Loan Accounting Division Financial Control Department. Version : African Development Bank Group

Transcription

1 D e b t S e r v i c i n g H a n d b o o k Loan Accounting Division Financial Control Department Version : 2011 African Development Bank Group

2 D e b t S e r v i c i n g H a n d b o o k African Development Bank Group B.P Tunis Belvédère Tunisia Tel.: (+216) Fax: (+216) LoanAccounting@afdb.org Website: Loan Accounting Division Financial Control Department Version February 2011

3 Foreword The Financial Controller s Department is responsible for administering the accounts of borrowers of the African Development Bank Group 1 (the Bank Group or the ADB Group). The Loan Accounting Division is responsible for billing and loan recovery matters, and provides borrowers with services related to loan accounting. This Handbook is a resource intended primarily for borrowers of the Bank Group, to assist in their understanding of Bank Group policies and procedures regarding the servicing of their debts to the Bank Group. This version supersedes all previous versions. It is subject to periodic updates, to reflect changes in the Bank Group s product offerings and in the related loan accounting, billing and recovery procedures. This Handbook is also available electronically on the Bank Group website ( 1 The terms The Bank Group or the ADB Group refer to the African Development Bank (ADB), the African Development Fund (ADF) and the Nigeria Trust Fund (NTF). Where a discussion pertains specifically to one of these institutions, the institution is explicitly named. 2

4 Acronyms ADB ADF B.P. EUR EURIBOR GBP JIBAR JPY LIBOR MFIX MVLR NSGL NTF SVLR SFLR SFIX SGL UA USD African Development Bank African Development Fund Basis point Euro Euro Inter-Bank Offered Rates Great Britain Pound Johannesburg Inter-Bank Offered Rates Japanese Yen London Inter-Bank Offered Rates Multi-currency Fixed Rate Multi-currency Variable Rate Non sovereign guaranteed loans Nigeria Trust Fund Single Currency Variable Rate Single Currency Floating Rate Single Currency Fixed Rate Sovereign guaranteed loans Unit of Account United States Dollar 3

5 Contents 1. Introduction 1.1. The African Development Bank Group 1.2. Legal framework Terms of Current ADB Lending Products 2.1 Loan maturity 2.2 Grace period 2.3 Currencies 2.4 Lending rate terms 2.5 Fees and commissions 2.6 Principal repayment terms Terms of ADB Discontinued Lending Products 3.1 Variable rate loans 3.2 Multicurrency fixed rate loans Terms of ADF Loans 4.1 ADF loans maturity, grace period and principal repayment terms 4.2 Currencies 4.3 Lending terms Terms of NTF Loans 5.1 Maturity and grace period 5.2 Currencies 5.3 Lending terms Debt Relief Initiatives 6.1 Highly Indebted Poor Countries (HIPC) 6.2 Multilateral Debt Relief Initiative Loan Identification Number 7.1 Source of financing codes

6 7.2 Identification of financial product type 7.3 Loan numbering scheme Billing Procedures 8.1 Methodology for calculating bills 8.2 Content of bill package and other available reports Recovery Procedures 9.1 Order of payment application 9.2 Payments falling due on non-working days 9.3 Treatment of single currency payment 9.4 Treatment of shortfalls and excess payment 9.5 Incoming Payments Report Arrears Management and Sanctions 10.1 Definition of arrears 10.2 Sanction policy of the Bank 10.3 Exemptions from sanctions Cancellation Procedures Prepayment Procedures Reports Available to Borrowers 37 Bibliography 39 Annexes Annex I: Statement of confirmed disbursements Annex II: Loan status report Annex III: Billing statements Annex IV: Repayment statement

7 1. Introduction 1.1. The African Development Bank Group The primary objective of the African Development Bank Group is to contribute to the sustainable economic development and social progress of its regional members, individually and jointly. This objective is met by financing a broad range of development projects and programs, primarily through: (i) public sector loans (including policybased loans), private sector loans and equity investments; and (ii) providing technical assistance for institutional support projects and programs. The African Development Bank Group comprises the African Development Bank, the African Development Fund and the Nigeria Trust Fund, which are further described below. Established in 1964, the AFRICAN DEVELOPMENT BANK is a regional multilateral development bank owned and supported by its current 77 member countries, including 53 African and 24 non-african countries. As members, the countries contribute to the capital of the ADB. In addition to such contributed capital, the other sources of funding include the following: Borrowings on the international capital markets; Repayments from loans; Retained Earnings. The AFRICAN DEVELOPMENT FUND is the main concessionary window of the Bank Group. The current membership of the ADF comprises 24 non-african State Participants, South Africa and the African Development Bank. ADF provides assistance to developing countries with low per capita income through loans extended on more favorable terms than the ADB as well as through grants. The ADF is funded primarily through periodic replenishments by the State Participants. Replenishments to the Fund are usually made on a three-year basis, unless State participants decide otherwise. The NIGERIA TRUST FUND, the third window in the ADB Group, was established by the government of Nigeria, with the objective of providing development assistance to developing countries with low per capita income through loans extended on more concessionary terms than the ADB. Although the ADF and NTF are legally and financially distinct from the ADB, they share the same staff, and their projects are subject to the same standards as those of the ADB. 6

8 Figure 1: African Development Bank Group The African Development Bank (ADB) The African Development Fund (ADF) The Nigeria Trust Fund (NTF) Commercial Terms Concessional Terms 1.2. Legal framework General conditions The standard conditions governing ADB and ADF financial products are contained in the institutions General Conditions Applicable to Loan, Guarantee and Grant Agreements and in the respective operational guidelines. Similarly, conditions governing NTF loans are contained in the NTF operational guidelines. General Conditions are an integral part of the loan agreements and cover the following: Interest, commitment charges and other charges computation Application of payments Repayment and prepayment provisions Currency provisions, including valuation of currencies Withdrawal of proceeds Cancellation and suspension Acceleration to maturity Termination Various other legal provisions Legal agreements The main legal document for a financial lending product offered by the Bank is an agreement signed between the borrower and the Bank, which sets out the terms and conditions of the contract. When the Bank lends directly to a party other than a member country, the Bank may also enter into a guarantee agreement with the relevant member country. 7

9 2. Terms of current ADB lending products The Bank s range of products has evolved and increased over the last decade, introducing more flexibility and choice for the clients it serves. These changes were driven by the need for the Bank to be more responsive to its borrowers varied and evolving needs. Changes include the introduction of risk management products, allowing clients to hedge against financial risks associated with their ADB loans, and equity investments. Guarantees and loan syndications were also added to the menu allowing the Bank to play a catalytic role in mobilizing capital to projects in the private sector. The Bank s standard loans are categorized either as Sovereign Guaranteed Loans (SGL) or Non Sovereign Guaranteed Loans (NSGL). SGLs are loans made to an eligible regional member country (RMC) or to a public sector enterprise supported by the full guarantee of the RMC in whose territory the borrower is domiciled. NSGLs are loans made either to public sector enterprises without the existence of a sovereign guarantee or to private sector enterprises. This chapter presents the current ADB lending terms Loan maturity The African Development Bank provides long term financing to its borrowers. SGLs have final maturities of up to 20 years including a grace period of up to 5 years. NSGLs have final maturities of up to 15 years inclusive of the grace period Grace period Grace periods are dependent on the specific characteristics of the project and the time required for its implementation but generally they should not exceed 5 years. In exceptional cases, grace periods longer than 5 years may be considered subject to satisfactory justification of project requirements by the borrower. The grace period starts from the date of signature of the loan agreement Currencies Currency of commitment The Bank currently offers loans in US Dollars, Euro, Japanese Yen and South African Rand (ZAR). The Bank may also consider lending in other currencies in which it funds itself efficiently and for which there is sufficient demand Currency of disbursement The Bank may execute disbursements in any payment currency requested by the borrower. The requested currency is purchased using the exchange rate (spot rate) quoted by the selling bank and the borrower s obligation is recorded in the loan currency. This currency purchase on behalf of the borrower is free of charges. 2 The latest list of lending products is available on the Bank website: 8

10 Currency of repayment The loan principal, interest and any other fees are payable in the currency of commitment. However, currency conversion options are available and allow borrowers to settle amounts due in any of the following currencies: EUR, GBP, JPY and USD. The borrower retains the exchange rate risk. Accordingly, any shortfall or excess resulting from the application of the single currency payment is for the borrower s account. pricing remains the same but offers a floating base rate with a free embedded option to fix the base rate on demand. This implies that over the life of the loan, borrowers have the flexibility to fix the interest rate on the cumulative disbursed and outstanding amount at any time. As presented in Table 1 below, the EVSL lending rate has three components: a floating base rate that can be fixed at borrower s request; a funding margin; and a lending spread Local currency products Table 1: EVSL Lending Rate The Bank has broadened its scope to accommodate the possibility of lending in local currencies, and has developed a framework to guide the provision of loans in Regional Member Country (RMC) currencies. a) Base Rate b) Funding Margin Floating rate (6m Libor/Euribor, 3m Jibar) Can be fixed free of charge at the borrower s request Bank s cost of borrowing relative to Libor, Euribor, Jibar with semi-annual resets 2.4. Lending rate terms Enhanced variable spread loans for sovereign guaranteed entities In December 2009, the Bank introduced for sovereign guaranteed entities the Enhanced Variable Spread Loan (EVSL). Under the previously proposed variable spread loan, the pricing comprised of the Bank s cost of borrowing and a lending spread (base rate + funding margin + lending spread). Two alternatives were offered to clients at loan approval: they could either select a floating or fixed base rate. With the new enhanced variable spread loan, the c) Lending Spread Between 40 and 60 b.p. d) Lending Rate (d)=(a)+(b)+(c) The floating base rate is determined for each loan currency with a reset frequency based on the Bank s selected reference interest rate in each market. The Bank s standard floating base rates are the 6 month Libor for USD and JPY; the 6 month Euribor for EUR; and the 3 month Jibar for ZAR. Except for the ZAR which resets quarterly on February 1 st, May 1 st, August 1 st and November 1 st, the other floating rates reset semi-annually on February 1 st and August 1 st. 9

11 If the borrower decides to fix the floating rate on the cumulative disbursed and outstanding tranche, the fixed base rate for that tranche is computed by the Bank as the inter bank swap market rate corresponding to the principal amortization schedule. The Bank reserves the right to delay fixing if the size of the tranche/disbursement is not large enough to allow for a cost-effective fixing transaction. In such cases, fixing would occur as soon as an adequate disbursed amount, as determined by the Bank, has been accumulated to warrant the transaction and such amount should be set out in the loan agreement. The funding margin is currency specific. It is calculated twice a year and applicable on February 1 st and August 1 st. It is the semester weighted average of the spread between Libor/Euribor/Jibar and the cost of the debt allocated to fund the single currency floating rate loans portfolio. The lending spread is subject to periodic review, with changes applied prospectively only. The lending spread has evolved overtime within a range of 40 to 60 basis points. Currently, sovereign-guaranteed loans approved on or after January 1, 2011 carry a lending spread of 60 basis points Fixed spread loan for sovereign guaranteed entities Fixed Spread loans (FSL) were introduced in 2005 and offered borrowers a lending rate consisting of a floating or fixed base rate and a fixed lending spread that remains unchanged throughout the life of the loan. a) Base Rate b) Lending Spread c) Lending Rate Table 2: FSL Lending Rate for Sovereign-Guaranteed Entities Floating rate (6m Libor/Euribor, 3m Jibar) Fixed (specific inter-bank swap market rate) Bank s standard lending spread (c)= (a)+(b) In January 2009, the Bank temporarily suspended, for sovereign-guaranteed entities, the Fixed Spread Loan product for new commitments by the introduction of a funding margin. The objective of this amendment was to ensure a full pass through of the Bank s borrowing costs to its clients, thereby safeguarding its financial integrity and its ability to remain a stable source of long term funding Fixed spread loan for non-sovereign guaranteed entities Fixed Spread Loans (FSL) offer borrowers a lending rate consisting of a floating rate (Libor/Euribor/Jibar) and a specific fixed spread corresponding to the project s credit risk. The FSL includes the option to fix the interest rate on demand while maintaining the spread constant over the life of the loan. 10

12 Table 3: FSL Lending Rate for Non-Sovereign Guaranteed Entities Fees specific to Non-Sovereign Guaranteed loans a) Base Rate Floating rate (6m Libor/Euribor, 3m Jibar) Fixed (specific inter-bank swap market rate) Appraisal fee b) Lending Spread c) Lending Rate Based on specific project risk (c)= (a)+(b) Appraisal fees partially or fully cover costs incurred by the Bank in appraising new project proposals and are payable even in cases where the project is not approved Fees and commissions Commitment fee Commitment fees are intended to compensate the Bank for the cost of giving borrowers the option to draw down the funds during a predetermined period. The commitment fee ranges from 0% to 1% per annum for SGLs and for NSGLs it could be higher. It is calculated on undisbursed loan balances and starts accruing no later than 60 days after loan signature. The commitment fee has been removed since May 2005 for new commitments approved in favor of sovereign-guaranteed entities. From January 1, 2011, the commitment fee is reintroduced for fast disbursing policy-based loans which register slippage in disbursements. Appraisal fees are payable no later than at the signature of the loan agreement, or as agreed among co-financiers in co financed projects. Front end fee The front end fee is designed to partially compensate the Bank for the costs associated with processing a loan request and preparation of the documentation for loan approval. It is charged only when the project is approved and it is not reimbursed if the project is subsequently cancelled. The front end fee is 1% of the loan amount. It is payable before or at loan signature, however when market and/or conditions warrant, the front end fee may be paid up to thirty (30) days after loan signature or as agreed among co-financiers in co financed projects. 11

13 Arrangement or Syndication fee The arrangement or syndication fee is levied to pay for the work and expenses of the arranger of the syndication. This flat fee is paid by the borrower on or before the date of signature of the loan agreement. The level of this fee depends on the complexity of the transaction in line with prevailing market practices. Loan administration fee The loan administration fee is a flat fee levied to pay for the work of the syndication Agent. The level and payment frequency should be in line with prevailing market practices. Underwriting fee Where ADB underwrites a portion of the B loan, the borrower shall pay an underwriting fee to ADB. The calculation details and payment date of this flat fee should be stated in the loan agreement Fees specific to guarantees Standby-fee The standby-fee is charged on the undisbursed portion of the underlying loan. This fee is in the range of 0% to 1%. Guarantee fee This fee is similar to the lending spread on a Bank loan. The guarantee fee comprises of the lending spread that would have been charged if the Bank had made a direct loan and a risk premium. The risk premium reflects the risks associated with particular guarantee structures Principal repayment terms The Bank s principal repayment terms provide for the payment of equal installments of principal, after the expiration of the grace period. Other principal repayment terms such as bullet repayment and step up or step down amortization of principal may be considered subject to satisfactory justification of project requirements by the borrower. 12

14 3. Terms of ADB discontinued lending products This section describes the terms and conditions relating to outstanding balances on ADB loan products that have been withdrawn from the ADB menu for new loan commitments Variable rate loans Variable rate loans are cost-pass through assets, whose interest rate periodically adjusts in line with the average cost of a designated pool of the Bank s borrowings. Figure 2: Variable Rate Loan Lending Rate Lending Rate = Cost of Fund In the past, the Bank offered to its clients the multicurrency variable rate loan and substituted it in October 1997 by the single currency variable rate loan to better respond to borrowers demand Multicurrency variable rate loans In the past and until September 1997, the Bank offered multicurrency variable rate loans denominated in UA. These were disbursed in any currency + Fixe Lending Spread needed for the project expenditure with the borrower s obligation being denominated in the currency used by the Bank to meet the request. Borrowers repay the loans in the currencies disbursed and outstanding and, consequently, bear the foreign currency exchange risks of these currencies. The base interest rate on multi-currency variable rate loans is reset every January 1 st and July 1 st based on the multi-currency weighted average cost of the Bank s designated single-currency pool-based loans. A single rate is applicable to all currencies outstanding on a multicurrency loan Converted variable rate loans In 1997 and in response to borrower s demand for currency choice in respect of their existing multicurrency pool-based variable rate loans, the Bank offered a one-time conversion of these loans to a single eligible currency of the borrower s choice. For such loans, although disbursements may be made in any currency needed for project expenditures, the borrower s obligation is denominated in the currency selected at the time of conversion. The base interest rate on the converted variable rate loans consists of a currency specific variable base rate and a fixed lending spread. The variable base rate is revised bi-annually on January 1 st and July 1 st based on the weighted average cost in the 13

15 preceding semester of a designated single-currency pool of the Bank s borrowings Single currency variable rate loans Effective October 1, 1997, the Bank Board of Directors approved the introduction of single currency loans in USD, JPY and EUR in response to its borrowers needs. The introduction of the ZAR as loan currency was approved in Loan disbursements can be transacted in any currency needed for project expenditures with the borrower s obligation denominated in the currency of loan commitment. The base interest rate on the single currency variable rate loans is reset every January 1 st and July 1 st based on the weighted average cost in the preceding semester of a designated single-currency pool of the Bank s borrowings. The single currency variable rate loan suffered from the competition with other loan products that provide similar loan profiles at more competitive levels. As a result and given the decreasing demand for this product, the Bank decided in December 2009 to withdraw it from the menu of instruments offered to clients Multicurrency fixed rate loans The Bank offered prior to July 1, 1990, the multicurrency fixed rate product. The rate is fixed for the life of the loan at the time of approval and levied on the disbursed and outstanding currency balances on the loan. A single rate is applicable to all currencies outstanding on the loan. 14

16 4. Terms of ADF loans The African Development Fund (ADF) is the Bank Group s main concessional lending window. ADF extends funds to the low income countries on a concessional basis ADF loans maturity, grace period and principal repayment terms ADF loans have final maturity of up to 50 years including a 10-year grace period. For project loans, principal amounts are amortized at an annual rate of 1% of the cumulative disbursed amount for the 10 years following the grace period and 3% for the remaining 30 years. Where disbursements occur after the expiration of the grace period, the annual amortization rate is adjusted to ensure that 90% of the cumulative disbursed amount of the loan is repaid over the last remaining 30 years. The required adjustments are illustrated in Table 5. Lines of credit extended by the Fund have final maturity of up to 20 years including a 5-year grace period and are repayable in equal installments. Table 4: Example of amortization schedule Life of the loan Amounts in UA End of grace period - Cumulative disbursements 10,000 14,000 21,000 30,000 Year (0.5% of cumulative disbursements per semester) Year (1.5% of cumulative disbursements per semester)

17 Table 5: Adjusted amortization Disbursement after the grace period Remaining installments New disbursements Cumulative disbursements Repayments % of cumulative disbursements Cumulative repayments Outstanding balance Installment , % 50 9,950 Installment , % 100 9,900 Disbursement 4,000 14, ,900 Installment , % ,828 Installment , % ,756 Installment , % ,683 Installment , % ,611 Installment , % ,539 Installment , % ,467 Disbursement 7,000 21, ,467 Installment , % ,336 Installment , % ,206 Installment , % ,075 Installment , % 1,056 19,944 Installment , % 1,186 19,814 Installment , % 1,317 19,683 Installment , % 1,447 19,553 Installment , % 1,578 19,422 Installment , % 1,708 19,292 Installment , % 1,839 19,161 Installment , % 1,969 19,031 Installment , % 2,100 18,900 Installment , % 2,415 18,585 Installment , % 2,730 18,270 Installment , % 3,045 17,955 Installment , % 3,360 17,640 Installment , % 3,675 17,325 Installment , % 3,990 17,010 Installment , % 4,305 16,695 Installment , % 4,620 16,380 Installment , % 4,935 16,065 Installment , % 5,250 15,750 Disbursement 9,000 30,000 5,250 24,750 Installment , % 5,745 24,255 16

18 4.2. Currencies Currency of commitment ADF loans are denominated in Units of Account (UA). For loans contracted after June 23, 2005, borrowers have the option to select the currency of disbursement (EUR, USD, JPY or GBP) at loan signature Currency of disbursement disbursement currency chosen at negotiation or in any currency used to purchase the payment currency. This currency purchase on behalf of the borrower is free of charges. As soon as a disbursement is made, the equivalent of the currency amount disbursed in UA is debited to the loan account resulting in: (i) a reduction in the undisbursed balance in UA and The Bank may execute disbursements in any payment currency requested by the borrower. The Bank purchases the requested currency using the exchange rate (spot rate) quoted by the selling bank and records the borrower s obligation in the (ii) an increase in the outstanding currency balance on the loan in the currency selected by the borrower or in the currency used by the Bank to meet the disbursement request. 17

19 Figure 3: Example of disbursement when no disbursement currency is selected and the Bank has USD liquidity 3 1. Ministry of Finance requests a payment of USD 1 million 5. ADB sends a bill in USD to Ministry of Finance 2. ADB pays to the Beneficiary USD 1 million 4. The Outstanding Balance increases by USD 1 million 3. Loan Undisbursed Balance decreases by UA 640, UA/USD= Exchange rates used are for illustrative purposes only. The rate for actual transactions would be the spot rate on the date of the transaction. 18

20 Figure 4: Disbursements for UA denominated loans when EUR is selected as disbursement currency 4 6. ADB sends a bill in EUR to Ministry of Finance 1. Ministry of Finance requests a payment of USD 1 million 2. ADB sells EUR 731, at EUR/USD= to buy USD 1million 5. The Outstanding Balance increases by EUR 731, Loan Undisbursed Balance decreases by UA 640, UA/EUR= ADB pays to the Beneficiary USD 1 million 4 Exchange rates used are for illustrative purposes only. The rate for actual transactions would be the spot rate on the date of the transaction. 19

21 Currency of repayment 4.3. Lending terms Loan principal repayment and service charges are billed and payable in the actual currencies disbursed and outstanding. The commitment fee is payable in USD. ADF provides currency conversion options which allow borrowers to settle amounts due in a single currency payment denominated in any of the following currencies: EUR, GBP, JPY and USD. The borrower s obligation remains in the loan currency and any shortfall or excess resulting from the application of the single currency payment is for the borrower s account. No interest is charged on ADF loans. Only a service charge of 75 basis points per annum is levied on the disbursed and outstanding currency loan balance. Loans approved after April 1, 1996 are subject to a commitment charge of 0.5% per annum on the undisbursed balance of the loan. Commitment charges begin to accrue 120 days after the signature of the loan agreement. The table below summarizes the lending terms under ADF window. Figure 5: Lending terms under ADF window Maturity and Principal repayment terms Currency Grace Period Service Charge Commitment fee Maturity Up to 50 years Principal repayment: 1% of the principal per annum from the 11 th to 20 th year 3% of the principal per annum from the 21 th to 50 th year Denominated in UA with the option to select disbursement currency at loan signature (EUR, USD, JPY, or GBP) Up to 10 years 0.75% per annum on disbursement and outstanding amount 0.50% per annum on undisbursed amount accruing 120 days, starting at loan signature date 20

22 5. Terms of NTF loans 5.1. Maturity and grace period N TF loans have final maturity of up to 27 years including a grace period of up to 7 years Currencies The Nigeria Trust Fund (NTF) extends loans denominated in UA. Although loan disbursements may be made in any payment currency requested, the borrower s obligation are denominated in US dollars Lending terms Lending terms applicable to NTF loans were revised on May 15, For loans approved before May 15, 2008: The interest rate is fixed within a range of 2-4% per annum, levied on the disbursed and outstanding loan balance and payable in US dollar. A commitment charge of 0.75% per annum is levied on the undisbursed portion of each signed loan, commencing 120 days after the signature of the loan agreement. For loans approved after May 15, 2008: No interest is charged. Only a service charge of 75 basis points per annum is levied on the disbursed and outstanding loan balance and payable in US dollar. A commitment charge of 0.5% per annum is levied on the undisbursed portion of each signed loan, commencing 120 days after the signature of the loan agreement. NTF resources might be used to finance nonsovereign guaranteed loans. Lending terms for those loans would be the same as the ADB would apply taking into consideration the Bank Guidelines as well as the risk analysis of the project. 21

23 Figure 6: Lending terms under NTF window Maturity Currency Grace Period Lending rate Commitment fee Up to 27 years Denominated in UA but disbursed in USD Up to 7 years Loans approved before 15 May 2008: Interest of 2% - 4% per annum Loans approved after 15 May 2008: Service charge of 0.75% per annum Loans approved before 15 May 2008: 0.75% per annum on undisbursed amount accruing 120 days, starting at loan signature date Loans approved after 15 May 2008: 0.50% per annum on undisbursed amount accruing 120 days, starting at loan signature date Principal Repayment: Linear amortization 22

24 6. Debt relief initiatives 6.1. Highly Indebted Poor Countries (HIPC) Overview Created in September 1996, the Initiative for Highly Indebted Poor Countries (HIPC) was designed to reduce eligible countries debt burdens to sustainable levels, subject to satisfactory policy performance. The countries targeted under the initiative were the poorest, most heavily indebted countries that pursued certain programs of adjustment and reforms. The initiative was enhanced in 1999 as an outcome of a comprehensive review by the International Monetary Fund (IMF) and other institutions, including public consultations. The Initiative s debt-burden thresholds were adjusted downward, which enabled a broader group of countries to qualify for larger volumes of debt relief. HIPC countries, depending on their progress with regard to certain macroeconomic criteria, fall in one of the following statuses or categories 5 : Completion Point: Countries reach completion point if they maintain macroeconomic stability under a Poverty Reduction and Growth Facility supported programs, carry out key structural and social reforms and implement a Poverty Reduction Strategy satisfactorily for one year. Once a country reaches completion point, it is entitled to full irrevocable debt relief. Decision Point: In order to reach decision point, a country should have a track record of macroeconomic stability, have prepared an Interim Poverty Reduction Strategy Paper, and cleared any outstanding arrears. At decision point, countries begin to receive interim HIPC debt relief on a provisional basis. Pre-Decision Point: Countries at this stage have been assessed to meet the income and indebtedness criteria at end-2004 and wish to avail themselves of the HIPC initiative Implementation modalities of HIPC HIPC Debt Relief is delivered starting from decision point and is applicable to the country s Bank Group portfolio on a pay-as-you-go basis as per the schedule approved by the Board of Directors in the decision point document. At each due date, the debt service obligation of the country is reduced by the amount of the relevant HIPC allocation according to the HIPC schedule approved by the Board. The attainment of completion point status qualifies a country for cancellation of its ADF eligible debt under the Multilateral Debt Relief Initiative (MDRI). HIPC allocation is discontinued for the ADF portfolio while it continues to be delivered for the ADB and 5 HIPC statuses of Regional Member Countries are available in the Bank Group Annual Report: 23

25 NTF portfolios similarly to the allocation at decision point Multilateral Debt Relief Initiative Overview In 2005, the G8 proposed that the African Development Fund (ADF), the international Development Association (IDA) and the International Monetary Fund (IMF) cancel 100% of the eligible debt of countries at completion date under the enhanced HIPC initiative. This Multilateral Debt Relief Initiative (MDRI) is aimed to further reduce the debts of HIPCs and provide additional resources to help them meet the Millennium Development Goals. On April 19, 2006, the Boards of Directors of the African Development Bank and African Development Fund approved the ADF s participation in the MDRI. Accordingly, effective January 1, 2006, Debt Relief under MDRI is to be provided by the ADF once a country reaches the HIPC completion point. ADB and NTF loans are not affected by the initiative Modalities of MDRI implementation Debt eligible for cancellation The MDRI debt cancellation is applicable to the outstanding balances, as of the implementation date, of ADF loans which were disbursed and outstanding as of December 31, 2004 (the cut-off date). The MDRI implementation date is September 1, 2006 for countries that had reached completion point prior to that date. For countries that reach completion point after September 1, 2006, the implementation date of MDRI is the completion point date. When MDRI is implemented for a country, the delivery of ADF HIPC allocation is discontinued as the eligible ADF loan balances are written-off. Amount of Debt cancelled The amount of individual loan balances that are written off/cancelled under the MDRI from ADF books is determined as follows: Cumulative disbursements as of the cut-off date, less Related cumulative principal repayments as of implementation date. Amounts disbursed after the cut-off date are not eligible for cancellation under the MDRI and remain as obligations for the regional member countries concerned. Consequently, bills for the residual loan balances relating to such post cut-off disbursements continue to be issued and are expected to be fully serviced by the borrowing member country. 24

26 7. Loan identification number ADB Group Loan Identification Number Code is a 13-digit identification code that captures the following critical information on the loan: the source of financing; the underlying financial product type and a 6-digit serial number. The combination of these elements creates a unique identification number for each of ADB Group s loans Source of financing codes Sources of financing are represented by 4-digit codes called company codes. Figure 7 below presents the main financing sources of the ADB Bank Group as well as a selection of funds managed by the Bank. Figure 7: Company codes representing funding windows 5500: Middle Income Countries Fund 5600: Africa Water Facility Fund 5900: Fragile States Facility 25

27 7.2. Identification of financial product type A 3-digit code indicates the specific financing terms, making each loan directly recognizable, such as the interest rate (fixed rate, floating rate, multi-currency variable rate, grants ). Table 6: ADB products codification The various product types are listed in Table 6 to 9 below. Product Type Number Product Type Description 110 Variable Rate 120 Floating Rate 130 Fixed Rate 140 Guarantee 190 Variable Rate Converted 191 Multi-currency Variable Rate 192 Multi-currency Fixed Rate 26

28 Table 7: ADF products codification Product Type Number Product Type Description 150 ADF Loan 155 Grant Table 8: NTF products codification Product Type Number Product Type Description 160 NTF Loan Table 9: Funds products codification Product Type Number Product Type Description 155 Grant 27

29 7.3. Loan numbering scheme Figure 8: Example of loan identification number Company Code (4 digits) Product Type (3 digits) Serial number (6 digits) Ex: 2100 for ADF Ex: 150 for ADF loan Unique sequential number To better follow the loan throughout its life, ADB introduced the system of Master Loans and related Sub Loans. For loans approved in UA, Master Loans are denominated in UA. Borrower s obligation is in the currencies disbursed and outstanding. Figure 9: Master and Sub Loans codification Master Loan denominated in the currency of loan approval and created at approval UAC Sub Loans denominated in disbursed currencies and created as required USD JPY EUR Note The serial number of a Master Loan and the accompanying Sub Loans are unlikely to be in sequence. Sub Loans are linked together and to the Master Loan by the Master Loan number 28

30 Table 8. Billing des matières procedures 8.1. Methodology for calculating bills Sovereign-guaranteed loans are billed semiannually on the dates specified in the loan agreement. The billing statements are prepared two months before the semi-annual due date and sent to borrowers six weeks before the due date. They cover actual loan account movements for the sixmonth period ending at the cut-off date, which is two months before the due date of the bill as illustrated in the table below. If a billing period spans more than one interest rate reset date, the rate is adjusted on the appropriate date during the billing period in accordance with rate fixing dates under the terms of the loan agreement. The last billing period of a loan is adjusted to cover 8-month period corresponding to the six months interest period starting from the previous due date plus the remaining two months. Non-Sovereign-Guaranteed Loans are billed according to the financial terms specified in the loan agreement. Bills are usually issued every three or six months without a cut-off period. The other financial products offered by the Bank are billed according to the applicable legal documentation. The main components of a bill are: Interest or Service charge based on the outstanding currency balances over the billing period; Commitment charge based on undisbursed loan balances; Principal installment as specified in the loan agreement. Table 10: Billing period and cut-off date Due Date Start Billing Period End Cut-off Date Applicable Interest Rate Date 01-Aug Feb Dec Jan Aug May Feb May Feb Jun Jul Feb Nov Aug Nov Aug-08 29

31 Table 11: Calculation of a bill Component Interest and Service Charge Commitment Charge Formula Disbursed & Outstanding (x) No. of days (x) Rate 360 or 365 Days* Undisbursed Balance (x) No. of Days (x) Rate 360 or 365 Days* Disbursed & Outstanding - Arrears on Principal** Principal No of Remaining Installments * Or any other interest calculation method specified in the loan agreement ** Where principal billed is in arrears otherwise arrears do not feature 8.2. Content of bill package and other available reports Billing package and repayment related information The billing packages sent to borrowers (See Annex III) provide the details of the amounts due on the given due date. They include the following statements: Summary of Amounts due (Due by Currency); Statement of Single Currency Payment Option; Account Statement which provides detailed computation; Summary Loan Ledger that reflects movements on the loan; Amount payable after HIPC relief (if applicable) Single Currency Payment Option Borrowers have the option to settle their debt obligations in a single payment in any of the following currencies: EUR, GBP, JPY, and USD. When this option is exercised, the Bank acts as an agent of the borrower to convert the payment received into the required currencies. To facilitate the exercise of this option, the single currency payment option statement is included in the billing package. Determination of Amount Payable under the Single Currency Payment Option After calculating the amounts due in each loan currency, estimates of the equivalent amounts in each of the four currencies are determined using the most recent exchange rates at billing date. The rates used for conversion include a margin of between 2 and 5 percent to cover possible exchange rate fluctuations between billing and settlement date. Notwithstanding the above, shortfalls may occur in the settlement process, due to adverse foreign exchange rate movements. Such shortfalls remain the responsibility of the borrower. An illustrative Single Currency Payment Option statement is presented at Annex III. 30

32 9. Recovery procedures 9.1. Order of payment application Debt service payments are applied starting from the oldest overdue to the most recent dues. Within these categories, the funds received are applied in the following order: commitment fees, interest/service charge and principal Payments falling due on non-working days If the due date falls on a non-working day for the receiving bank, although interest and other charges will continue to accrue on the outstanding loan balance, no additional costs or penalties are imposed on the borrower provided that payment is received on the first working day thereafter. Other business day conventions might be applied when specified in the loan agreement Treatment of single currency payment When a borrower exercises the single currency payment option, the payment received is applied first to amounts due in the currency of payment. Any remaining funds are then used to purchase, on behalf of the borrower, the other currencies due. The Bank determines the loan currency equivalent of the option currency received using market exchange rates on the value date of the option currency payment. These amounts are then applied against bills as if payment had been received directly from the borrower in the actual currencies due. Any surplus or shortfalls arising from such transactions are for the borrower s account Treatment of shortfalls and excess payment Shortfalls A shortfall may arise due to either one of the following reasons: (i) (ii) the borrower exercises the single currency payment option and makes payment in accordance with the estimated amount provided by the Bank at the time of billing, but because of exchange rate fluctuations the single currency payment is not sufficient to purchase all currencies payable or the borrower does not exercise the single currency option but the amount received from the borrower is not sufficient to cover the amount billed. Shortfalls are advised to borrowers and are due immediately in case (ii). In case (i), payment is due no later than the next due date. Shortfalls are reported as arrears and continue to accrue applicable interest when they relate to principal amounts. The Bank s sanction policy provides for the exemption from sanctions when the shortfall is due to currency purchase transactions related to the 31

33 single currency payment option or when the unpaid amount is less than UA 25,000. Excess Payments The Bank may hold excess funds for the borrower s account as a result of excess payments or following currency purchases where foreign exchange rate movements have been favorable to the borrower. With the borrower s consent, an excess payment may be treated as follows: The excess may be held for the borrower s account and applied against the next bills or capital subscriptions or against any other obligation of the borrower. The excess may be refunded to the borrower Incoming Payments Report The Application of Incoming Payments Report (See Annex IV) is sent to borrowers following receipt and application of their payments. This report details the amounts received and how they have been applied to charges and principal for various loans. It also provides the amount of excess payment that may arise. 32

34 10. Arrears management and sanctions Definition of arrears Aloan is considered to be in arrears if payment due is not received on the due date. If the amount due remains fully or partially unpaid thirty days after the due date, the Bank shall apply sanctions to the borrower, in accordance with the Sanctions Policy summarized below. The Bank's financial ability to continue to promote development depends on prompt servicing of loans made by the Bank Group. Arrears may ultimately impair the Bank's credit standing and its ability to access resources for lending to member countries on favorable terms. For these reasons, the bank insists on settlement of invoices when they fall due Sanction policy of the Bank The policy relating to the recovery of arrears on loans prescribes the rules and sanctions that are applicable to borrowers and/or Guarantors in default. The table 12 summarizes the sanctions policy of the Bank Group. Sanctions also automatically apply to a guarantor fifteen (15) days from the date of application to the borrower Exemptions from sanctions Notwithstanding the above, sanctions may be waived for a borrower in arrears under any of the following circumstances: Technical assistance services financed from ADF resources allocated to the Technical Assistance Fund (TAF), particularly for pre-investment studies, institutional strengthening ; Training costs and scholarships; Multinational projects and programs that shall face only one sanction: prohibition from signing any new loan and/or guarantee agreements; Works and services concluded, supplies shipped or delivered prior to the date of application of the sanction involving suspension of disbursements. However, all relevant disbursement requests must reach the Bank Group within a maximum of sixty days from the date of application of the sanctions; Expenses payable to ADB/ADF with bilateral resources; Arrears whose cumulative amount does not exceed UA 25,000. The borrower is still however required to make immediate payment; Inadequate purchase of foreign exchange, incomplete transactions for foreign exchange purchase, a billing error, amounts under investigation and payments returned by commercial banks to borrowers. 33

35 Table 12: Main Bank Group Sanctions Trigger Sanction Prohibition of the Borrower and/or Guarantor from signing any new Loan and/or Guarantee Agreement with the Bank Group. Suspension of disbursements in respect of all Bank Group loans granted to the Borrower and/or Guarantor. Arrears of Over 30 days Suspension of the granting of any new loans by the Bank Group to the Borrower and/or Guarantor. Application of the Cross-default sanction clause by virtue of which ADB Group shall suspend in whole or in part the right of the Borrower or the Guarantor to disbursement of Loan Funds because of a failure by the Borrower or the Guarantor to perform any of its obligations under any Loan Agreement or Guarantee Agreement concluded with ADB/ADF/NTF. 34

36 11. Cancellation procedures The borrower has unilateral right, by notice to the Bank, to cancel without penalty any amount on the loan not yet disbursed or the entire loan whether or not the loan agreement has been signed except for amounts for which the Bank Group has entered into a special commitment. Cancellation by the borrower takes effect at the latest sixty (60) days from the date of receipt by the Bank of the cancellation request. Similarly the Bank may, upon expiration of a threemonth notice period, cancel an amount of the loan. The Bank may initiate a loan cancellation for any of the following reasons: Renegotiated loan terms; Loan not signed after a period of 180 days from approval date; No disbursements for over 2 years; Closing date expired; Project completed; Undisbursed balance below minimum threshold; Continuing suspension of disbursements; Mis-procurement; For non-sovereign guaranteed operations, the criteria for loans cancellation are defined in the loan agreement. Figure 10: Cancellation initiation and effective date 35

37 12. Prepayment procedures Article III of the General Conditions Applicable to Loan and Guarantee Agreements provides for the pre-payment of loans in advance of maturity. Borrowers may prepay their loan at the expiration of the prepayment notice period as provided for in the loan agreement. In general, sovereign guaranteed loans are subjected to a forty-five days prepayment notice. Upon receipt of the prepayment notice from the borrower, the Bank calculates the amounts in principal and charges that are due on the effective date of pre-payment. Any undisbursed loan balance on the loan being prepaid will be cancelled on the effective date of prepayment. Other prepayment notice periods may be specified in non-sovereign guaranteed loan agreements. A prepayment penalty that reflects the Bank s cost of re-deploying prepaid funds may be applicable as provided for in the loan agreement. 36

38 13. Reports available to borrowers The Bank provides or makes available to borrowers a set of reports for debt management purposes. To facilitate and ensure the continuity of such reporting, borrowers should promptly notify the Bank of changes in their contact details. In addition to the billing packages and payment application reports, the Bank Group sends the following reports to borrowers on a regular basis: Statement of Confirmed Disbursements The Statement of Confirmed Disbursements (See Annex I) lists all disbursements made during the month or any specified period. It also shows the total disbursed in the loan currency, the undisbursed balance on the loan as at the end of the specified period and amounts cancelled, if any. Loan Status Reports The loan status reports (See Annex II) contain information on the movements in borrowers loan accounts as at a given date or for a specified period. Generally, the following status reports are available: Loan Status report in loan currency as at a particular date showing the cumulative disbursements, repayments, the outstanding loan balance and the arrears in principal and charges when applicable. Loan Balance Confirmation report showing cumulative disbursements, repayments in principal and charges, and outstanding balances as at a given date. Planning-Related Information This information is provided to borrowers and executing agencies on demand and in accordance with their specifications. Usually the information required relates to consolidated basic loan data, short and long range forecasts of debt service payments and a summary of estimated debt service payments. 37

39 Bibliography 38

40 Bibliography General Conditions applicable to Loan, Guarantee and Grant Agreements of the African Development Bank and the African Development Fund (February 2009) ADB Loan Accounting, Billing and Recovery Handbook (April 1997) Policy Relating to the Recovery of Arrears on Loans (May 1997) Guidelines on Cancellation of ADB/ADF loans and grants (forthcoming 2011) Financial Products of the African Development Bank (June 2009) Guidelines for Public Sector Loans (November 2000) Enhancing Bank Support to Middle-Income Countries Revised (February 2005) Revised Financial Guidelines for Non-Sovereign Guaranteed Loans (February 2006) Nigeria Trust Fund Operational Guidelines (November 2008) 39

41 Annexes 40 40

42 Annexes Annex I: Statement of confirmed disbursements BANQUE AFRICAINE DE DEVELOPPEMENT AFRICAN DEVELOPMENT BANK Date : / STATEMENT OF CONFIRMED DISBURSEMENTS Page: 0001 Period From : To : Company Name : African Development Fund Amount Signed : UAC 12,460, Country Name : XXXXXXXXXX Total Disbursed : UAC 7,201, Loan Number : XXX Cancellations : UAC 0.00 Project Title : XXX SECTOR XXXXXXXXX ENHANCEMENT PROJECT Undisbursed Amount: UAC 5,258, Borrower Name : XXX GOVERNEMENT OF XXXXXXXXXX MINISTRY OF FINANCE Disbursement Ratio: Date Signed : Closing Date : Application Data Approval Data Disbursement Data Value Date Number Curr. Amount Curr. Amount Curr. Amount Equiv in Ln Cur Ex. Rate LDV Reference Beneficiary name UAC 19, DP NO0094 USD 31, USD 31, EUR 21, , /XX/2008/35441 XXXXXXXX UAC 25, DP NO0095 XXX 977, XXX 977, EUR 26, , /XX/2008/38480 XXXXXXXX UAC 26, DP NO0096 XXX 977, XXX 977, EUR 28, , /XX/2008/39357 XXX UAC 6, DP NO0097 USD 10, USD 10, JPY 1,077,732 6, /XX/2008/39921 XXXX TOTAL LOAN UAC 78, ZTRR

43 Annex II: Loan status report Loan Status Report by Loan Currency F O N D S A F R I C A I N DE D E V E L O P P E M E N T A F R I C A N D E V E L O P M E N T F U N D Edité le/run date: Pg 1 STATUS OF LOANS BY LOAN CURRENCY AS AT Master Loan # / Loan # Curr Cumulative Disbursements Cumulative Repayments & Outstanding Balance Arrears Principal Arrears Charges Debt Write-Off MOZAMBIQUE PROJECT : P-XX-X-XXX # xxxxxxx xx AND xxxxxx XXX PROJECT XXX UAC 53,156, XXXX EUR 141, , XXXX EUR 26,937, ,352, ,585, XXXX JPY 2,796,181,070 1,346,062,822 1,450,118, XXXX USD 19,037, ,406, ,630, TOTAL Master Loan in UAC 53,156, ,365, ,078, TOT IN UAC FOR MOZAMBIQU ( 1 ) 53,156, ,365, ,078, GRAND TOTAL IN UAC FOR ADF 53,156, ,365, ,078,

44 Annex II: Loan status report Loan Balance Confirmation 43

45 Annex III: Billing statements Statement of Bills Due by Currency 44

46 Annex III: Billing statements Statement of Single Currency Payment Option 45

47 Annex III: Billing statements Account Statement 46

48 Annex III: Billing statements Summary Loan Ledger Statement of amount payable after HIPC relief 47

49 Annex IV: Repayment statement Application of Incoming Payments Report 48

50 AfDB - Design, External Relations and Communication Unit//JKT