.

Guarantee coverage: PBGs, like partial credit guarantees, cover part of the scheduled repayments of commercial loans or capital market borrowings against all risks.

An Illustration of a Policy Based Guarantee:

Colombia Policy Based Guarantee

PROJECT DESCRIPTION:

The Republic of Colombia completed a Notes issuance of US$ 1 billion in May 2001, backed by a World Bank policy based guarantee of $158.8 million. The launch of US$750 million Notes was successfully closed on April 9, 2001 followed by a reopening of the Notes for US$ 250 million on May 10, 2001. The 10-year Notes were structured with mortgage style, semi-annual amortizations with the Bank’s rolling guarantee on the first two debt service payments. Gross proceeds of the Notes resulted in a leverage of about 6.3-to-1 over the Bank’s maximum exposure.

GUARANTEE TERMS & STRUCTURE:

The World Bank guaranteed the first two semi-annual scheduled payments of interest and principal. Each time Colombia makes a guaranteed semi-annual service pay­ment under the Notes, the World Bank guarantee will roll forward to the next scheduled semi-annual payment that is not already guaranteed by the World Bank and has not been accelerated.

Beneficiary: Republic of Colombia

Guarantee Amount: US$ 158.8 million

Financing Mobilized: US$ 1 billion

Guarantee Coverage: 2 debt service payments on a rolling reinstatable basis

Maturity: 10 years

World Bank Exposure Under Guarantee: US$ 119 million (15% of total loan)

Product Type Policy Based Guarantee
Defined Risks Covered Other Risks
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
web.worldbank.org/external/default/ma ... 4&menuPK=64143514&contentMDK=20274604
siteresources.worldbank.org/INTGUARAN ... nteeBrochureEnglishApril2010Final.pdf
Deals n.a.

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: 09/04/2007 at 03:24 PM
Updated On: 05/07/2013 at 01:40 PM