Overseas Private Investment Corporation

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1 Overseas Private Investment Corporation Supporting U.S. Private Sector Investment in Southeast Asia Adam McConagha Investment Officer November

2 OPIC: Mission OPIC was created as an independent agency of the United States Government in To mobilize and facilitate the participation of U.S. private capital and skills in the economic and social development of less developed countries and areas, and countries in transition from non-market to market economies - U.S. Foreign Assistance Act of

3 OPIC: Mandate & Goals Mandate Goals!Support U.S. private investment in more than 150 emerging markets and transitioning economies!operate on a selfsustaining basis by supporting commercially viable projects on commercial terms!complement the private sector, do not compete with it CAPITAL EQUIPMENT KNOWLEDGE!Foster sustainable and responsible economic development in host countries!strengthen US competitiveness by facilitating investment in new markets!further US foreign policy goals 2

4 OPIC: Accomplishments since 1971 Investment Mobilized $180 billion worth of investment in emerging markets Jobs Created over 800,000 host country jobs in 150 countries Exports Generated over $71 billion in U.S. exports and supported over 271,000 U.S. jobs 3

5 OPIC: Product Offerings Political Risk Insurance Covers a variety of non-commercial risks faced by investors in emerging markets Finance Provides loans and loan guaranties for eligible projects Investment Funds Supports the creation of privatelyowned and managed investment funds 4

OPIC: Project Eligibility Private Sector! Supports US private sector investment abroad! Fosters private sector initiatives and competition in host country!

6 OPIC: Project Eligibility Private Sector! Supports US private sector investment abroad! Fosters private sector initiatives and competition in host country! Will not support projects which are majority owned by the host government Developmental! Projects must benefit the social and economic development of the host country! Each project is given a development contribution score based on its specific merits. A project must achieve a certain score in order to be supported by OPIC Viability! Projects must be commercially viable and financially sound! The creditworthiness of projects seeking OPIC financing is evaluated on a nonrecourse basis with focus on the cash flows of the project (rather than parent company guaranties) Environment! Every project receives an environmental assessment! Follow World Bank/IFC environmental standards! Will not support projects that have an unreasonable adverse environmental impact US Economy! Cannot support projects that could result in the loss of US jobs and/or adversely affect the US economy, including loss of potential trade benefits! Ex. OPIC will not support runaway plants Human Rights! Prohibited from supporting projects that contribute to violations of internationallyrecognized human rights! US worker, health and safety standards apply 5

7 Political Risk Insurance 6

8 OPIC PRI: Introduction OPIC can cover the following political risks: 1. Currency Inconvertibility: Inability to convert local currency into USD and/or transfer USD out of the host country 2. Expropriation: Losses due to expropriation, nationalization or confiscation by a host government Any unlawful host government act(s) that deprive the investor of its fundamental rights in a project (includes Breach of Contract coverage) 3. Political Violence: Losses resulting from a violent act undertaken with the primary intent of achieving a political objective Covered Assets Business Income 4. Terrorism (Stand-Alone Coverage) Chemical, biological, radiological or other WMD 7

9 OPIC PRI: Who is eligible "#U.S. citizens; $#Entities created under U.S. law that are at least 50% owned by U.S. citizens; %#Foreign entities at least 95% owned by U.S. investors;!#other foreign entities that are 100% U.S.-owned; &#Not-for-profit organizations in which a majority of the board members are US citizens. 8

10 OPIC PRI: What Does OPIC Insure?!New projects or modernizations, expansions, and/or privatizations of existing projects, NGOs!Types of investment Equity investments Debt (Parent company, third-party loans or loan guaranties) Cross border leases Technical assistance programs Performance, advance payment and bid bond guaranties Sovereign (non-honoring product) and investment guaranties!investments typically have to be for a term of at least three years!reinsurance: Reinsurance of US and non-us insurers for certain political risks 9

11 OPIC PRI: Terms & Conditions!Can insure up to 90 percent of investment (except in the case of lenders). Investor is required to selfinsure at least 10 percent of the investment!maximum coverage of $250 million per project!tenor: Up to 20-years!Fixed premium rate 10

12 OPIC PRI: Advantages of OPIC Insurance!Experience in over 150 countries and across various sectors!no deal too small!cooperation with private insurers and multilaterals!full faith and credit of the U.S. government!advocacy (Pre- and Post-Claim)!Claims History Protect the Investor Preserve the Project 11

13 Finance 12

14 OPIC Finance: Introduction!Provides medium- to long-term financing through direct loans and loan guaranties!provides financing on a project finance or corporate finance basis, generally looking to cash flows from the projects rather than parent company guaranties.!the department is comprised of two teams: Structured Finance Small and Medium-sized Enterprises 13

15 OPIC Finance: Who is eligible?!projects with at least 25% U.S. equity ownership!sufficient sponsor equity!commercially-viable projects producing adequate cash flow!sponsors with a proven track record of success in the same or similar industry!proven technology!less than 50% host-government participation 14

16 OPIC Finance: Terms & Conditions!Direct loans and loan guaranties up to $250 million per project!leverage: 60/40 debt-to-equity ratio for new projects. OPIC can lend up to 75% of TPC* for expansions!senior lender role!loan terms 3-20 years, depending on: Purpose of the loan Projected cash flows!quarterly or semi-annual payments!grace period on principal * TPC = Total Project Costs 15

17 OPIC Finance: Costs!Cost of financing is based on an assessment of the project and country risks: U.S. Treasury rate (cost of funds) Risk spread (usually bps)!other costs include: Upfront facility fee Commitment fees Annual maintenance fee Outside legal counsel and/or The services of experts or consultants 16

18 Investment Funds 17

19 OPIC Investment Funds: Introduction!Supports the creation of privately-owned and managed investment funds that make direct equity investments in new, expanding, or privatizing companies in emerging markets.!fund manager makes investment decisions (not OPIC)!Over 40 funds with nearly $4 billion committed to more than 400 private enterprises!funds have a regional and/or sectoral focus! Asia Development Partners, L.P.! Asia Development Partners II, L.P.! Clearwater Capital Partners (Asia)! Middle East & Asia Capital Partners Clean Energy Fund II 18

20 OPIC in Asia 19

21 OPIC in Asia: Renewable Energy - Insurance Wind Energy in India!US investor sponsoring two wind power projects in two separate Indian states!opic Insurance covers Political Violence (assets and BIC), Inconvertibility and Expropriation!Infrastructure coverage against potential breach of contract under PPA with state electricity utilities!wind turbines are covered property. Partial expropriation for each wind turbine!contract terms of 20 years 20

OPIC in Asia: Renewable Energy - Finance Solar Energy in India!US investor sponsoring India s first MW-scale photovoltaic solar independent power producer.

22 OPIC in Asia: Renewable Energy - Finance Solar Energy in India!US investor sponsoring India s first MW-scale photovoltaic solar independent power producer.!based in Punjab, the project provides energy to the local grid, and employs and trains workers from the community.!the project was financed with a $6.3mn OPIC loan.!loan tenor of 10 years. 21

OPIC in Asia: Investment Guaranty Philippine Non-honoring of a Sovereign Guaranty Issue: US$250 million 144A/Regulation S Trust Certificates Issuer: Philippine Power Trust I, a New York Trust, which

23 OPIC in Asia: Investment Guaranty Philippine Non-honoring of a Sovereign Guaranty Issue: US$250 million 144A/Regulation S Trust Certificates Issuer: Philippine Power Trust I, a New York Trust, which loaned the proceeds to the National Power Corporation of the Philippines (NAPOCOR), guaranteed by the Republic of the Philippines Rating: AAA by Standard & Poor s (vs. ROP s BB rating at the time of the issuance) Coupon / Spread: 5.40% / 1.20% over 10-year US Treasury 22

OPIC Exposure in Asia!Asia Pacific Current Exposure: $1.1bn in 87 projects - Historical Exposure: $12.3bn in 1067 projects!indonesia - Current Exposure: $102.

24 OPIC Exposure in Asia!Asia Pacific Current Exposure: $1.1bn in 87 projects - Historical Exposure: $12.3bn in 1067 projects!indonesia - Current Exposure: $102.5mn in 6 projects - Historical Exposure: $2.1bn in 110 projects!philippines - Current Exposure: $389.5mn in 6 projects - Historical Exposure: $2.6bn in 142 projects!vietnam - Current Exposure: $17.3mn in 2 projects - Historical Exposure: $50.7mn in 8 projects Note: Includes Insurance, Finance and Investment Funds Exposure. As of 6/30/09 23

25 OPIC Exposure in Asia: Country Asia Combined Portfolio Exposure as of June 30, 2009 Country Exposure % of Insurance % of Finance % of Region % of Worldwide AFGHANISTAN $135,011, % 83.53% 12.05% 1.07% BANGLADESH $50,139, % 98.93% 4.47% 0.40% CAMBODIA $155, % 0.00% 0.01% 0.00% EAST TIMOR $168, % 0.00% 0.02% 0.00% INDIA $107,423, % 98.93% 9.59% 0.85% INDONESIA $102,469, % 95.89% 9.14% 0.81% KOREA (SOUTH) $6,536, % 17.72% 0.58% 0.05% MONGOLIA $211, % 70.89% 0.02% 0.00% NEPAL $185, % 0.00% 0.02% 0.00% PAKISTAN $102,326, % 50.75% 9.13% 0.81% PAPUA NEW GUINEA $58,000, % % 5.18% 0.46% PHILIPPINES $389,474, % 0.58% 34.75% 3.09% SRI LANKA $6,246, % 71.93% 0.56% 0.05% THAILAND $2,099, % 70.43% 0.19% 0.02% VARIOUS $140,103, % 0.71% 12.50% 1.11% VIETNAM $17,314, % 0.00% 1.55% 0.14% WESTERN SAMOA $2,778, % % 0.25% 0.02% Region Total $1,120,643, % 43.74% % 8.90% Worldwide Total $12,596,309,683 24

26 OPIC Exposure in Asia: Sector Asia Combined Portfolio Exposure as of June 30, 2009 Sector % of Insurance % of Finance % of Region % of Worldwide Agriculture $1,825, % 0.00% 0.16% 0.01% Communication $25,715, % 80.56% 2.29% 0.20% Construction $5,400, % 0.00% 0.48% 0.04% Energy - Oil & Gas $62,881, % 96.97% 5.61% 0.50% Energy - Power $534,025, % 21.30% 47.65% 4.24% Financial Services $290,185, % 50.34% 25.89% 2.30% Manufacturing $111,742, % 62.07% 9.97% 0.89% Services $27,239, % 64.75% 2.43% 0.22% Tourism/Hotels $60,150, % % 5.37% 0.48% Transportation $1,478, % % 0.13% 0.01% Region Total $1,120,643, % 43.74% % 8.90% Worldwide Total $12,596,309,683 25

OPIC: Contacts For more information: Insurance: Adam McConagha, 202-336-8572, adam.mcconagha@opic.

27 OPIC: Contacts For more information: Insurance: Adam McConagha, , Finance: Information Officers, , Investment Funds: Fund Manager (list on website) 26

28 Appendices 27

29 Appendix I: Insurance Pricing Based on the type of investment covered!dependent upon country!dependent upon sector Example premiums ranges for $100 of coverage (manufacturing sector):!inconvertibility: $.25-$.45!Expropriation: $.50-$.70!Political Violence: Assets: $.40-$.60 Business Income: $.30-$.50 28

30 Appendix II: Finance Process Screening Disbursement Profits! Credit & Policy Approval Disbursement & Monitoring Due Diligence Screening Application 29

31 Appendix III: Structuring OPIC Support OPIC INSURANCE US SPONSOR US BANK US OPIC FINANCE PROJECT COMPANY HOST COUNTRY LOCAL FINANCING PROJECT LOCAL SPONSOR 30

32 Appendix IV: Non-Honoring of a Sovereign Grnty Expropriation coverage for sovereign guaranties of debt for the benefit of U.S. capital market investors or banks. The coverage would provide an assurance of debt service payments to bondholders or banks in the event that the following events occur: (1) the borrower defaults; and (2) the host government fails to honor its guaranty of the debt. 31

33 Appendix IV: NHSG Continued! Must use a common law trust or a statutory business trust with a U.S.- based trustee.! Sovereign provides an unconditional and irrevocable guaranty of payment of principal and interest for the benefit of the Trustee lender.! OPIC enters into a contract of insurance with the Trustee to provide an assurance of debt service payments to the Trustee in the event the Borrower fails to service the debt and the Sovereign fails to honor its guaranty.! OPIC enters into Foreign Enterprise Support Agreement (FESA) with Foreign Enterprise, containing OPIC policy requirements. Certificate Holders/Banks OPIC Foreign Enterprise Support Agreement Contract of Insurance Certificates US Trust/ Trustee Debt Foreign Enterprise/ Borrower Sovereign Guaranty Debt Service Payments 32

34 Appendix IV: NHSG Continued! Foreign Enterprise/Borrower defaults on a scheduled debt service payment ( Triggering Payment Default thereafter a Subsequent Payment Default ).! Trustee calls on the host government guaranty and it is not honored.! Trustee pays the Certificate Holders the Triggering Payment and the OPIC premium through the Payment Account from amounts on deposit in the Reserve Account.! Claim for compensation for Triggering Payment/Subsequent Payment submitted 60 days prior to Subsequent Scheduled Payment Date.! Compensation paid by OPIC three Business Days before Subsequent Scheduled Payment Date. Certificate Holders/Banks OPIC Payment Account Certificates Payment Date US Trust/ Trustee Sovereign Guaranty Scheduled Payment Triggering Payment Date (Subsequent Payment) Foreign Enterprise/ Borrower Reserve Account 33

35 Appendix IV: NHSG Continued Sovereign/Country Criteria: (1) At the time of the OPIC application, the Sovereign must have been rated BB- or Ba3 or better with a stable outlook for one year by at least one public rating agency. The rating must remain at least BB- or Ba3 until OPIC commitment. (2) Sovereign must provide an unconditional, irrevocable sovereign guaranty with no defenses for the benefit of lenders (either capital markets investors or banks). The guaranty must include a dispute resolution clause acceptable to OPIC. (3) Sovereign must be a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention). (4) Internationally recognized legal counsel must provide an unqualified opinion that the guaranty has been executed by the guarantor in accordance with the laws and procedures of the host country, that it is a valid, legal, and binding obligation of and enforceable against the guarantor, that it is unconditional and irrevocable, and that there are no defenses against the guaranty obligation. 34

36 Appendix IV: NHSG Continued Project Criteria: The project must be commercially viable. To demonstrate commercial viability, OPIC will require a shadow rating or other comparable financial analysis of the project conducted by a third party acceptable to OPIC. This analysis will be required prior to seeking approval from OPIC s Investment Committee. The project must have private sector benefits in the host country. Examples include private sector ownership, private supplier benefits, or private sector contractors or construction companies. The project must be highly developmental and strategic for the sovereign. The project must meet all OPIC policy criteria, including environment, worker rights, and corrupt practices. 35

Overseas Private Investment Corporation

Overseas Private Investment Corporation An OPIC Overview US-ASEAN Business Council Roundtable Jakarta, Indonesia June 15, 2015 Our Organization As the U.S. Government s premier development finance institution,