MIGA in Bilbao, Spain September 30-October 1, 2013 maintaining FDI flows in a risk-averse world Olivier J. L. Lambert, MIGA Europe Office (Paris)
MIGA and the Basque Country MIGA has guaranteed 48 projects of Spanish-based investors into developing countries Existing preliminary discussions with Basque Country investors: Applications received Iberdrola Ingenieria y Consultoria S.A.U for power project in Syria, 2005 Idatrade for agribusiness and manufacturing projects in Ghana, 2004 and 2008 Ikusi(Angel Iglesias S.A.) for services projects in Albania and Sudan, 2002 and 2003 MIGA explores business opportunities to: Increase support for the Basque Country s private sector investments into emerging countries MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 2
The World Bank Group The International Bank for Reconstruction and Development (IBRD) The International Development Association (IDA) The Multilateral Investment Guarantee Agency (MIGA) The International Finance Corporation (IFC) The International Center for Settlement of Investment Disputes (ICSID) IBRD: Loans to middle-income countries Advisory services Guarantees and risk management Guarantees against noncommercial risks Dispute resolution services for guaranteed investments Investment services for the private sector Advisory Services for companies and private investors for questions related to the private sector Specialized dispute resolution institution Facilities for independent conciliation and arbitration of investor- State disputes IDA: Donations and zero-interest loans to least developed countries IFC Asset Management Company Enables individuals or companies to bring up claims against foreign governments
MIGA Political Risk Insurance covers non commercial risks 1. Currency Transfer Restriction & Inconvertibility Cover Protects against losses arising from inability to convert local currency into forexfor transfer outside the host country or transfer/excessive delays in acquiring forex 2. Expropriation Cover Protects against losses arising from nationalization and confiscation; Creeping expropriation (e.g. gradual changes in tax regime); Expropriation of funds (e.g. "account freeze ) 3. War and Civil Disturbance Cover Protects against: Loss of Assets; Temporary or Permanent Loss of Use Loss has to be a direct and immediate result of acts of war, revolution, rebellion, insurrection, coup d état, civil war, civil commotion, riots ; acts of sabotage or terrorism can also be covered 4. Breach of Contract Cover Protects against losses arising from the government s breach or repudiation of a contract with the investor (e.g., a concession or a power purchase agreement) Coverage extends to sub-sovereign risks, interest rate hedging instruments and capital market transactions 5. Non-Honoring of Financial Obligations (NHFO) Cover Protects against losses resulting from a government s failure to make a payment when due under an unconditional financial payment obligation or guarantee related to an eligible investment Since June 2013, a new cover: NHFO for SOEs that are: a) controlled by the State; b) performing a public service or governmental function; c) creditworthy and financially viable. MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 4
Eligibility Criteria Financial instruments covered Equity Shareholder loans Loan guaranties Non-shareholder loans (e.g. stand-alone debt) as long as they relate to a investment/project with some form of direct investment Non-equity direct investment (e.g. management and turnkey contracts) Capital market transactions (no equity required) Investments characteristics Cross-border from one member country (developed or developing) into a developing member country Primarily greenfield investments but also existing investments since November 2010 Clients or Guarantee holders Investors Banks DFIs and other government agencies MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 5
Terms of Coverage Amount of coverage Tenor Pricing MIGA can typically arrange cover for all amounts, either on its own books or through co/reinsurance No minimum amount for guarantee or size of investment Amounts can include interest principal for debt and future retained earnings for equity Equity covered up to 90% (plus up to an additional 50% of the investment contribution to cover earnings attributable to, and retained in, the project) Loans and Loans guaranties covered up to 95% of the principal (and up to 99% on a case-by-case basis) plus up to an additional 150 percent of the principal to cover interest that accrues over the term of the loan Minimum 3 year (1 year for loans), up to 15 years (and possibly 20 years if justified by the nature of the project); investor decides on the duration of a guarantee Premium rates are decided on a per project basis and vary by country, sector, transaction and the type of risk insured Premiums are paid annually or semi-annually and are calculated as a percentage rate applied to the amount of coverage MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 6
MIGA s Tailored Program for SMEs MIGA s Small Investment Program (SIP): Designed to facilitate investments into small and medium-size enterprises with simple projects and involved in the finance, agribusiness, manufacturing and services sectors Eligibility: Fulfill two of the following three criteria: No more than 300 employees total assets not more than $15 million total annual sales not more than $15 million Standardized package of risk coverage: Currency inconvertibility and transfer restriction; expropriation; war, terrorism and civil disturbance 53 outstanding contracts for SIP projects (October 2012) MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 7
MIGA Value Proposition for Investors KNOWLEDGE AND EXPERTISE Largest multilateral PRI provider 25 years in emerging markets Expert staff Access to World Bank Group resources Best practice environmental and social standards UNIQUE PRI SOLUTIONS Support investmentsin difficult markets Longer tenors (up to 20 years) May result in lower borrowing costs Reduce risk weighting and capital provisioning CLAIM DETERRENCE World Bank Group s umbrella 177 member countries Claims track record Assistance in dispute resolution FINANCIAL STRENGTH Recognized industry leader Strong balance sheet Diversified portfolio Implied AAA rating Reinsurance capacity MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 8
MIGA s Claims Track Record Highlights Claims history MIGA has supported more than 700 projects since inception MIGA has assisted clients in resolving more than 100 disputes MIGA has successfully facilitated the settlement of disputes in all currency transfer/ inconvertibility issues MIGA has paid claims in six cases: Afghanistan, Nepal, Kenya and Madagascar (War and civil disturbance) Indonesia and Argentina (Expropriation) All other cases have been resolved or the claim withdrawn MIGA has never had a dispute with a client with regard to a claim In all these cases, MIGA has maintained good relationships with the Host Government Deterrence effect & early involvement to resolve difficult / complex situations will ensure the largest number of projects are successful MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 9
Process and Structure: How Does it Work? 1 Investor Marketing and origination Preliminary Application Available online Free, confidential 2 pages Determines eligibility 2 MIGA (3-6 months) Definitive Application Early Screening Project Review Meeting ( ESM )-chaired by the Director of Operations Group Underwriting and host country approval Developmental impact Environmental, Social review Pricing and reinsurance Economic financial viability, country risk World Bank Group policy Project Review Committee ( PRC )-Track A projects (complex/high risk) Final Approval Meeting ( FAM )-Track B projects (simpler/low risk) More detailed analysis of a project Fees due ($5k up, depending on the type of project) Starts underwriting process 3 Investor and MIGA Sign contract of guarantee Monitoring, evaluation, contract maintenance MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 10
Standard Project Structure Bank (Parent/Subsidiary) Foreign Investor Home Country can be holding company based offshore in a MIGA member country Home Country Loan Equity/ Shareholder Loan Certain types of management contracts, whose remuneration depends on revenues or profits of project, are eligible as equity Host Country Government or Relevant HC Authority Concession Project Enterprise/JV Non-honoring of Sovereign Guarantee possible if Project Enterprise is PPP or JV w/ SOE and Government provides unconditional guarantee on loan Contractor Infrastructure Works MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 11
Project examples: Coverage of a Sovereign Financial Obligation: Takoradi 3 Power Plant in Ghana, 2012 In February 2012 MIGA issued a guarantee of Contractors (CCC, Magellan, HPI, Orenda) SG-CB $88.4 million to Société Générale Canada Branch (SGCB) covering its loan to the government of Ghana to finance the completion of the Takoradi Canada Ghana Contract Payment Obligation Loan Agreement 3 Power Plant The coverage is for a period of up to 15 years against the risk of non-honoring of sovereign financial obligations EPC Contract MoE/VRA/ TakoradiPower Project Subsidiary Loan Agreement risk NHSFO cover Ministry of Finance The project, located within the existing Takoradi T1/T2 power plant complex in the Ghanaian district of Sharma Ahanta East, will expand the existing combined-cycle gas turbine powergeneration facility. The proposed expansion will furnish power to the national grid during peak demand and provide base load capacity in times of low water levels when hydroelectric generation is affected MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 12
Coverage of a Sub-sovereign Financial Obligation: Kadikoy-Kartal-Kaynarca Metro in Istanbul, 2011 Credit Agricole Unicredit Facility Agent Société Générale ING WestLB Loan BNP Paribas In April 2011 MIGA issued a guarantee of $409.2 million for an investment by WestLB AG London Branch, for itself and as agent for a consortium of lenders, in the Kadikoy- Kartal-Kaynarca Metro Project in Istanbul NHSFO cover risk MIGA s guarantee covers principal and Turkey Ulasim Ownership Municipality of Istanbul interest for a period of up to 9.5 years against the risk of non-honoring of sovereign financial obligations Operator Ownership Contract Funding The project will be the first underground metro system on the Asian side of Istanbul and connect with the European side of city Kadikoy-Kartal-Kaynarca Metro Project Construction Astaldi-Gulermak- Makyol JV MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 13
Breach of Contract with a Sovereign: Konan Bédié Bridge in Côte d Ivoire, 2012 In June 2012 MIGA issued $145 million in BoC cover guarantees covering equity and loans from Equity Providers Bouygues, PAIDF, AFC Senior Lenders FMO, BMCE, AFC Junior Lenders Bouygues, AFC PAIDF Senior Multilateral Lenders AfDB, BOAD, ECOWAS Bouygues Travaux Publics (France) and Pan African Infrastructure Development Fund (South Africa), and loans from AFC (Nigeria), BMCE Bank International (UK) and FMO (Netherlands) Cote d Ivoire Total CI Banque Nationale d Investissement SOCOPRIM S.A. risk Concession Minimum Revenue Guarantee Govtof Cote d Ivoire Note: PAIDF = Pan African Infrastructure Development Fund; AFC = Africa Finance Corporation, FMO = Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V.; BMCE = BMCE Bank International Plc MIGA s coverage is for a period of 15 years against the risks of transfer restriction, expropriation, war and civil disturbance, and breach of contract Investments support the design, construction, and operation of the Henri Konan Bédié Toll Bridge over the Ebrié lagoon in Abidjan MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 14
Small Investment Program Bitaka S.A.,2011 In December 2011, MIGA issued guarantees of 3.8m ($5.1m equivalent) to Fons Mediterrània Capital, F.C.R. de Régimen Simplificado of Spain (FMC) FMC covering its equity investment and shareholder loan in Bitaka S.A. (Bitaka) in Tunisia Shareholder Loan risk risk Equity investment The coverage is for a period of up to 5 years against the risks of transfer restriction, expropriation, and war and civil disturbance Spain Bitaka provides low-cost, innovative solutions to Tunisia mobile operators in Tunisia. The mobile sector is mainly pre-paid and relies on payment solutions to Bitaka S.A. connect the majority of the population Indirectly the project contributes to the continued growth of the mobile sector in Tunisia, which has an impact on GDP growth (a 10 percentage point increase in mobile penetration generates a 0.81 percentage-point increase in economic growth for low and middle-income economies) MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 15
MIGA Highlights MIGA s Gross Exposure (US$ billion) 9.1 7.7 7.3 6.5 10.3 10.8 Key Figures Supported more than 750 projects for a total of $27.2 billion during FY90-12 Portfolio: $10.76 billion in June 2013 5.1 5.4 5.3 Issued record $2.8 billion guarantees in FY13 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Total new issuancesby region FY13 2.56 1.89 1.46 FY12 2.78 FY13 MIGA s Strengths Subscribed capital and retained earnings: $ 2.5Bn Strong capital base and ability to pay compensation in the event of large-scale losses Highly rated multilateral acknowledged by Basel II Sector breakdown FY13 MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 16
Thank You! www.miga.org/emea
Contact Information Europe Regional Office Multilateral Investment Guarantee Agency 66 Avenue d'iéna 75116 Paris France www.miga.org/emea Olivier J. L. Lambert, Manager t. 33-1-4069-3158 olambert@worldbank.org MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 18
I N S U R I N G I N V E S T M E N T S E N S U R I N G O P P O R T U N I T I E S