ALA Asia and Latin America

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1 Seminar EIB lending outside the EU Brussels, 28 June 2007 ALA Asia and Latin America Matthias Zöllner Head of Division Asia

2 The Mandate The Council approved in December 2006 a new Mandate for the covering the period for a total amount of EUR 27 bn In this context, the EIB has been authorised to lend up to EUR 3.8 billion in Asia and Latin America (ALA) Of this amount, EUR 2.8 bn is to be allocated to Latin America and EUR 1 bn to Asia

3 Strategic objectives in ALA 1. Support of EU presence in Latin America through Foreign Direct (FDI), transfer of technology and know-how 2. Environmental sustainability (including climate change mitigation) 3. Energy security of the EU members

4 ELIGIBILITY (1/3) Support of EU presence in ALA Projects with an interest for the host country and for the EU Both private and public sector projects eligible Generally FDI by subsidiaries of EU investors and joint-ventures with local companies (Asia- JVs) Other types of operations, decided on a case-by-case basis, but always taking into account the EU content in the operation: - High level of transfer of technology - Enhancement of EU cooperation policy

5 ELIGIBILITY (2/3) Environmental sustainability (no EU content required): Contribution to climate change mitigation; Protection of nature, biodiversity & natural resources; Improvements to environment and health; reduction of pollution (including waste water and drinking water); Sustainable use of natural resources; waste mgmt; Enhancing urban environment (including urban transport).

6 ELIGIBILITY (3/3) Energy Security Under the new Mandate, EIB should focus on major energy supply and energy transport project This is in line with EU strategy to diversify its supply of energy (in particular gas) Projects of this type may not be frequent in Asia & Latin America

7 GENERAL OPERATIONAL CONSIDERATIONS Eligible sectors: economic infrastructure, energy, industry, agro-industry, mining, tourism and related financial sector EIB loans are project-linked, oriented to the financing of the fixed asset component of an investment The EIB loan can finance up to 50% of total project costs (complementarity to other sources of financing), up to 75% for certain projects in renewable energy and reconstruction following natural disasters Projects financed by the must be: economically justified technically viable financially self-supporting and environmentally sound Appropriate procurement procedures are required (International Competitive Bidding when possible)

8 EIB PRODUCTS IN ALA In Asia & Latin America, the EIB offers several modes of financings: core product to date: medium- and long term loans loan substitutes (bonds) guarantees on loans and bond issues No equity instruments and no grants at present (except for TA for CDM projects - under CCTAF) Typical direct loans are in the order of EUR million; could be significantly larger if structured outside the Mandate (for instance, EUR 500 mn financings to support projects in China) Intermediated loans: For smaller projects, the EIB can lend indirectly through credit lines to local financial intermediaries (sub-loans of between EUR 0.1 and EUR 12.5 million) Potential for extensive cooperation with commercial banks as financial intermediaries (credit lines), as guarantors of the commercial risks in EIB financings, as partner in project identification and as financial arrangers

9 FAVOURABLE LENDING CONDITIONS Long term maturity of up to 15 years (exceptionally 30 years) and tailormade grace period (suitable for infrastructure projects) Large amounts Flexible conditions: Fixed and variable rate loans and broad range of currencies (USD, EUR, JPY) Low cost financing: The EIB operates on a non-profit making basis: it on-lends the funds it borrows in the international capital markets, adding a thin margin to cover its operating costs Quoted interest rates are all-in costs: currently, the EIB normally charges no up-front structuring fees or commitment fees, except for an appraisal fee. (Currently in the range of Libor + 10 bp for private sector projects; Libor bp for public sector) Exemption from withholding tax + coverage of selected political risks (embedded in financing under ALA Mandate)

10 SECURITY The EIB loan has to be covered by an appropriate security: for public sector borrowers - Normally, sovereign guarantee - Novelty under the new Mandate: the EIB can extend loans to non-sovereigns public sector borrowers without sovereign guarantee when the borrower has a sound financial situation or can provide alternative and acceptable security for private sector projects, first-class bank or corporate guarantee (rated at least BBB+/Baa1) Risk sharing: For private sector projects, the guarantee provided by third parties covers essentially the credit risk of the borrower; political risks are carved out of the obligations of the guarantors (vehicle for cooperation between EIB and commercial banks) The political risks that are not assumed by the guarantors are the risks of: non-transfer of currency, expropriation, war and civil strife, and denial of justice upon breach of contract

11 Broad range of borrowers Private sector companies: Subsidiaries of companies Local- Joint-Ventures Local companies in the case of environmental projects s: subsidiaries of EU banks or local financial institutions Lines of credit to support projects of mutual interest (on-lending to eligible final beneficiaries); Public sector borrowers: Sovereigns, sub-sovereigns and public sector companies implementing a project which promote common interest (including environmental sustainability and/or where the project foster closer relations between the EU and the host country

12 EIB LENDING in Asia and Latin America EIB Loans in Asia & Latin America EUR 4.8 bn as of December % 3% 2% 8% 3% 3% 26% BRAZIL CHINA ARGENTINA 3% PHILIPPINES 3% 4% 13% INDONESIA REGIONAL/PACTE ANDIN MEXICO 5% SRI LANKA PAKISTAN 7% 7% 10% THAILAND PANAMA CENTRAL AMERICA VIETNAM INDIA OTHERS

13 EIB LENDING in Asia EIB Loans in Asia (All Mandates) Sectoral Distribution EUR bn 2.2 in December 2006 Wholesale/Retail Trade 2% Transport & Communication 29% Electricity/Gas/ Water 55% Telecommunication 2% Industry 11% Global Loan 20%

14 EIB LENDING in Latin America EIB Loans in Latin America Sectoral Distribution EUR bn 2.6 in December 2006 Transport & Communication 8% Agriculture, Hunting & Forestry 4% Telecommunication 24% Electricity/Gas/Wate 28% RICA CTE ANDIN Industry 25% Global Loan 11%

15 Project examples

16 Telefónica Andean Region (Peru, Colombia, Ecuador) Development and upgrading of the GSM networks in Colombia, Ecuador and Peru Telefónica group 180 m EUR Term: 12 years Political risks: EIB Commercial risks: Santander ABN Amro

17 Manila Water - Philippines Improvement of water supply through increase of efficiency, reduction of losses and network expansions EU Partner United Utilities UK 60 m EUR Term: 12 years Political risks: EIB Commercial risks: ING DBS Sumitomo Mitsui ing Corp.

18 SIEPAC Power Transmission (Central America) Creation of a regional power transmission backbone Regional Integration ENDESA 35.6 m EUR Term: 20 years Intermediated via CABEI Co-financing: IADB CABEI

EIB contacts for ALA General information on EIB is available on: www.eib.org A brochure that explains the complete project cycle in the EIB can be obtained from: http://www.eib.org/attachments/country/ala_en.

19 EIB contacts for ALA General information on EIB is available on: A brochure that explains the complete project cycle in the EIB can be obtained from: Loan applications for projects may be sent directly to: Francisco de Paula Coelho - Director Asia & Latin America tel: (352) f.depaula@eib.org Alberto Barragán - Head of Division Latin America tel: (352) a.barragan@eib.org Matthias Zöllner - Head of Division Asia tel: (352) m.zoellner@eib.org

MEMORANDUM OF UNDERSTANDING. between THE EUROPEAN INVESTMENT BANK. and THE INTER-AMERICAN DEVELOPMENT BANK

MEMORANDUM OF UNDERSTANDING. between THE EUROPEAN INVESTMENT BANK. and THE INTER-AMERICAN DEVELOPMENT BANK MEMORANDUM OF UNDERSTANDING between THE EUROPEAN INVESTMENT BANK and THE INTER-AMERICAN DEVELOPMENT BANK 13 December 2004 MEMORANDUM OF UNDERSTANDING between THE EUROPEAN INVESTMENT BANK and THE INTER-AMERICAN