European Bank for Reconstruction and Development Investment of Choice. October 2014

Transcription

1 European Bank for Reconstruction and Development Investment of Choice October 2014

2 Contents Overview of EBRD 3 EBRD s Credit Strengths 14 EBRD s Financial Performance 19 EBRD s Funding Strategy and Results 24 Annex October,

3 Overview of EBRD 17 October,

4 About EBRD Who we are Supranational Institution founded in 1991 owned by 64 countries, plus the European Community and the European Investment Bank Our mission To promote transition to open, market-based economies in our countries of operation we work in more than 30 countries from central Europe to central Asia and the southern and eastern Mediterranean What we do Provide project finance mainly to the private sector Credit strengths Strong support from diversified global shareholder base Conservative risk management and financial policies AAA/Aaa/AAA rating with stable outlook 17 October,

5 EBRD s Mission To foster open, market-oriented economies and promote private and entrepreneurial initiative in the EBRD s countries of operations through investments based on: Promoting transition Through projects that expand and improve markets, and help build the institutions that underpin the market economy Sound banking principles Ensuring the project returns are commensurate with the risks Additionality Financing projects which would not solely be funded by commercial banks Sustainability Ensuring socially and environmentally sound development No Balance of Payments Funding, No Bail-out Financing, No Soft Loans 17 October,

6 Global Shareholder Structure 57% of shareholding is G7 and 84% is OECD 30 billion authorised capital 6.2 billion paid-in capital 23.8 billion callable capital 29.7 billion subscribed capital as at 30 June 2014 Continued reserve accumulation: 8.9 billion as at 30 June 2014 (2012: 7.7 billion) EBRD is 0% risk weighted (Basel II) EBRD region excluding EU 8% Japan 9% USA 10% 2) Canada 3% Ownership Other 7% EU 28 Countries1) 63% Strong support from diversified global shareholder base 1) Includes European Community and European Investment Bank each at 3.0%; France, Germany, Italy, UK each at 8.6% 2) Russia at 4.1% 17 October,

7 Shareholder Credit Strength More than 50% of shareholders are rated AAA/Aaa by at least one of S&P and Moody s 95% of the callable capital is rated investment grade or better by at least one of S&P or Moody s All countries of operation are also shareholders account for 14% of the total shareholding 100% 80% 60% 40% 20% Breakdown of Callable Capital by Rating Category Total subscribed callable capital 23.5 billion 4.9% 19.0% 3.3% Total subscribed callable capital excluding Countries of Operations 20.3 billion 12.0% 21.5% 20.6% 51.3% 51.3% 1.2% 1.3% EBRD has the highest quality callable capital among multilateral development banks 0% Based on ratings from 15 July 2014 AAA AA A BBB Other 17 October,

8 Where we invest June 2014 DRE by Region 30 June 2014** 100% Russia (25.5%) 90% 80% 70% 60% 50% 40% 30% 20% South-Eastern Europe (21.1%) Central Europe and Baltics (18.6%) Eastern Europe and Caucasus (16.2%) Central Asia and Mongolia (6.9%) Turkey (10.4%) 10% 0% SEMED (1.3%) Cyprus (0%) local offices 2,047 staff (75 per cent in London) billion in total project value 40 Local Offices Across the Region approx. 1,500 employees (75% based in London headquarters) WHERE WE INVEST Central Europe and the South-eastern Europe Eastern Europe and the Central Asia 30 Russia Southern and eastern 36 Cyprus Baltic States 10 Albania Caucasus 24 Kazakhstan 31 Turkey Mediterranean 01 Croatia 11 Bosnia and Herzegovina 18 Armenia 25 Kyrgyz Republic 32 Egypt 02 Czech Republic* 12 Bulgaria 19 Azerbaijan 26 Mongolia 33 Jordan 03 Estonia 13 FYR Macedonia 20 Belarus 27 Tajikistan 34 Morocco 04 Hungary 14 Kosovo 21 Georgia 28 Turkmenistan 35 Tunisia 05 Latvia 15 Montenegro 22 Moldova 29 Uzbekistan 06 Lithuania 16 Romania 23 Ukraine 07 Poland 17 Serbia 08 Slovak Republic 17 October, 2014 * As of the end of 2007, the EBRD no longer makes investments in the Czech Republic 09 Slovenia ** DRE Development Related Exposure 8

9 Development Related Exposure (DRE) I 25.9 billion DRE 1,825 active investments Average loan: Size 14 million Margin 3.3% Internal rating eq. of B+ Remaining life 6.6 years 5 largest counterparties (on a group level) amount to 13.7% of the total operating assets Average equity investment: Size 16 million Internal rating equivalent of B- Holding period 6.2 years Annual business Investment (ABI) DRE 2005 June 2014 Agribusiness 9.6% Equity Funds 3.8% Manufacturing & Services 12.8% Property & Tourism 3.0% Energy 18.0% IT & Communication 2.6% Bank FI 24.8% Non Bank FI 4.7% Infrastructure 20.7% 2,000 1,800 1,600 1,400 1,200 1,000 Outstanding loans Outstanding equity investments (at cost) Number of active projects DRE by Industry 30 June Net cumulative business volume 17 October,

10 Development Related Exposure (DRE) II Equity portion stable at 23%, of which: 30% have put arrangements and/or other option arrangements with the project sponsors 24% are invested in diversified equity funds 33% are in listed shares In addition to the DRE (disbursed amounts only), EBRD has off-balance sheet guarantees of approx million, mainly related to its trade finance programme Loans to clients are made on a floating rate basis, and fixing of client loans are made on case-by-case basis and with separate hedge (no interest rate risk) Data from 30 June 2014 unless otherwise stated At cost basis, excludes undrawn commitments State & Public Sector Loans 21.5% USD 30.3% DRE by Type Equity 23.3% DRE by Currency RUB 9.5% PLN 4.0% Others 5.2% Private Sector Loans 55.2% EUR 51.0% Other includes: RON, KZT, LVL, HRK, RSD, GEL, HUF, CZK, LTL, AMD, UAH, MNT, AZN, KGS, BGN, MDL, BYR 17 October,

11 What Makes EBRD Unique Preferred creditor status exempts payments to EBRD from generalised moratoria and foreign exchange controls Strong local presence through 40 offices Local currency financing and development of local capital markets Lending to micro, small and mediumsized enterprises to support entrepreneurial initiative (Small Business Initiative SBI) Promoting sustainable environmental, social and governance policies that are core to EBRD projects Billion Billion Small Business Initiative H14 Micro, Small and Medium-size enterprise (Operating Assets) Sustainable Energy Initiative H14 Sustainable Energy Initiative - launched in May 2006 (Operating Assets) 17 October,

12 Current Developments (I) In 2011, the G8 gave strong support to an extension of the Bank s geographic mandate to the Southern and Eastern Mediterranean (SEMED) region Investments initially made through a Special Fund (on the amendment of Article 18 and the approval of potential recipient country status). The EBRD SEMED Investment Special Fund is controlled by the Bank. At the 2012 Annual Meeting in London, the Board of Governors approved a net income allocation of 1.0 billion in favour of an EBRD SEMED Investment Special Fund (ISF) to permit the start of EBRD investment in the region before formal ratification is finalised (Post ratification of all countries, the fund will be integrated into EBRD s balance sheet). On 12 September 2013 the Amendment of Article 1 of the Agreement Establishing the Bank entered into force. On the 1 November 2013, the Board of Governors adopted resolutions granting recipient country status to each of Jordan, Morocco and Tunisia. On the same date, 337 million of resources previously drawn down from allocated net income into the SEMED ISF for each of the new country of operations was transferred back to the Bank s Ordinary Capital Resources. 17 October,

13 Current Developments (II) The SEMED ISF remains in place to continue to fund investments in Egypt and regional investments, while Egypt remains a Potential Recipient Country. At the 2014 Annual Meeting, the Board of Governors approved a net income allocation of 500 million in favour of the SEMED ISF as a prudent level of additional funding for continuing special operations in Egypt. At end June 2014, Bank has signed 38 projects with operating assets of 334 million in SEMED. Libya - on 15 May 2014 Libya was approved as a member of EBRD with a view to becoming a recipient country. Cyprus - At the 2014 Annual Meeting the Board of Governors took the decision to start investing in Cyprus (a founding EBRD shareholder), for a limited period, to help the country overcome transition challenges that have emerged during its severe economic crisis. Geographic expansion will continue to be phased, gradual and will be achieved while preserving the conservative risk profile of the Bank and in full compliance with its prudential capital and liquidity limits 17 October,

14 EBRD s Credit Strengths 17 October,

15 Key EBRD Credit Strengths Stable and granular development related investment portfolio low concentration risk, high degree of regional and sector diversification Conservative leverage and liquidity limits maximum leverage limit of 1:1, minimum 3-year liquidity limit of 45% and a target of 90% Prudent capital adequacy policies economic capital policy, which excludes all callable capital, uses a 99.99% confidence interval to underpin the triple- A rating Substantial paid in capital and reserves available economic capital of 15 billion, with the level of paid-in capital of above 20% Highest quality callable capital of any multilateral development bank 95% of shareholders are rated investment grade, only 14% ownership overlap with countries of operation EBRD has one of the strongest credit profiles in the supranational segment 17 October,

16 Comparative Credit Strengths Business Profile Financial Profile ADB S&P Credit Rating Peer Comparison 1) Stand Alone Credit Profile AFDB EBRD Ratings Uplift Due To Extraordinary Shareholder Support Principal Size Indicators (USD billion): Total Assets Purpose Related Exposure Adjusted Shareholders' Equity (ACE) Risk Adjusted Capital (RAC) (percent ( percent): Before Adjustment 30% 23% 16% 18% 32% 33% 16% 23% After Adjustment 19% 17% 25% 17% 17% 28% 29% 22% Leverage (multiple): Gross Debt / ACE 3.7x 2.2x 2.0x 7.5x 2.9x 3.6x 2.0x 6.6x Gross Debt Net of Liquidity / ACE 2.4x 1.0x 0.6x 6.1x 2.0x 2.5x -0.3x 4.1x Liquidity (percent): Liquid Assets / Total Assets 19% 34% 41% 15% 22% 13% 66% 30% Liquid Assets net of Deposits / Gross Debt 36% 55% 63% 17% 31% 29% 114% 38% 17 October, EIB Long term Issuer Credit Rating IADB IBRD Outlook IFC Date of Latest Affirmation (available on the IFI's website) ADB extremely strong very strong aaa not required AAA Stable 03-Jul-14 AFDB very strong strong aa yes AAA Stable 17-Sep-14 EBRD very strong extremely strong aaa not required AAA Stable 15-Sep-14 EIB extremely strong very strong aa+ yes AAA Stable 25-Jul-14 IADB very strong very strong aa+ yes AAA Stable 21-Aug-14 IBRD extremely strong very strong aaa not required AAA Stable 2-Apr-14 IFC very strong extremely strong aaa not required AAA Stable 11-Dec-13 NIB very strong very strong aa+ yes AAA Stable 6-Junt-14 Selected S&P Credit Metrics Peer Comparison 2) 1) Source: Current ratings by Standard & Poor s, based on their methodology "Multilateral Lending Institutions And Other Supranational Institutions Ratings Methodology," published Nov. 26, ) Source: Standard & Poor s, Supranationals Special Edition 2014 (based on 2013 data, except for IBRD and IFC with data from fiscal year ending 30 June 2013) NIB

17 Substantial Paid-In Capital and Reserves During the financial crisis EBRD has retained its strong reserve position Available Economic Capital grew by 4.5 billion (or 41%) from 10.8 billion in 2008 to 15.3 billion as at 30 June More than 20% of EBRD s capital is paid in, compared to an average of 5.4% for other global or regional triple- A rated multilateral development banks with callable capital (IBRD, ADB, IADB, AFDB and EIB) EUR Billion Development of Paid-In Capital and Reserves (2006 1H 2014) H Paid-in capital Reserves General portfolio provisions Net unrealised gains Available economic capital Strong capital position with relatively high proportion of paid-in capital 17 October,

18 Multilateral Development Banks as an Asset Class Multilateral Development Banks (MDBs) are designed to repay investors based on assets with ultimate recourse to diversified group of shareholders for callable capital To date, no MDB has had to resort to calling its callable capital Only one triple-a rated MDB has ever been downgraded by a rating agency and was subsequently upgraded to triple-a again As a comparison, individual sovereign triple-a ratings are more prone to downgrades 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Average Rating Transition for Foreign Currency Sovereign Ratings One year Three years Five years Ten years Fifteen years AAA AA A BBB BB B S&P s Sovereign Defaults And Rating Transition Data , 2012 Update Multilateral Development Banks have very stable triple-a ratings 17 October,

19 EBRD s Financial Performance 17 October,

20 Financial highlights (in million) 1H14 financials provisional, subject to Board approval billion H YOY Change Business performance Annual Banking Investment (ABI) % Number of projects % Operating assets (at cost) % Underlying financial performance Realised profit before impairment % Net profit* % Non-performing assets ratio (all loans) 3.6% 3.3% 3.4% -2.9% Strong capitalisation Statutory capital (incl. allocation to SEMED ISF**) % Economic capital base % *Before net income allocations approved by the Board of Governors. **An initial net income allocation of 1.0bn made in 2012 followed by a replenishment of 0.5bn in October,

21 Strong Underlying Profitability Robust underlying realised profits 1,500 1, million 0 (500) (1,000) (1,500) H Realised profit before provisions for losses Fair value movements in share investments Provisions for loan losses Net profit /loss 17 October,

22 Equity Portfolio and Realised Equity Gains Equity portfolio (including derivatives) remains valued above cost (+5.5%) and includes 0.6 billion of investments with determinable returns ( debt-like ): put options to counterparties to exit at pre-determined minimum. At end 2013, equity investments at cost stood at 6.4 billion, or 24% of total operating assets (2008: 18%), with fair value of 6.7 billion. During the period the Bank recognised 1.7 billion in realised equity gains at an average money multiple of 1.65 times. Development of historic cost & fair value adjustment (2008-1H 2014) 8,000 Development of divestments & realised gains (2008-1H 2014) 1,400 2,000 million 7,000 6,000 5,000 4,000 3,000 2,000 1,000 million 1,200 1, ,800 1,600 1,400 1,200 1, Cumulative equity gains H Fair value adjustment (incl. derivatives) Historic cost H Net realised equity gains Divestments Cumulative realised equity gains 22

23 Strong Underlying Profitability Robust underlying realised profits At end 2013 impaired loans represented 3.4% (2012: 3.4%) of total loan operating assets. Well provisioned at 58% of impaired loans. The non-performing asset ratio based on a 7 year average was 2.1% for 2013 (2012: 1.7%). 817 million of general and specific provisions and 730 million of additional loan loss reserve represent 7.7% of total loan operating assets. 343 million cumulative loan write-offs since million Development of historic cost & fair value adjustment (1999-1H 2014) 1, H14 14% 12% 10% 8% 6% 4% 2% 0% Total Loan Impaired Assets (LHS) Specific and General Provisions (IFRS Provisions) (LHS) Loan Loss Reserves (LHS) Loan Impaired Assets as % of Loan Operating Assets (RHS) IFRS Provisions and LLR (from 2005) as a % of Loan Operating Assets (RHS) 17 October,

24 EBRD s Funding Strategy and Results 17 October,

25 Funding Principles Investor-driven - Active support of EBRD debt in the secondary market - Tailor-made structured products Committed to long-term relationships - Sustain existing, and develop new, investor relationships - Ongoing interaction with investor groups Strategic focus - Benchmark issuance in core currency markets - Developing capital markets in emerging currencies Diversify across markets, currencies and instruments 17 October,

26 Support for Investors Increases: possibility to tap existing issues Buybacks: EBRD s exceptionally strong liquidity position allows the Bank to offer investors a secondary market bid for all its bonds - Public Issues: enhances liquidity improves trading performance - Private Placements: EBRD commits to show prices for its bonds investors can lock in profits % repurchased upon investor demand (as at 30 Sep 2014) Restructuring: EBRD offers a flexible approach for investors wishing to restructure private placements by amending existing documentation or reissuing under new terms Size: EBRD has no minimum size for buybacks or new issuance 17 October,

27 Innovative Funding Structures EBRD is able to issue innovative structures which meet specific investors requirements: Commodity-Linked Notes Credit-Linked Notes Equity-Linked Structures Exotic Currencies Fund-Linked Notes FX-Linked Notes Gold-Linked Notes Inflation-Linked Notes Interest Rate Linked Notes 17 October,

28 Borrowing Programmes EUR billion 2014 Borrowing Programme of up to 6 billion billion executed in billion executed in 2012 USD Global benchmark bonds, Green bonds, and Catastrophe bonds Historical Borrowing Programme Sep 2014 Amounts raised (LHS) Average maturity (RHS) Years TRY 3.5% RUB 4.4% Breakdown of 2013 Issuance MXN 1.0% BRL 5.6% EUR 11.3% INR 0.9% ZAR 0.4% Other 1.3% USD 71.7% Breakdown of 2014 Issuance INR 4.9% IDR 5.6% TRY 6.7% BRL 8.0% GBP 8.4% EUR 23.0% GEL 0.6% (at 30 Sep 2014) NZD 0.4% UYU 0.2% AUD 0.2% CHF 0.02% USD 42.2% 17 October,

29 Outstanding Debt 66.5 billion issued since EBRD s inception in 1,326 transactions and in more than 40 currencies 27.2 billion outstanding through 341 bonds Average maturity at launch 7.3 years, average life remaining 3.6 years Outstanding Debt by Currency before Swap RUB 3.1% AUD 2.8% BRL 4.8% TRY 6.2% IDR 1.7% EUR 9.9% GBP 12.1% GBP 8.0% JPY 1.6% RUB 1.9% ZAR 1.2% INR 0.8% Other 1.5% GEL 0.1% RON 0.01% USD 54.3% Outstanding Debt by Currency after Swap EUR 18.9% USD 71.1% 17 October,

30 Recent USD Global Bond Issuance 2014: USD 1.5 billion 1.75% June 2019 The EBRD capitalised on demand from central banks and bank treasuries, offering investors a more attractive spread versus US Treasuries. IFR 2013: USD 1.7 billion 1.625% November 2018 It s a good result. A lot of central banks buy this issuer in secondary, and they re not going to see any supply now for four to six weeks Euroweek. USD 1.25 billion 1.00% September 2018 The EBRD were very responsive, and able to take advantage of the positive tone we have seen in secondaries for top-quality SSA names IFR USD 1.25 billion 1.00% June 2018 The issuer was able to get a sub-libor spread in fives, which I don t think we ve seen all year Euroweek USD 1.3 billion 1.50% March 2020 EBRD s latest deal had strong sponsorship from Asian Central Banks IFR 2012: USD 1.7 billion 0.75% September 2017 There was a strong bid for the credit given the lack of quality supply IFR USD 3.0 billion 1.00% February 2017 It s an awesome trade. Euroweek 80% 70% 60% 50% 40% 30% 20% 10% 0% 70% 60% 50% 40% 30% 20% 10% 0% Breakdown by investor type Central Bank Bank Asset Manager Other Breakdown by geography Asia Europe Middle East / Africa Americas 17 October,

31 How to Contact the EBRD Funding Team Funding: Isabelle Laurent Deputy Treasurer and Head of Funding: Jessica Pulay Deputy Head, Funding: Charles Smith Manager, Funding: Aziz Jurayev Manager, Local Currency Funding: Stefan Filip Manager, Funding: Giulia Franzutti Manager, Funding: Funding desk group Bloomberg Tel: +44 (0) Fax: +44 (0) Treasurer: Axel Van Nederveen - Treasurer: vannedea@ebrd.com Tel: +44 (0) Website: 17 October,

32 Annex 17 October,

33 Callable Capital Art. 6, 16, 17 and 42 of the Agreement Establishing EBRD Payment source sequence pre termination of the Bank s operations (Article 17) Losses arising in the Bank s ordinary operations shall be charged to/ against: 1) provisions 2) net income 3) special reserves (Article 16) 4) general reserves and surpluses 5) unimpaired paid-in capital 6) lastly, an appropriate amount of the uncalled subscribed callable capital which shall be called Payment source sequence post termination of the Bank s operations (Article 42) In the event of termination of the operations of the Bank, the liability of all members for all uncalled subscriptions to the capital stock of the Bank shall continue until all claims of creditors shall have been discharged Creditors on ordinary operations holding direct claims shall be paid: 1) out of the assets of the Bank, 2) out of the payments to be made to the Bank in respect of unpaid paid-in shares 3) and then out of payments to be made to the Bank in respect of callable capital stock Payment of callable capital subscriptions (Article 6) Payment of the amount subscribed to the callable capital stock of the Bank shall be subject to call, taking account of Articles 17 and 42 of this Agreement, only as and when required by the Bank to meet its liabilities Such calls shall be uniform in ECU value upon each callable share calculated at the time of the call 17 October,

34 SEMED Investment Special Fund EBRD 31 Oct Nov 2013 EUR 1bn allocated to SEMED region EUR 570mn actually transferred to SEMED ISF EUR 1bn allocated to SEMED region EUR 233mn actually transferred to SEMED ISF EUR 337mn transferred back to EBRD s ordinary capital resources SEMED ISF EBRD Special Shareholders Fund EUR 570mn received split on Projects EUR 522mn Net losses (FX movements, expenses, etc.) EUR 23mn Transfer to Shareholders Special Funds EUR 25mn (out of EUR 75mn allocated) EUR 25mn received as grant EUR 233mn received split on Projects EUR 185mn Net losses (FX movements, expenses, etc.) EUR 23mn Transfer to Shareholders Special Funds EUR 25mn (out of EUR 75mn allocated) EUR 25mn received as grant 17 October,

35 Robust Balance Sheet & Callable Capital Key Components of EBRD s Balance Sheet 1H14 55 Other Financial Liabilities, Liquid Assets & Other Assets, Borrowings, Other Callable Capital, 15 5 Operating Assets, Paid-In Capital, Reserves & Retained Earnings, Triple A Callable Capital, Assets Liabilities Callable capital 17 October,

36 Comparative Credit Strengths Leverage Ratio Stress Testing Ratio: (Paid-in capital and reserves + AAA and Aaa callable capital) / Borrowings Shows part of ratio with paid-in capital and reserves only Shows part of ratio with AAA and Aaa callable capital only (30 April 2014) Shows total ratio in case of downgrade of all Eurozone AAA and Aaa countries and institutions currently on negative outlook by either Moody s or S&P (30 April 2014) 17 October,

37 Net Debt Write-offs % of Loan Operating Assets % % % million % Percentage % 0 0.0% % H 2014 Debt Recoveries Debt Write Off Net Debt Write off as % of OA Notes OA = Loan Operating Assets Losses remain very low, partly reflecting the Bank s superior liquidity and capital which allows patience in debt work-outs. 17 October,

38 Managing Treasury Asset Maturity Treasury Maturity Profile Treasury Balance Sheet ( bln) Average Maturity Treasury Balance Sheet LHS Average Maturity RHS 17 October,

39 Credit Strengths Maintaining sufficient levels of liquidity Matched funding ratio Net cash requirements ratio 120% 120% 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% H Liquid assets / undisbursed Banking investments plus 1 year debt service 0% H Next 3 years' cash requirement basis Liquidity in terms of coverage of one year cash requirements was 103% at end H and above the 75% minimum (2013: 93%). Net liquidity was 97% at end H (2013: 95%) substantially above the 45% minimum requirements. At end 2013, 98% liquid assets investment grade quality (2012: 96%). 16 June,

40 Prudent Capital Adequacy Policies Statutory Capital Requirement ensures total debt never exceeds callable capital plus liquid assets - Development related exposure ( DRE ) must not exceed unimpaired subscribed capital, reserves and surpluses Economic Capital Policy aims to underpin EBRD s triple-a rating by: - Using triple-a consistent methodology (99.99% confidence level/1 yr horizon) - Estimating required economic capital ( REC ) for market, credit and operational risk consistent with Basel II - Excluding callable capital from Available Economic Capital (AEC) calculation - Managing economic capital utilisation ratio (REC/AEC) against a 90% threshold to provide a 10% prudential capital buffer Conservative economic and statutory policies designed to ensure full investor repayment with triple-a level of certainty 17 October,

41 Prudent Statutory & Risk Capital Ratios Statutory Capital Ratio Economic Capital Utilisation Ratio H statutory capital utilisation is at 66% (2013: 68%) including 9.0 billion effective callable capital increase and SEMED Special Fund allocation. 17 October, 2014 H AEC at 15.3 billion gave an Economic Capital ratio of 69% (2013: 72%). 100% of EBRD s risk capital would be treated as Tier 1 capital under Basel III. 41

42 EBRD Investment Decision Operations Committee Operations Committee (OpsCom) Controls Credit/Risk Mgmt Banking teams Sector teams Local offices Mandate Compliance Economists IT Systems Legal Compliance Lead transactions Client relationships Identify exits Environment Procurement Key operational decision body; committee meetings on a weekly basis Comprised of members from Banking, Risk Management, Legal, Operations, Economists Department and Finance Project based decisions on e.g. investments proposals and equity exits Decisions require consensus 17 October,

43 EBRD Investment Decision Process steps Documentation required for each stage of approval follows a prescribed format Concept Review Structure Review Final Review Board Approval Signing Initial clearance before allocating resources to a project. Complex projects return to Ops Com for Structure Review. Norm for e.g. equity investments. Once key terms have been negotiated and appropriate due diligence has been completed. Unless approved in a framework, all projects need to be approved by the Board of Directors. Host country has veto right. Before signing a closing certificate is signed to record any significant changes since Final Review. Rigorous screening and approval process, with early involvement of support units (e.g. Risk Management, Legal, Treasury) Included in the process are requirements on e.g. anti money laundering and counter terrorism funding regulations as well as environmental policies 17 October,

44 Board of Directors The powers of the EBRD are vested in the Board of Governors to which each member appoints a governor, generally the minister of finance The Board of Governors delegates most powers to the Board of Directors, which is responsible for EBRD's strategic direction EBRD has a resident Board of Directors that meet every second week There are currently 23 Directors representing the 66 shareholders Investment discussions typically focus on a project s alignment with the Bank s mandate and larger strategy Decisions are made by majority vote; the Director of the country in which the project is located has a veto right 44

45 Monitoring Development Related Exposure The monitoring phase begins immediately after Board Approval and continues until repayment or, for equity, divestment The monitoring focuses not only on credit elements, but also development milestones agreed with the client (related to e.g. business or environmental targets, changes in corporate governance) The additional monitoring elements ensure in-depth understanding of the client s business and increase the probability of identifying problems early The monitoring system also provides the basis for a quarterly credit report that is submitted to the Board of Directors 45

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47 EBRD Equity Portfolio Equity Investments 6.4 billion Listed 40 investments 33% of investment cost Co-Investment FDI Sponsor 104 investments 26 % of investment cost Co-Investment Local Owner 75 investments 18% of investment cost Equity Funds 118 investments 24% of investment cost IPO New Market Entrepreneurs Intermediated Investments Privatisations Puts and Calls Minority Status Locally Based Fund Managers Strategic Investors EBRD s total equity investments at end of June 2014 was 6.03 billion, with an equity fair value of 6.39 billion (including associated derivatives) 47

48 EBRD Valuation and Control Process IT Systems SAP, Summit, Frameworks, In-house monitoring software (PMM) Fair Value Assessment All equity holdings valued and reported semi-annually in accordance with IFRS. 20 largest holdings valued quarterly Equity Valuation Committee Meets quarterly to review valuations External Auditors Valuations agreed with EBRD auditors (Deloitte) Controllers Banking Credit/Risk Management Fair value of equity investments is regularly and rigorously assessed in a well established process involving all key constituencies 48

49 Loan Syndications I A prime objective for the EBRD is to mobilise private sector funding in its projects, which is often achieved via the EBRD A/B loan structure: - The EBRD, as lender of record, extends a loan to a borrower on terms pre-arranged with commercial lenders and the EBRD - The EBRD then sells participations, without recourse to itself, in such loans to the commercial lenders - The portion which the EBRD lends is often referred to as the A Loan, with the commercial lender s portion being referred to as the B Loan Through this technique, the B Lenders benefit from EBRD s preferred creditor status 49

50 Loan Syndications II Total B loans committed: 12.6 billion Strong B loan portfolio performance - Gross write-offs/total B loans committed: 0.32% - Net write-offs/total B loans (after recoveries and write-backs) 0.23% Key assumptions/provisos: - That a commercial bank writes off the same percentage of its B loan as the EBRD writes off on its A loan - Currency exchanges rates vary, and thus precise percentages may vary For more loan syndications information and contact details, please refer to These are cumulative data since establishment of EBRD in 1991 (not per annum data) until 31 December

51 Loan Syndications III (Preferred Creditor Status) The Preferred Creditor Status (PCS) means that: - EBRD loans are not subject to moratoria, rescheduling or restrictions on convertibility or transferability of hard currency - Potential exemption from country provisioning requirements (where applicable) for participant banks - EBRD loans are not included in the Paris Club or London Club - May allow rated transactions to pierce the sovereign ceiling The PCS does not constitute: - A guarantee or letter of comfort from the government, or from the EBRD, that the loan will perform commercially - An indicator of the loan s creditworthiness per se and co-financiers must carry out their own due diligence in the normal manner The PCS was tested during the Russia crisis in During the moratorium, all payments to the EBRD and its B Lenders came through on time 51

52 Universe of Public Issuance Global benchmark issuance in Euro and US Dollars (10 outstanding) exempt from SEC filing cleared through Euroclear, Clearstream and DTC Eurobond issuance including: Australian Dollars up to 2028 Brazilian Real up to 2025 Great British Pound up to 2040 Indonesian Rupiah up to 2016 Russian Rouble up to 2018 Turkish Lira up to 2025 Domestic bonds including Armenia, Georgia, Hong Kong, Hungary, Italy, Romania, Russia, Singapore, South Korea, Spain, Sweden, Taiwan Many of the publicly issued bonds represent landmark transactions 52

53 Green Bond Portfolio EBRD s Green Bonds provide an opportunity to invest in environmental and sustainable solutions that support state and private sector environmental projects in EBRD s countries of operations The proceeds of the bond are specifically earmarked to support the Green Project Portfolio ( GPP ), comprising investments in: Energy Efficiency Sustainable living Environmental services and public transport Clean Energy Water Management Waste Management Criteria established by the EBRD s Environmental and Sustainability, Banking, Treasury and Legal departments 53

54 Green Bond Portfolio Operating assets by region Eastern Europe and the Caucasus 12.2% Regional 4.87% Russia 7.9% Central Asia 3.8% Southern and eastern Mediterran ean 0.2% South- Eastern Europe 28.6% Operating assets by industry Manufacturing & Services 6.9% Transport 7.6% Agribusiness 1.7% Leasing Finance 0.4% Banks (EE via partner banks) 38.5% Central Europe and the Baltic States 18.5% Turkey 23.9% Operating assets by class Environmental services and sustainable public transport 15.4% Water Mgmt 12.4% Clean Energy 23.3% Waste Mgmt 0.5% Energy Efficiency & Sustainabl e Living 48.4% Municipal & Env Inf 21.6% Power and Energy 23.3% Green Project Portfolio (at 30 June 2014): 4.3bn committed amounts 2.35 operating assets 258 projects 9.14 years weighted average remaining life 54

55 Green Bond Issues Proceeds from issuance are directed towards the GPP by: - Definitions in the bond documentation - Limiting total Green bond issuance to 70% of the GPP - Allocating proceeds to existing and new projects EBRD has issued 17 bonds totalling EUR 495 million equivalent since 2010 The Bonds were denominated in AUD, BRL, IDR, NZD and USD In September 2013 the Bank issued its 1 st Global Green USD 250 million 1.625% bond due 10 April 2018: over 50% was placed in the US, and over 60% with pension funds. Criteria & Selection GPP Reporting Monitoring Geography Investor type Asia 18.0% Asset Managers 12% State Entities 5% Foundations 1% Europe 31.0% USA 51.0% Central Banks 18% Pension Funds 64% 55

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