Category: Bonds

CAF has signed a $210m 7-year credit line for Banco Nacional de Panama. The bank will use the credit to provide medium-term loans, the CAF says. A CAF spokeswoman says the bank will draw on the line on an as-needed basis. She declines to state the rate.

A special commission recommended Sunday to the IDB that it lift funding to $230bn-$280bn from $100bn. The commission’s head, Pedro Pablo Kuczynski, called an IDB capital increase the central subject of this year’s annual meetings of the multilateral. “The urgency is that the possible alternatives, such as selling loans or guaranteeing the capital of some Latin American countries, all have downsides,” says Kuczynski, a former Peruvian finance minister. He adds that the proposed increase is not that large in relative terms. The committee’s recommendation starts the discussion, but the process is a “diplomatic dance” made more challenging by constraints on some donor countries facing slower growth and lower reserves. Kuczynski warns that the IDB will run up against limits this year, and the process to reach approval for such a capital raise could take as long as 2 years. The paid-in portion of the amount would be subject to negotiation, but if kept at current levels it would mean about $7bn, including about $2bn from the US. Kuczynski warns that alternative measures like selling loans to raise funds could be more costly in the long run. “The commission found that we should avoid financial engineering, not just because it’s the most discredited profession nowadays, but because we need to keep the AAA rating using a minimum amount of cash,” he says. The IDB has frontloaded available lending capacity and this year plans to approve up to $18bn, versus $11bn in 2008, up sharply from a 10-year trailing average of $5bn-$6bn, according to COO Dan Zelikow. “At this stage, we’re just asking for guidance. We’re not asking [shareholders] for a specific number, we haven’t recommended any particular number,” Zelikow tells LatinFinance, speaking of the capital increase.

Major IDB shareholder the US is backing calls to increase the size of the multilateral. “To help address the region’s demand for finance this year and next, we encourage the IDB to expand its existing resources, alongside the World Bank and the other regional development banks,” treasury secretary Tim Geithner told the IDB annual meetings in Medellin Sunday. “We believe there is additional room to expand your balance sheet and deploy additional resources to help governments in the region compensate for the sharp reduction in private finance,” he adds. According to Geithner, the IDB should set to work immediately to identify prudentially sound ways to further ramp up its lending in 2009 and 2010, reviewing its capital adequacy model and existing policies on lending limits. “Part of this effort must be directed at providing the poorest countries with crisis response tools. This is the most pressing immediate priority,” says the treasury secretary. The US is prepared to begin a formal review of the capital needs of the bank to assess the merit of an increase in the bank permanent capital base. Geithner adds that work on expanding private financing will be more critical in the months ahead. The secretary also stresses commitment to good governance, as well as ability to innovate.

Among the 3 main issues on the agenda at this year’s IDB meetings in Medellin is the appropriate scale of the bank financially in the medium to long term, and a capital increase looks likely. “At this stage, we’re just asking for guidance. We’re not asking [shareholders] for a specific number, we haven’t recommended any particular number,” IDB chief operating officer Dan Zelikow tells LatinFinance. Former Peruvian finance minister Pedro Pablo Kuczynski is leading a commission that will report on the issue Sunday in Medellin. Zelikow declines to state parameters for an increase. The 2 other main issues for the COO are what the bank is doing to respond to crisis, and what more can it do, as well as what the multilateral would do with the resources if shareholders decide the IDB should be bigger. The bank has engineered significant frontloading of available lending capacity and this year plans to approve up to $18bn, versus $11bn in 2008, up sharply from a 10-year trailing average of $5bn-$6bn, says Zelikow. The IDB has $51.2bn in outstanding loans and can go up to around $63.0bn. “We’re talking about putting out most of the available headroom that we have in 2009,” says Zelikow. This will be via investment loans and spending on infrastructure, social safety nets, institutional reforms and the liquidity facility, for which there is big demand. “We’re also looking at ways to mobilize resources from third parties to co-finance our operations,” says Zelikow, who adds that the bank has expanded trade finance to $1bn from $400m. “Just in the past 3 months we’ve taken on 35 more clients. We all want to ensure that trade finance flows continue,” says the banker. The IDB also wants to promote advice and technical assistance. “Increasingly we’re going to be emphasizing that approach to the activity as well as the money,” says Zelikow. The official sees positives and negatives in the overall LatAm outlook. “Many countries made some very positive macroeconomic reforms at a time w

The IDB says it is setting up 2 partnerships with China to co-finance public and private sector projects in LatAm and the Caribbean, aimed at increasing credit flows to the region. The first agreement was signed Saturday in Medellin by IDB president Luis Alberto Moreno and vice president of the Export-Import Bank of China, Zhu Hongjie. They will collaborate to identify and invest in infrastructure projects, trade finance and other sectors hit by the global financial crisis. They also plan to jointly finance private or public sector projects of mutual interest. The second will be signed by the IDB with China Development Bank, aimed at promoting business links. The banks will co-finance projects sponsored by public and private sector entities, and support new financial products in cross-border banking. They may also engage in other joint investment programs, including project financing and credit guarantees, says the IDB. China joined the IDB in January and is contributing $350 million to fund key IDB initiatives, including soft loans for the region’s poorest nations and investment capital for SMEs.

Colombia’s ministry of finance and public credit says the IDB has approved a loan of about $1.3bn to fund projects related to climate change control, water systems improvement and energetic efficiency enhancement. It does not specify the terms of the loan, but indicates it will be disbursed throughout the year. The ministry says this represents an increase of $300m from what the IDB loaned the sovereign in 2008.

After more than 8 months of discussions and meetings, Usiminas has clinched an IDB A/B loan to help finance a new thermoelectric power plant in the state of Minas. The facility is denominated wholly in JPY and will likely be swapped back into BRL. The IDB is providing a JPY2.1bn ($21.5m) 8.5-year A loan at an undisclosed rate over Yen Libor, while SMBC led a club that involves 3 other undisclosed Japanese banks for JPY17.5bn ($179m) at Yen Libor plus 150bp. Though the deal was originally expected at twice the size and half the rate over Libor, securing funds at Yen Libor plus 150bp in the case of the B loan and slightly higher in the case of the A loan is, by any measure, a coup for Usiminas given today’s market conditions. Other similar deals could follow if borrowers can etch out an angle to get Japanese lenders involved, says a banker on the deal. The transaction marks the first time the IDB has scored a JPY denominated B loan, claims an official at the multilateral.

Government officials, investors and bankers aim to put their heads together to address the main challenges for the region’s economies at this weekend’s IDB meetings. Cooperation by multilaterals is essential, as it has been since the start of the global credit crisis, Atul Mehta, IFC director for LatAm and Caribbean, tells LatinFinance. “The order of the day is to get like-minded institutions together to let borrowers know that help is available,” says the official, speaking before leaving for Medellin. “The needs are very large and we need to see how we can collectively increase the financial support available.” Mehta identifies trade finance, microfinance and infrastructure as critical sectors where financing gaps must be addressed. Other observers say that besides the Ecuador default and upcoming G20 meetings, high on the agenda in Medellin will be problems lurking close to home at the IDB. The multilateral’s $1bn-$2bn investment portfolio losses are of grave concern, since US CDO and RMBS exposure is apparently still on the books. Capitalization of the IDB should also be up for discussion, as will a succession plan for president Moreno, say people close to the multilateral.

Bankers, investors and sovereign issuers heading to IDB meetings hope to sustain the bullish mood of the last few trading sessions, despite forecasts of stormy weather in Medellin. Among the luminaries scheduled to attend the multilateral’s 50th annual meetings are Bill Clinton and Tim Geithner, though more LatAm-specific experts like Bill Rhodes are heard missing from the lineup. Some veterans have pulled out last minute owing to a lack of premium accommodation. “There’s only a few 5-star hotels in Medellin and they’re all booked by the IDB staff,” says a longtime investor and erstwhile IDB attendee. And sovereign DCM bankers continue to question the meeting’s importance. “If you don’t already know what a sovereign wants by the time you get there, you’re not doing your job,” quips a New York based official. But other bond and loan bankers stress that the weekend is as relevant as ever, as relationships will be the key to securing mandates in a more competitive landscape. “It’s a new world and forums like this will be important,” says one. Another stresses the importance of interacting with government officials, as guarantees and other support will be crucial for issuance. Corporate spending will likely be restrained by the prevailing parsimony. HSBC has canned its party and JPMorgan is rumored to be proceeding with its own function, while most of the other big surviving regionally-focused shops – including Credit Suisse, Citi and Deutsche – are not entertaining publicly. Most are steering clear of conspicuous corporate spend, partly because of budget, but also due to fears of negative press. North American and European buysiders might be less likely to make a trip to Medellin than Miami last year, but there should still be a critical mass in attendance, say observers.