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.
Category: Structured Finance
Multilateral Talks Capital Increase
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
IDB Repels ABS Loss Critics
IDB executives roundly reject widespread criticism of investment portfolio losses and are sticking to existing MBS and ABS positions. “It has not meaningfully affected our ability to lend,” IDB chief operating officer Dan Zelikow tells LatinFinance. “Our realized losses are relatively small . . . It doesn’t affect our financial strength right now,” says the official. He adds that the furore surrounding the loss is “all out of proportion to its impact on our balance sheet.” The IDB had a net investment loss of approximately $1bn in 2008, mostly unrealized and due to marking down in line with US accounting rules. Realized losses were just $71m last year, but analysts worry that ABS/MBS holdings may continue to deteriorate, undermining the IDB’s ability to lend. “It has been a significant distraction in terms of the political attention that it’s received and the kind of misunderstandings that it’s created by those people who purport to know about what’s going on and really don’t,” says Zelikow. The IDB continues to monitor the situation – Zelikow says he is getting weekly updates – but the bank is sticking with the exposure. “The losses are concentrated in asset backed and mortgage backed, which were all Triple A when we bought them. They are all performing still,” IDB CFO Ed Bartholomew tells LatinFinance. He adds that ABS and MBS accounts for roughly 25% of total portfolio, a number the IDB is happy with. And, says the CFO, the portfolio – which he describes as conservative – is diversified throughout ABS and MBS, including different types of collateral and a variety of regions. “We’re focused on doing the thing that is economically the right thing for the bank and to maximize value, and right now we think that means holding these securities and not dumping them into an extremely distressed market,” Bartholomew adds. The exposure is in the IDB’s investment portfolio, which is aimed at providing financial flexibility and enable the bank to stay out of markets if neede
IDB Signs China Project Pact
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.
IDB Signs $1.3bn for Colombia
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.
Usiminas Lands Cheap Yen Loan
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.
Multilaterals Seek to Cooperate
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.
Market Flies to Colombia Storm
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.
LatAm Leaders See Slower Growth: IDB
An IDB survey of 317 leaders in government private sector, nonprofit organizations, media and academia in 26 LatAm countries reveals they expect the region to see slower growth in the next 4 years. The survey participants expect per capita income to fall or grow moderately in the 2009-2012 period and for governments to rely more on financing from international institutions. Leaders in Nicaragua, Haiti and El Salvador are the most pessimistic, according to the survey. More than two-thirds of the leaders surveyed in those three countries expect per capita income to fall in the next four years. Peru and Chile are among the most optimistic. About a third of the leaders polled in Peru and over a fifth of those in Chile said they expect income per capita increase to exceed population growth by several percentage points. Caribbean and CentAm nations are among the countries where the majority of the leaders expect reliance on financing from international organizations to increase in the next four years. In larger countries such as Brazil, Chile and Mexico, the majority of the leaders expect the reliance on international financing to be little changed. Only in Nicaragua and Haiti do the majority of the leaders expect financing from international organizations to fall.
DR Gets Multilateral Cash
The IDB is loaning $300m to the Dominican Republic so the Caribbean country can restore credit flows for companies and support private sector investments. It is also extending a $60m loan to the Dominican Republic to help improve the country’s competitiveness. The $300m loan has a 5-year term and a 3-year grace period. The $60m loan will mature in 20 years, has a grace period of 5 years and an interest rate based on Libor.