Category: Structured Finance

The IDB board Monday agreed to increase the bank’s ordinary capital by 70% to $170bn, the largest expansion of resources in the multilateral’s history. However the number falls well short of what was recommended last year by a special commission, which said the IDB should boost funding to $230bn-$280bn from $100bn. Nonetheless, the IDB says the capital increase will enable it to double its pre-crisis annual lending to $12bn per year. And a person familiar with the bank’s thinking says that $12bn – up from around $7bn in prior years – was always the target. In addition, the IDB also succeeds in preserving its triple A rating, the source adds. “This is a tremendous vote of confidence in the direction and vision of a reformed and renewed Bank,” says IDB president Luis Alberto Moreno. However, some IDB officials say that a smaller than recommended addition of funds could be taken as a sign of poor shareholder support for Moreno. Of the $70bn capital increase, $1.7bn will be paid in by the bank’s member countries over a 5-year period. The implementation of all new measures taken together will bring $2.2bn in new cash contributions to the bank, says the IDB. Separately, the multilateral has forgiven all of Haiti’s outstanding debt to support its efforts to recover from the January earthquake. The IDB also will provide Haiti more than $2bn in grants over the next decade. Member countries committed to provide $479m to cancel Haiti’s debt, convert Haiti’s undisbursed loans to grants and ensure a full replenishment of the IDB’s Fund for Special Operations.

The IDB has approved a $137m local for the Brazilian state of Minas Gerais to improve transport infrastructure and logistics. The loan is for 25 years, has a 1-year grace period and an interest rate based on Libor.

Citigroup has exercised an option to acquire an 8.52% stake in Chile-based investment firm LQ Inversiones Financieras from local business conglomerate Quinenco, for UF12.9m ($519.4m). The transaction, which closes May 3, boosts Citi’s stake in LQ to 50%. Bankers close to the companies say that the deal is not expected to have any material impact on Quinenco, as the option was agreed upon about 2 years ago. Quinenco, which has holdings in telecom, financial services, manufacturing and food and beverage industries, is 83% owned by the Luksic family, which is rumored to be among the parties interested in acquiring the remaining 11% stake in LAN airlines owned by an investment vehicle controlled by Chilean president Sebastian Pinera. A sale of the stake is expected by April 30. Before the earthquake that shook the country February 27, a sale was supposed to happen by March 11, when Pinera took over as president.

The IDB has agreed a $481m 25-year loan to help Brazil’s Sao Paulo state expand and upgrade its Metro Line 5 (Purple Line). The deal has a 4.5-year grace period and Libor-based interest rate. In 2013, when the line becomes fully operational, the number of Purple Line passengers will rise more than fivefold, to 644,000 from 120,000, says the lender. The facility will finance upgrading of 8 existing 6-car trains to bring them up to the same operating standards as the new fleet. It will also finance design, implementation and supervision of several systems for the train operation, including telecoms and power supply. Sao Paulo will cover the cost of construction and supervision of tunnel works and track (12 km of tunnel and 11 new metro stations), the purchase of 26 new 6-car trains and a signaling system. In 2008, the IDB financed two urban transportation projects in Sao Paulo: upgrading Metro line 4, with a $129m loan. The second loan of $168m helped purchase new trains and control systems, and financed technical studies to expand public transportation in the southern part of the city, where most of the low-income population lives.

CAF has approved a $300m credit line for Chile to help with earthquake relief. The amount is in addition to the $250m donated by CAF immediately following the quake. The facility may be tapped in the next 4 years at maturities of up to 18 years, a CAF spokeswoman says. No further details were available.

The IDB says it plans to support Jamaica by extending $600m in loans this year. The announcement comes after the country’s government executed a voluntary debt swap that registered a 99.2% participation rate. It also signed a $1.3bn stand-by arrangement with the IMF and obtained support from the main multilaterals for its economic reform program. The IDB has already approved some $200m in new loans to Jamaica this year.

The IDB’s Multilateral Investment Fund (MIF) says money transfers from LatAm and Caribbean migrants to their families back home are likely to stabilize in 2010. Remittances dropped 15% to $58.8bn in 2009, less than what was seen in 2006 and the first year-on-year decline since records started in 2000. “In the short term, significant recovery in the volume of remittance flows is unlikely, largely due to the uncertain outlook for economic growth in traditional remittances sending countries,” says MIF. “But the signs of stability of the last months could provide a basis for an estimate of stabilized remittance levels, or event the beginning of a new period of single-digit growth in the near future.” The fund says stabilization was already visible in 4Q09, suggesting a bottoming-out of the decline. Until 2009 the average annual growth had been 17%, although it started to fall in 2006 and diminished considerably in 2008, as the global economic crisis hit migrant employment and income levels in countries such as the US, Spain and Japan, according to MIF. Mexico, the largest recipient of remittances, suffered a 16% drop in 2009 to $21.1bn owing to US exposure. Central America saw a 9% decrease in remittances, while Brazil took a 34% hit, extending a trend that had started well before the global crisis. “Brazilian migrants have tended to return home, encouraged by their country’s improving economic performance and their dwindling prospects in host countries such as Japan,” says MIF. In countries like Haiti, Guatemala, Honduras, Nicaragua and El Salvador remittances still represent more than 10% of GDP, it adds.