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

Product Name Partial Credit Guarantee
Link to Product Website
Provider Name ADB (Asian Development Bank)
Product Definition ADB’s Partial Credit Guarantee (PCG) bridges the gap between the needs of the borrower and the constraints of the commercial lenders.

Due to the perceived country and commercial risks, the lenders may not be willing to provide an uncovered loan with terms required for the financial viability of the project. ADB provides comprehensive coverage for all commercial and political risks for a specified portion of the borrowing.

The PCG usually covers debt service during the later maturities. This may be appropriate when lenders are not willing or able to provide a financing tenor long enough to match the cash flow of a project.

Type of Risks Guaranteed:

ADB’s partial credit guarantee covers nonpayment by the borrower or issuer (for any reason) on the guaranteed portion of the principal and interest due.

Eligible Borrowers or Issuers:

Partial credit guarantees can be applied to loans or other debt instruments issued by private and public sector projects, public–private partnerships, corporations as well as sub-sovereign entities.

Amount:
For non-sovereign PCGs, $250 million, subject to aggregate limits and depending upon other products used (e.g., loans and equity).

There is no limit for sovereign operations with a counter-indemnity given to ADB by the sovereign of the applicable developing member country.

Eligible Sectors:

ADB can guarantee projects in sectors designated in the ADB Strategy 2020: Infrastructure, Environment, Regional Cooperation and Integration, Finance Sector Development, and Education.

Product Type Partial Credit Guarantee
Defined Risks Covered Political Risks: Regulatory
Political Risks: Breach of Contract
Political Risks: Expropriation
Political Risks: Devaluation
Political Risks: Currency Transfer and Convertibility
Political Risks: War and Civil Disturbance
Commercial Risks: Counter-Party Performance
Commercial Risks: Demand
Commercial Risks: Construction
Comprehensive Risk
Sub-sovereign Risk
Other Risks
More on Risks Covered
Eligible Form of Investments All
More on Eligible Investments
Eligible Currency of Underlying Investment Covered by this Product Both local and foreign currency
Eligible Countries & Regions
Afghanistan   Armenia   Azerbaijan  
Bangladesh   Bhutan   Brunei Darussalam  
Cambodia   China   East Timor  
Fiji   Georgia   Hong Kong, SAR  
India   Indonesia   Kazakhstan  
Kiribati   Korea, Republic of    Kyrgyz Republic  
Lao PDR   Malaysia   Maldives  
Marshall Islands   Micronesia   Mongolia  
Myanmar   Nauru   Nepal  
Pakistan   Palau   Papua New Guinea  
Philippines   Samoa   Singapore  
Solomon Islands   Sri Lanka   Taiwan  
Tajikistan   Thailand   Tonga  
Turkmenistan   Tuvalu   Uzbekistan  
Vanuatu   Vietnam  
More on Eligible Countries
Eligible Applicants All
More on Eligible Applicants
Eligible Sector Energy: General
Telecom: General
Transport: General
Water and Sewage: General
Other Sector
Maximum Tenor 10+ to 15 years
More on Maximum Tenor
Max. Absolute Amount (USD) Over 350+ MM
More on Maximum Absolute Amount
Max. % of Project Costs Covered Max./under 25%
More on Maximum Project Costs Covered
Max. % of Export Content Covered Over 85+%
More on Maximum % of Export Content Covered
Fees Market-based
The cost of a guarantee typically consists of three components:
a front-end fee, a guarantee fee, and a commitment fee.

The front-end fee is a one-time payment that covers due diligence, processing of the guarantee, and other up-front costs. The annual guarantee fee covers ADB’s exposure to the project and is charged on the guaranteed portion of principal outstanding, and the guaranteed amount of interest in an applicable interest period. The commitment fee is applied to the amount of any guaranteed principal that has not yet been disbursed.

The fees applied by ADB for non-sovereign operations are market-based, and take into consideration, among other things, the project, sector, and country risks, as well as the specific terms of the contract of guarantee.

For sovereign guarantee operations, the guarantee fee is equivalent to the interest rate charged by ADB on a sovereign loan operation (50 bps as of 16 June 2014).
More on Fees

Other Conditions Sovereign Counterguarantee: No
Anti-Corruption and Governance Standards: Yes link
Environmental standards: Yes link
Social standards (incl. Human Rights Standards; Labor Rights Standards): Yes link
Others: ABD requires a sovereign counter-indemnity for sovereign operations.
More on Other Standards
Source(s) http://www.adb.org/site/private-sector-financing/commercial-cofinancing/guarantees
For more information, contact Shantanu Chakraborty
Advisor, Guarantees and Syndications Unit, ADB
Email: schakraborty@adb.org
Phone: + 632 632 4357
Attachments ADB Strategy2020-print.pdf
ADB_Cofinancing Presentation November 2013.pdf
brochure-partial-credit-guarantee.pdf
Additional Links n.a.
Deals n.a.

Provider Name ADB (Asian Development Bank)
Institution Type PUBLIC: Multilateral Development Bank
Ownership Owned by 65 members (47 from Asia Pacific Region)
Head Office Headquarters: 6 ADB Avenue, Mandaluyong City 1550, Metro Manila, Philippines
Provider Home Country Philippines
Rating AAA
Main Risk Mitigation Products Partial Credit Guarantees
Loan Syndication
Risk Participations
Partial Risk Guarantee
Attachments n.a.
Additional Links www.adb.org/projects
www.adb.org/news
www.adb.org/data/main
Entered On: 07/03/2007 at 02:45 PM
Updated On: 06/18/2014 at 12:32 PM