ASIAN DEVELOPMENT BANK

Transcription

1 OFFERING CIRCULAR ASIAN DEVELOPMENT BANK RMB 1,000,000, % Bonds of 2005 Due 2015 Issue Price: 100 % The Asian Development Bank ( ADB ) is offering RMB 1,000,000,000 aggregate principal amount of 3.34% bonds of 2005 due 2015 (the Bonds ). The Bonds will mature and will be repaid at par on 14 October The price to investors is 100% of the principal amount of the Bonds. The Bonds will bear interest from 14 October 2005 at the rate set forth above, payable annually in arrears on 14 October of each year (commencing 14 October 2006). The Bonds will not be redeemable by ADB prior to maturity. The Bonds will constitute general, direct, unconditional, unsubordinated and unsecured obligations of ADB and will be backed by the full faith and credit of ADB. Application has been made to The People s Bank Of China for the listing and trading of the Bonds in the China Inter-bank Market. The Bonds are to be delivered and settled through the book-entry facilities of The China Government Securities Depository Trust & Clearing Co., Ltd. The Bonds are being offered and sold in the China Inter-bank Market to institutions qualified to purchase the Bonds pursuant to the Temporary Administrative Rules for RMB Bond Issuance By International Development Institutions dated 18 February Lead Manager and Bookrunner BOC International (China) Limited The date of this Offering Circular is 14 October 2005

2 IMPORTANT NOTICE AND DISCLAIMER This Offering Circular is provided to prospective investors by ADB for use solely in connection with the issue by ADB of the Bonds. This Offering Circular shall not be, in whole or in part, reproduced or used for any other purpose, or shown, given, copied to or filed with any other person including, without limitation, any government or regulatory authority except with the prior written consent of ADB or the Lead Manager unless as may be required under the laws, regulations and/or guidelines of the People s Republic of China (the PRC ). ADB, having made all reasonable enquiries, confirms that to the best of its knowledge and belief, there is no material omission nor are there any false or misleading statements in any material respect in this Offering Circular or other facts the omission of which would make any statement in this Offering Circular false or misleading in any material respect in the context of the issue, offer, sale or invitation to subscribe or purchase the Bonds. The opinions expressed in this Offering Circular with regard to ADB have been reached after considering all relevant circumstances and are based on reasonable assumptions. Enquiries have been made by ADB to ascertain all material facts and to verify the accuracy of all such information and statements. In this context, ADB accepts responsibility for such information contained in this Offering Circular. No person is authorised to give any information or data or to make any representation or warranty other than as contained in this Offering Circular and, if given or made, any such information, data, representation or warranty must not be relied upon as having been authorised by ADB, the Lead Manager or any other person. This Offering Circular has not been and will not be made to comply with the laws of any jurisdiction other than the PRC ( Foreign Jurisdiction ), and has not been and will not be lodged, registered or approved pursuant to or under any legislation of (or with or by any regulatory authorities or other relevant bodies of) any Foreign Jurisdiction and it does not constitute an issue, offer or sale of, or an invitation to subscribe or purchase the Bonds or any other securities of any kind by any party in any Foreign Jurisdiction. The distribution or possession of this Offering Circular in or from certain jurisdictions may be restricted or prohibited by law. Each recipient is required to seek appropriate professional advice regarding, and to observe, any such restriction or prohibition. Neither ADB nor the Lead Manager accepts any responsibility or liability to any person in relation to the distribution or possession of this Offering Circular in or from any such Foreign Jurisdiction. Unless otherwise specified in this Offering Circular, the information contained in this Offering Circular is correct as at the date hereof. Neither the delivery of the Offering Circular, nor any sale of the Bonds, shall under any circumstance, creates any implication that there has been no change in the information contained and incorporated by reference in this Offering Circular since - 1-

3 the date of it or the date of the Information Statement of ADB dated 29 April 2005, as the case may be, or that the information contained or incorporated by reference in it is correct as of any time subsequent to either of such dates, as the case may be. By accepting delivery of this Offering Circular, each recipient agrees to the terms upon which this Offering Circular is provided to such recipient as set out in this Offering Circular, and further agrees and confirms that (a) it is lawful for the recipient to subscribe for or purchase the Bonds under all jurisdictions to which the recipient is subject, (b) the recipient has complied with all applicable laws in connection with such subscription or purchase of the Bonds, (c) ADB, the Lead Manager and their respective directors, officers, employees and professional advisers are not and will not be in breach of the laws of any jurisdiction to which the recipient is subject as a result of such subscription or purchase of the Bonds, and they shall not have any responsibility or liability in the event that such subscription or purchase of the Bonds is or shall become unlawful, unenforceable, voidable or void, (d) it is aware that the Bonds can only be offered, sold, transferred or otherwise disposed of directly or indirectly in accordance with all applicable laws, (e) it has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of subscribing or purchasing the Bonds, and is able and is prepared to bear the economic and financial risks of investing in or holding the Bonds, (f) it is subscribing or accepting the Bonds for its own account, and (g) it is an institution qualified to purchase the Bonds under the relevant laws and regulations of the PRC. Each recipient is solely responsible for seeking all appropriate expert advice as to the laws of all jurisdictions to which it is subject. For the avoidance of doubt, the Offering Circular shall not constitute an offer or invitation to subscribe or purchase the Bonds in relation to any recipient who does not fall within item (g) above. This Offering Circular or any document delivered under or in relation to the issue, offer and sale of the Bonds is not, and should not be construed as, a recommendation by ADB and/or the Lead Manager to subscribe or purchase the Bonds. This Offering Circular is not a substitute for, and should not be regarded as, an independent evaluation and analysis and does not purport to be all-inclusive. Each recipient should perform and is deemed to have made its own independent investigation and analysis of ADB, the Bonds and all other relevant matters, and each recipient should consult its own professional advisors. All information and statements herein are subject to the detailed provisions of the respective documents referred to herein and are qualified in their entirety by reference to such documents. FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE RISK FACTORS IN SECTION 4 HEREOF. Certain statements in this Offering Circular are based on historical data, which may not be reflective of the future, and others are forward-looking in nature and are subject to risks and uncertainties. While ADB believes that these forward-looking statements are reasonable, these statements are nevertheless subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to differ materially from the - 2-

4 future results, performance or achievements expressed or implied in such forward looking statements. In light of all this, the inclusion of forward-looking statements in this Offering Circular should not be regarded as a representation or warranty by ADB that the plans and objectives of ADB will be achieved. Acknowledgement ADB hereby acknowledges that it has authorized BOC International (China) Limited as the Lead Manager to circulate or distribute this Offering Circular on its behalf in respect of or in connection with the proposed offer or invitation to subscribe for and issue of the Bonds to prospective investors who are institutions qualified to purchase the Bonds under the relevant laws and regulations of the PRC and that no further evidence of authorization is required. No waiver of privileges and immunities The issuance and distribution of this Offering Circular and the issue and sale of the Bonds are not a waiver by ADB or by any of its members, Governors, Alternate Governors, Executive Directors, Alternate Executive Directors, officers or employees of any of the rights, immunities, privileges or exemptions conferred upon any of them by the Agreement Establishing the Asian Development Bank or by any statute, law or regulation of any member of ADB or any political subdivision of any member, all of which are hereby expressly reserved. INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THE INVESTMENT. IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT THEIR FINANCIAL, LEGAL AND OTHER ADVISERS BEFORE PURCHASING OR ACQUIRING OR SUBSCRIBING FOR THE BONDS. THE BONDS ARE NOT THE OBLIGATION OF ANY GOVERNMENT. DOCUMENTS INCORPORATED BY REFERENCE The following documents shall be deemed to be incorporated in, and to form part of, this Offering Circular: a) the most recently published audited annual financial statements of ADB; b) all supplements or amendments to this Offering Circular circulated by ADB, if any; and c) the Information Statement of ADB dated 29 April save that any statement contained herein shall be deemed to be modified or superseded for the purpose of this Offering Circular to the extent that a statement contained in any such subsequent document which is deemed to be incorporated by reference herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or - 3-

5 superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offering Circular. ADB will provide, without charge, to each person to whom a copy of this Offering Circular has been delivered, upon the request of such person within 45 days from the date of this Offering Circular, a copy of any or all of the documents deemed to be incorporated herein by reference. Requests for such documents should be directed to ADB at 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines, Attention: Funding Division, Treasury Department, tel: (632) , facsimile (632) The rest of this page has been left blank intentionally - 4-

6 TABLE OF CONTENTS Important Notice and Disclaimer. 1 Page 1.Glossary Summary of Principal Terms and Conditions of the Bonds Principal Terms and Conditions of the Bonds Risk Factors Principal Information Regarding ADB Use Of Proceeds Analysis of the Issuer s Financial Condition Selected Financial Information-Ordinary Capital Resources Legal Opinion General Information The rest of this page has been left blank intentionally - 5-

7 1.0 GLOSSARY Except where the context otherwise requires, the following abbreviations and definitions apply throughout this Offering Circular: ADB or Issuer Board of Directors Asian Development Bank Board of Directors of ADB Bonds RMB 1,000,000, % Bonds of 2005 due 2015 issued by ADB Depository/Paying Agent Lead Manager and Bookrunner MOF RMB Special Funds The Charter PBOC PRC SAFE The China Government Securities Depository Trust & Clearing Co., Ltd. BOC International (China) Limited The Ministry of Finance of the PRC Ren Min Bi, which is the lawful currency of the People s Republic of China Has the meaning ascribed to it in the Charter The Agreement Establishing the Asian Development Bank The People s Bank of China The People s Republic of China The State Administration of Foreign Exchange The rest of this page has been left blank intentionally - 6-

8 2.0 SUMMARY OF PRINCIPAL TERMS AND CONDITIONS 1. Issuer : Asian Development Bank 2. Depository & Paying Agent : The China Government Securities Depository Trust & Clearing Co., Ltd. 3. Instrument : Fixed Rate Bonds 4. Amount : RMB 1,000,000, Tenor : 10 years 6. Issue Date : 14 October Maturity Date : 14 October Issue Price : At par 9. Coupon : 3.34% per annum 10. Availability : Upon completion of all documentation and compliance with the Conditions Precedent. 11. Purpose : Proceeds to the Issuer from the sale of the Bonds will be included in the ordinary capital resources of the Issuer and used in its ordinary operations, more particularly in the financing of the Issuer s projects in the PRC. 12. Underwriting : The Bonds will be fully underwritten by the Lead Manager. 13. Form and Denomination : The Bonds will be issued in a minimum denomination of RMB 1,000,000 or integral multiples thereof. The Bonds will be deposited with the Depository and will be traded in the China Inter-bank Market upon the approval of PBOC being obtained. 14. Ranking : The Bonds will constitute direct, unsecured obligations of the Issuer ranking pari passu, without any preference among themselves, with all other unsecured and unsubordinated obligations (whether present or future) of the Issuer except those obligations preferred by law. 15. Mandatory Redemption : The Bonds shall be redeemed on the Maturity Date at 100% of their par value. - 7-

9 16. Purchases : The Issuer may arrange for the purchase of the Bonds at its discretion. 17. Trading : The Bonds will be traded on the China Inter-bank Bond Market upon the approval of PBOC being obtained. 18. Listing : The Bonds will not be listed on any stock market in the PRC. 19. Negative Pledge : The Bonds will have the benefit of a negative pledge. 20. Event of Default : If the Issuer defaults in the payment of the principal of, or interest on, any bonds, notes or similar obligations (including the Bonds) which have been issued, incurred, assumed or guaranteed by the Issuer, and such default continues for a period of 90 days, then at any time thereafter and during the continuance of such default, a Bondholder may deliver or cause to be delivered to the Issuer written notice that such holder elects to declare the principal of all Bonds held by such Bondholder to be due and payable, and on the 30th day after such notice shall be delivered to the Issuer, the principal of and accrued interest on such Bonds shall become due and payable, unless prior to that time all such defaults thereto existing have been cured. 21. Conditions Precedent : Issuance of Bonds is subject to compliance with conditions precedent including but not limited to the following: (a) Satisfactory completion and execution of all issue documents of the Bonds; (b) Confirmation and delivery of all required governmental and other approvals; (c) Satisfactory legal opinion from the legal counsel as to the legality, validity and enforceability of all legal documentation; (d) No material adverse change in the business condition (financial or otherwise), operations or prospects of the Issuer from the date of the financial statements upon which the Lead Manager based its decision to arrange the Bonds; (e) No material adverse change in the economic, financial, interest rates, property market, stock market, or political conditions in the PRC or internationally which will materially and adversely affect any of the aforesaid in the PRC, and in any case which will impact on the successful issuance of - 8-

10 (f) the Bonds; and No event of default has occurred or is continuing or will occur as a result of the issuance of the Bonds. 22. Taxation : The Bonds and interest thereon generally will be subject to taxation, unless exempted by law. 23. Jurisdiction : The Issuer shall unconditionally and irrevocably submit to the non-exclusive jurisdiction of the courts of the PRC. 24. Governing Law : Laws of the PRC The rest of this page has been left blank intentionally - 9-

11 3.0 PRINCIPAL TERMS AND CONDITIONS OF THE BONDS The RMB 1,000,000, % Bonds of 2005 due 2015 (the Bonds ) are unsecured bonds of the Issuer. The Bonds are subject to an agency agreement for issuance, registration, depository and redemption of renminbi bonds (the Depository and Paying Agency Agreement ) made or to be made between the Issuer and The China Government Securities Depository Trust & Clearing Co., Ltd. (the Depository and Paying Agent, which term shall include any substitute or successor depository or paying agent that the Issuer may appoint in its discretion) as depository and paying agent. The statements in these terms and conditions of the Bonds (the Conditions ) include summaries of, and are subject to, the Depository and Paying Agency Agreement. A copy of the Depository and Paying Agency Agreement is available for inspection at the office of BOC International (China) Limited (the Lead Manager ) at Room 705, Tower E1, Oriental Plaza, No. 1 East Chang An Ave., Dong Cheng District, Beijing, , the People s Republic of China. The holders of the Bonds (the Bondholders ) are entitled to the benefit of, are bound by and are deemed to have notice of, all the provisions of the Depository and Paying Agency Agreement. 1. Form and Denomination 1.1 The Bonds are transferable free from all equities, set-off or counterclaim between the Issuer and the original or intermediate Bondholders. 1.2 The Bonds are issued and are only available in registered book-entry form. The minimum denomination of the Bonds is RMB 1,000,000 or integral multiples thereof. 2. Status 2.1 The Bonds constitute direct, unconditional and (subject to the provisions of Condition 8) unsecured obligations of the Issuer and rank pari passu, without any preference amongst themselves, with all other present and future unsecured and unsubordinated indebtedness of the Issuer. 2.2 The Bonds are not the obligation of any government. 3. Payments 3.1 Payment of interest and principal under the Bonds shall, in accordance with the provisions of the Depository and Paying Agency Agreement, be made by or on behalf of the Issuer to the Paying Agent. The Paying Agent shall, in accordance with the Depository and Paying Agency Agreement, transfer such interest and principal to the Bondholder s own securities account with the Paying Agent

12 The Paying Agent shall pay such interest and principal to the Bondholders whose names appear on the register maintained by the Depository as of the Record Date. The records of the Depository shall be conclusive evidence of the identity of the Bondholders and the respective amounts of the Bonds held by the Bondholders. In this Condition 3.1, Record Date means, in the case of payment of interest, the Business Day prior to the date on which any payment of interest is due, and, in the case of payment of principal, the third (3 rd ) Business Day prior to the date on which any payment of principal is due. Every payment of interest and principal by or on behalf of the Issuer to the Paying Agent shall satisfy and fulfill completely the corresponding payment obligations of the Issuer in respect of the Bonds. For the avoidance of doubt, upon making any such payment to the Paying Agent, the Issuer shall not be liable for any failure or delay in the receipt of such payment by the Bondholders for any reason whatsoever. 3.2 In the event that the due date for payment of interest or principal under the Bonds shall not be a Business Day, such payment of interest or principal shall take place on the following Business Day. For the avoidance of doubt, the Issuer shall not be obliged to pay any additional interest for such delay in payment. For the purposes of this Condition 3, Business Day shall mean a day on which the Depository and the Paying Agent is open for general business in Beijing. 4. Redemption 4.1 Unless previously purchased by the Issuer and cancelled, the Bonds will be redeemed at their principal amount on 14 October 2015 (the Maturity Date ) and are not redeemable prior thereto. 5. Interest 5.1 Unless previously purchased by the Issuer and cancelled, the Bonds bear interest from the date of issue of the Bonds (the Issue Date ) at the rate of three point three four percent ( 3.34 %) per annum, payable annually in arrears on 14 October, the first such payment to be made on 14 October The Bonds will cease to bear interest from the Maturity Date unless, at the time of redemption, payment of the principal is improperly withheld or refused. In that event, interest shall continue to accrue in accordance with this Condition (both before and after judgment) until the date on which the full amount of the redemption money has been received by the Paying Agent

13 Where interest is required to be calculated for a period of less than one year, it shall be calculated on the basis of the actual number of days elapsed in an interest period divided by 365 days (fixed). 6. Purchases 6.1 Subject to applicable laws, the Bonds may be purchased by the Issuer prior to their redemption, at such time and price as agreed with any seller. Any Bonds so purchased may be cancelled. Any Bonds so purchased and not cancelled may be resold at the Issuer s discretion. 7. Event of Default 7.1 If the Issuer defaults in the payment of the principal of, or interest on, any bonds, notes or similar obligations (including the Bonds) which have been issued, incurred, assumed or guaranteed by the Issuer, and such default continues for a period of ninety (90) days, then at anytime thereafter and during the continuance of such default, a Bondholder may deliver or cause to be delivered to the Issuer, a written notice that such Bondholder elects to declare the principal of all Bonds held by such Bondholder (the details of which shall be set forth in such notice) to be due and payable, and on the 30 th day after such notice shall be delivered to the Issuer, the principal of and accrued interest on such Bonds shall become due and payable, unless prior to that time all such defaults thereto existing have been cured. 8. Negative Pledge 8.1 So long as any of the Bonds are outstanding and payment thereof has not been made or duly provided for, the Issuer will not cause or permit to be created on any of its property or assets any mortgage, pledge or other lien or charge as security for any notes, bonds or other evidences of indebtedness heretofore or hereafter issued, assumed or guaranteed by the Issuer for money borrowed (other than purchase money mortgages and pledges or liens on property purchased by the Issuer as security for all or part of the purchase price thereof), unless the Bonds are secured by such mortgage, pledge or other lien or charge equally and rateably with such other notes, bonds or evidences of indebtedness. 9. Notices 9.1 All notices and documents to Bondholders will be sent by post PROVIDED THAT notices to Bondholders may, notwithstanding any earlier provisions hereunder, be given by advertisements published in a financial newspaper published daily and having national distribution channels in the PRC, or through the official web site of the Depository. Any such notice shall be deemed to have been given on the date of - 12-

14 such publication under the relevant mode of notification or, if published more than once or on different dates, on the first date on which such publication is made. 10. Further Issues 10.1 Subject to all relevant regulatory approvals having been obtained, the Issuer may from time to time without the consent of the Bondholders create and issue further securities having the same terms and conditions as those of the Bonds (or the same except for the amount and the date of the first payment of interest thereon) and ranking pari passu with the Bonds then outstanding in all aspects so that the same shall be consolidated and form a single series with the Bonds then outstanding. References to the Bonds herein, unless the contents require otherwise, shall include any and all other securities issued pursuant to this Condition Transfers 11.1 The Bonds shall be traded on the China Inter-bank Market. Transfers of beneficial interests in the Bonds will be effected through records maintained by the Depository in accordance with the Depository and Paying Agency Agreement and the procedures of the Depository. 12. Governing Law 12.1 The Bonds and the Depository and Paying Agency Agreement are governed by and will be construed in accordance with the laws of the PRC. 13. Jurisdiction 13.1 The Issuer hereby irrevocably agrees for the exclusive benefit of the Bondholders that the courts of the PRC shall have the non-exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Bonds and that accordingly any suit, action or proceedings arising out of or in connection with the Bonds (together referred to as Proceedings ) may be brought in such courts. The Issuer irrevocably submits to the jurisdiction of such courts and waives any objections to the Proceedings in such courts on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is for the benefit of each of the Bondholders and shall not limit any right to take Proceedings against the Issuer in any other court of competent jurisdiction in the territory of countries (each a Competent Jurisdiction ) in which actions may be brought against the Issuer pursuant to Article 50, Paragraph 1 of the Agreement Establishing the Asian Development Bank (the Charter ), nor shall the taking of Proceedings in one or more Competent Jurisdictions preclude the taking of Proceedings in any other Competent Jurisdiction, whether concurrently or not

15 13.2 To the extent that the Issuer may in any Competent Jurisdiction claim for itself, or its assets immunity from suit, execution, seizure, attachment or other legal process and to the extent that in any such Competent Jurisdiction there may be attributed to itself or its assets such immunity (whether or not claimed), the Issuer hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the full extent permitted by the laws of such Competent Jurisdiction; provided, however, that in accordance with Article 50, Paragraph 2 of the Charter, no Proceedings shall be brought against the Issuer by any member of the Issuer, or by any agency or instrumentality of a member, or any entity or person directly or indirectly acting for or deriving claims from a member or from any agency or instrumentality of a member; and provided further that in accordance with Article 50, Paragraph 3 of the Charter, the property and assets of the Issuer shall, wheresoever located and by whomsoever held, be immune from all forms of seizure, attachment or execution before the delivery of final judgment against the Issuer. The rest of this page has been left blank intentionally - 14-

16 4.0 RISK FACTORS Prospective investors of the Bonds should carefully consider all information set out in this Offering Circular and in particular, the risks described below before making any investment decision. This Section provides an overview of certain risk factors, of which prospective investors should be aware, which may potentially affect the business of ADB. This Section does not purport to be complete or exhaustive. Prospective investors should undertake their own investigations and analysis on ADB, its business and risks associated with the Bonds. Prospective investors should read the detailed information set out elsewhere in this Offering Circular. Prior to making an investment decision, prospective investors are advised by ADB and the Lead Manager to seek appropriate professional advice. 4.1 No prior market in the Bonds The Bonds comprise a new issue of securities for which there is currently no public market in the PRC. There can be no assurance as to the liquidity of any market that may develop for the Bonds, the ability of holders to sell their Bonds or the prices at which holders would be able to sell their Bonds. No investor should purchase the Bonds unless such investor understands and is able to bear the risk that the Bonds may not be readily saleable, that the value of the Bonds will fluctuate over time, and that such fluctuations may be significant and could result in significant losses to such investor. This is particularly the case for investors whose circumstances may not permit them to hold the Bonds until maturity. 4.2 Legal Investment Considerations Investors should consult their own legal advisers in determining whether and to what extent the Bonds constitute legal investments for such investors and whether and to what extent the Bonds can be used as collateral for various types of borrowings. In addition, financial institutions should consult their legal advisers or regulators in determining the appropriate treatment of Bonds under any applicable risk-based capital or similar rules. Investors whose investment activities are subject to investment laws and regulations or to review or regulation by certain authorities may be subject to restrictions on investments in certain types of debt securities, which may include the Bonds. Investors should review and consider such restrictions prior to investing in any Bonds. 4.3 Disclosure regarding forward-looking statements This Offering Circular contains forward-looking statements, that is, those other than statements of historical facts. Although ADB believes that the expectations reflected in such - 15-

17 future statements are reasonable at this time, there can be no assurance that such expectations will prove to have been correct. Any difference in the expectations of ADB from its actual performance may result in financial and business performance and plans that are materially different from those anticipated. The rest of this page has been left blank intentionally - 16-

18 5.0 PRINCIPAL INFORMATION REGARDING ADB Establishment, Membership and Location ADB, a multilateral development bank, was established in 1966 under the Agreement Establishing the Asian Development Bank (the Charter ), which is binding upon the member countries which are its shareholders. The PRC is a member of ADB. As of 31 December 2004, ADB had 63 members consisting of 45 regional members, including Japan, Australia and New Zealand, providing 63.2% of its capital, and 18 non-regional members, comprising the United States, Canada and 16 European countries, providing 36.8% of its capital. The principal office of ADB is located in Manila, Philippines, with offices worldwide. At 31 December 2004, ADB had a staff of 2,394 from 53 member countries. Purpose and Principal Activities The purpose of ADB is to foster economic growth and cooperation in Asia and the Pacific region (the region ) and to contribute to the economic development of the developing member countries in the region, collectively and individually. ADB s mission is to help its developing member countries reduce poverty and improve their living conditions and quality of life. ADB s strategy for reducing poverty rests on three pillars: sustainable economic growth, inclusive social development, and governance for effective policies and institutions. ADB s primary activity is making loans to finance projects and programs located within the territories of its developing members countries. Such activity is divided into ordinary operations and special operations, for which separate financial statements are maintained. Ordinary operations are financed from ADB s ordinary capital resources, which consist primarily of its subscribed capital stock, the proceeds of borrowings, and funds derived from ordinary operations. Special operations are financed from Special Funds resources, most of which are contributed by ADB s members. Resources for these two types of operations are segregated from each other. The Charter requires separate financial statements for ordinary and special operations and prohibits ordinary capital resources from being charged with, or used to discharge, losses or liabilities arising out of special operations. In addition to its lending operations, ADB issues guarantees, makes equity investments, and participates in underwriting equity funds. ADB also extends technical assistance in the form of grants or loans for project preparation and evaluation, development planning and other purposes. ADB also provides policy dialogues and advisory services and mobilizes financial resources through its cofinancing operations tapping official, commercial, and export credit sources to maximize the development impact of its assistance. To complement ADB s activities in development research and training, ADB has established the ADB Institute, a subsidiary body of ADB located in Tokyo, Japan

19 Capital Stock As of 31 December 2004, the authorized and subscribed capital stock of ADB was USD54,162 million. Subscriptions to the capital stock are divided into paid-in and callable shares. Of the total subscribed capital stock as of 31 December 2004, USD3,810 million was paid-in and the remainder was callable. The callable portion of subscriptions to ADB s capital stock is subject to call by ADB only when required to meet its obligations on borrowings of funds for inclusion in its ordinary capital resources or on guarantees chargeable to such resources. Capitalization The outstanding borrowings, capital stock, and reserves, and accumulated other comprehensive income relating to ADB s ordinary operations as of 31 December 2004 were: Borrowings: 1 USD million Payable in United States dollars 13,845 Payable in Japanese yen 4,719 Payable in Australian dollars 1,855 Payable in Euros 1,496 Payable in Swiss francs 861 Payable in Canadian dollars 479 Payable in New Taiwan dollars 219 Payable in Hong Kong dollars 206 Payable in Pounds sterling 190 Payable in other currencies Sub-Total 24,212 Net Payable for Swaps (735) Total Borrowings 23,477 Capital Stock: Subscribed 54,162 Less: Callable capital subscribed 50,352 Paid-in capital subscribed 3,810 Less: Other adjustments , Includes unamortized discounts and premiums and transition adjustments of USD74 million on interest bearing obligations and embedded derivatives FAS 133 Adjustments of USD(365) million. Consists of Indian rupee, Malaysian ringgit, and Singapore dollar. Comprises USD74 million capital transferred to the Asian Development Fund and USD10 million of paid-in capital subscribed but not due

20 Net Notional Amounts Required to Maintain Value of Currency Holdings, Reserves, Surplus, and Accumulated Net Income and Other Comprehensive Income 9,541 Total Capital Stock, Reserves, Surplus, and Accumulated Net Income and Other Comprehensive Income 13,267 Total Capitalization 36,744 Operations Ordinary Capital Resources ADB is authorized under the Charter to make, participate in, or guarantee loans to its developing member countries or their governments, to any of their agencies or political subdivisions, and to public and private enterprises operating within such countries, as well as to international or regional entities concerned with economic development in the region. Such loans are made only for projects or programs of high developmental priority. Through such loans, ADB provides funds generally to cover foreign exchange expenditures incurred in the financed projects or programs. ADB also finances local currency expenditures in certain cases. ADB requires its borrowers to absorb exchange risks attributable to fluctuations in value of the currencies in which loans are disbursed. ADB s program lending is designed, as a complement to its project-specific lending, to develop a sector (or subsector) as a whole and improve a sector s performance through appropriate policy and institutional reforms over the medium- to long-term. The loan proceeds may be used to finance economy-wide import requirements on the basis of a negative import list, or where necessary and appropriate, sector-specific import requirements on the basis of a positive import list. Under the current policy, program lending as a percentage of total lending on a three-year moving average basis is subject to a ceiling of 20%. Additionally, ADB adopted a program cluster approach (whereby a single approval can be given for two or more related sub-programs) as an extension of its program lending modality to enhance flexibility and extended the time frame for program implementation to seven years. In its private sector operations, ADB directly supports private enterprises, investment funds, and financial institutions. Its traditional modes of financing are equity investments and foreign currency loans. Equity investments may include common and preferred stocks, convertible loans, and other forms of mezzanine financing. Loans may be cofinanced by commercial banks and other financial institutions. ADB has three credit enhancement products to facilitate such cofinancing: complementary financing scheme, partial credit guarantee, and political risk guarantee. To address exchange risk related issues in private sector projects, ADB has commenced its local currency lending initiative for private sector operations on a pilot basis in India. ADB s lending policy limits the outstanding commitments, i.e., the sum of outstanding disbursed loan and undisbursed loan balances, equity investments, and guarantees made by - 19-

21 ADB in its ordinary operations to no more than the sum of total callable capital, paid-in capital, and reserves (including surplus but excluding special reserve). ADB s total amount of outstanding loan commitments, as well as equity investments and guarantees, as of 31 December 2004 was USD41,284 million compared with a maximum lending ceiling under the Charter on such date of USD63,810 million. From its establishment through 31 December 2004, ADB had approved loans, net of terminations and reductions, aggregating USD80,263 million in its ordinary operations. At 31 December 2004, ADB s total amount of outstanding loans commitments in its ordinary operations was USD39,865 million. The majority of ADB s ordinary operation loans (97.5%) have been made to the public sector, namely, to member countries and, with the guarantee of the member government concerned, to government agencies or other public entities. The rest is to private sector enterprises and financial institutions without government guarantee. As of 31 December 2004, ADB had also approved 128 equity investments (less cancellations), aggregating USD925 million and participated, to the extent of USD40 million, in six equity underwritings, all financed from its ordinary capital resources. The net equity investment commitments (approvals less disposals and sales and allowance for possible losses) amounted to USD537 million (about 40% of the ceiling under the Charter) as of 31 December Pursuant to the Charter, the total amount of ordinary capital resources that ADB may invest in equity capital may not exceed 10% of its unimpaired paid-in capital stock, reserves (other than the Special Reserve) and surplus, i.e., USD1,345 million at 31 December When making an equity investment, ADB may not obtain a controlling interest in the entity concerned or become its largest shareholder, except under certain circumstances. In its public sector ordinary operations, ADB has not suffered any losses of principal and maintains a position of not taking part in debt rescheduling agreements. Occasional delays have occurred in loan service payments, but these have not been material to ADB s operations. As of the end of 2004, loan loss provision of USD2 million has been provided against one public sector loan that remained in non-accrual status as of 31 December In conjunction with its new income planning framework approved by its Board of Directors in February 2004, ADB provided loan loss reserve of USD219 million for its public sector loan and guarantee portfolios in In its private sector operations, ADB provides allowances for possible losses on its private sector loans and diminution in the value of its equity investments. Allowance for possible losses on impaired private sector loans and equity investments through 2004 totaled USD134 million. In the case of private sector loans, ADB may agree to debt rescheduling only after alternative courses of action have been exhausted

22 ADB Borrowings General Borrowing Policies Under the Charter, ADB may borrow only with the approval of the country in whose market ADB s obligations are to be sold and the member in whose currency such obligations are to be denominated. ADB must also obtain the approvals of the relevant countries so that the proceeds of its borrowings may be exchanged for the currency of any member without restriction. The Charter also requires ADB, before determining to sell its obligations in a particular country, to consider the amount of previous borrowings in that country, the amount of previous borrowings in other countries and the availability of funds in other countries, adhering to the general principle that its borrowings should to the greatest extent possible be diversified as to country of borrowing. Total Borrowing Limitation ADB s borrowing policy limits ADB s gross outstanding borrowings to no more than the sum of callable capital of non-borrowing members, paid-in capital, and reserves (including surplus and special reserve), subject to the Charter limit of 100% of callable capital. Based on such policy, the sum of such capital and reserves as of 31 December 2004 was USD44,617 million. The aggregate of ADB s outstanding borrowings after swaps and guarantees of USD24,986 million as of 31 December 2004 was equivalent to 56.0% of such ceiling or 49.6% of ADB s total callable capital. Funding Operations ADB has borrowed in the capital markets of Australia; Austria; Belgium; Germany; Hong Kong, China; India; Italy; Japan; Kuwait; Luxembourg; Malaysia; the Netherlands; Republic of Korea; Saudi Arabia; Singapore; Switzerland; Taipei,China; Thailand; the United Arab Emirates; the United Kingdom; and the United States, as well as in international capital markets, from certain members and their central banks, and from commercial banks. ADB expects to continue to raise funds for its ordinary operations through the issue and sale of debt obligations in national and international capital markets (including by means of private placements) and from official sources, as conditions permit. In addition, ADB undertakes bridge financing transactions under its USD5 billion Euro-Commercial Paper Programme ( ECP ) to afford greater flexibility in the timing of its long-term borrowings. ADB s overriding borrowing objective has always been to ensure that funds are available to meet its net cash requirements at the lowest possible cost. Subject to this objective, ADB seeks to diversify its sources of funding across markets, instruments, and maturities. One of ADB s core funding strategies is to maintain a strong presence in key currency bond markets through regular issue of benchmark global bonds. Consequently, ADB continues to enhance the execution of its global bond issues, focusing on offering investors fairly priced bonds - 21-

23 through price discovery process, achieving a broad-based distribution both geographically as well as by investor type, and ensuring secondary market liquidity. Importantly, ADB also issues bonds on an opportunistic basis as a means of generating funds at the lowest cost possible. In this regard, ADB established a Global Medium-Term Note Program ( GMTN ) designed to increase its responsiveness to opportunities in private placement market. The amount that can be raised out of the GMTN program is subject to the annual borrowing authorization for ADB as determined by ADB s Board of Directors. Another strategy is to emphasize borrowings with longer maturity ranges to smooth ADB s debt redemption profile. As part of its developmental mandate, ADB contributes to the development of regional bond markets through local currency bond issues. Another objective for the local currency bond issuance is to provide local currency financing to its operations. In 2004, ADB raised long- and medium-term funds totaling about USD1,629 million through 19 borrowing transactions in US dollars, Japanese yen, Hong Kong dollars, Singapore dollars, Indian rupees, and Malaysian ringgit compared to USD4,141 million in The decrease in the 2004 funding size was mainly due to loan prepayments of USD3 billion received during In addition, ADB raised USD90 million in short-term funds under its Euro-commercial Paper Program. The average maturity of 2004 long- and medium-term borrowings was 7.9 years compared with 7.6 years in Of the total 2004 long-and medium-term borrowings, USD1 billion was raised through one benchmark global bond issue and the rest through four local currency bond issues and 14 private placements. These private placements totaling USD169 million were undertaken in keeping with the overriding objective of minimizing costs. These private placements were callable foreign exchange-linked notes targeted to institutional investors in Japan. These structured notes typically have principal amounts in Japanese yen and coupon rates linked to foreign exchange rates. All 2004 private placements were swapped on a fully hedged basis into floating rate US dollar liabilities. As of 31 December 2004, the total amount of outstanding borrowings after swaps was USD23,477 million compared with USD25,571 million in The average life of ADB s outstanding long-term borrowings at 31 December 2004 and 2003 was 4.8 years and 4.2 years, respectively. As part of its continuing efforts to promote capital market development in the Asia and Pacific region, ADB launched in 2004 local currency bond issues in the domestic capital market of India; Hong Kong, China; Malaysia; and Singapore. In 2005, ADB launched a local currency bond issue in the domestic capital market of Thailand. The Indian rupee (INR), Malaysian ringgit (MYR), Singapore dollar and Thai baht ( THB ) bond issues are ADB s inaugural issues in the domestic markets of those countries. The INR, MYR and THB issues were also the first issues by a foreign and supranational entity as well as the first issues rated triple A by Fitch Ratings, Moody s Investors Service, and Standard & Poor s in those countries. ADB undertakes currency and interest rate swap transactions to raise, on a fully hedged basis, - 22-

24 operationally needed currencies in a cost-efficient way while maintaining its borrowing presence in the major capital markets. Liquidity Policy ADB s liquidity policy provides capacity for ADB to meet its cash requirements in the event of a major disruption in its cash flows. The liquidity policy requires that (i) the prudential minimum level of liquidity to be held at all times during the calendar year is 40% of its proxy net cash requirements for the next three years, which is the sum of net disbursement and debt redemption; and (ii) the discretionary liquidity portfolio, which is funded by debt, has a ceiling of 50% of the size of the prudential minimum liquidity without prior authorization of the Board of Directors. Risk Management ADB seeks to mitigate exchange risks by matching its liabilities in various currencies with assets in those same currencies and by matching the currencies of its reserves with those of its outstanding loans. ADB uses derivatives, including currency and interest rate swaps, in connection with its operations in order to reduce its borrowing costs, generate investment income, and manage its balance sheet risks. As of 31 December 2004, the principal amount receivable and payable under outstanding currency swap transactions aggregated USD9,237 million and USD9,277 million, respectively. As of the same date, the notional principal amount of outstanding interest rate swap transactions totaled USD7,281 million. Special Operations ADB is authorized under the Charter to administer Special Funds, the resources of which may be used in its special operations for granting technical assistance and making loans with longer maturities, longer grace periods and lower interest rates than those established for ordinary operations loans. As of 31 December 2004, Special Funds currently consist of the Asian Development Fund ( ADF ), the Technical Assistance Special Fund ( TASF ), the Japan Special Fund ( JSF ), and the ADB Institute Special Fund ( ADBISF ). In February 2005, ADB approved the creation of the Asian Tsunami Fund ( ATF ). The trust funds managed by ADB are the Japan Scholarship Program, Japan Fund for Poverty Reduction, Japan Fund for Information and Communication Technology, and channel financing arrangements of a number of grants provided by bilateral donors to support technical assistance and soft component of loans. These trust funds do not form part of ADB s own resources. The ADF is the concessional lending window of ADB that provides loans to certain developing member countries having relatively lower per capita gross national products and more limited debt repayment capacities than some other developing member countries. From its establishment through 31 December 2004, ADB had approved ADF loans aggregating USD30,035 million in its special operations. TASF and JSF are mainly used for the - 23-