MIGA in Zagreb, Croatia October 15, 2013 maintaining FDI flows in a risk-averse world

MIGA in Zagreb, Croatia

October 15, 2013

maintaining FDI flowsin a risk-averse world

Olivier J. L. Lambert, MIGA Europe Office (Paris)

MIGA and Croatia

Croatia has been a member of MIGA since 1993

MIGA has supported many investments into Croatia: 15 guaranteed projects to date 7 active projects Gross exposure for active projects: US $ 946.7 million (8.97% of total MIGA gross

exposure) Sectors: Banking & Services mainly

Active discussions held with other foreign investors into Croatia: Infrastructure and Financial sectors mainly

MIGA is now looking to support Croatian investors into emerging markets

The International Finance Corporation (IFC)

Investment services for the private sector

Advisory Services for companies and private investors for questions related to the private sector

IFC Asset Management Company

The World Bank Group

The Multilateral Investment Guarantee Agency (MIGA)

Guarantees against non-commercial risks

Dispute resolution services for guaranteed investments

The International Bank for Reconstruction and Development (IBRD)

The International Development Association (IDA)

IBRD: Loans to middle-income countries Advisory services Guarantees and risk management

IDA: Donations and zero-interest

loans to least developed countries

The International Center for Settlement of Investment

Disputes(ICSID)

Specialized dispute resolution institution

Facilities for independent conciliation and arbitration of investor- State disputes

Enables individuals or companies to bring up claims against foreign governments

https://icsid.worldbank.org/ICSID/Index.jsp

MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP 4

1. Currency Transfer Restriction & Inconvertibility Cover Protects against losses arising from inability to convert local currency into forex for 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.

MIGA Political Risk Insurance covers non commercial risks


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


Terms of Coverage

Amount of coverage 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

Tenor 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

Pricing 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


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)


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 investments in 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


MIGA’s Claims Track Record

Highlights

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

Claims history MIGA has paid claims in six cases

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


Investor Marketing and origination Preliminary Application

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)

Investor and MIGA

Sign contract of guarantee Monitoring, evaluation, contract maintenance 3

2

Process and Structure: How Does it Work?

1•Available online•Free, confidential•2 pages•Determines eligibility

• More detailed analysis of a project

• Fees due ($5k up, depending on the type of project)

• Starts underwriting process


Bank (Parent/Subsidiary)

Government or Relevant HC Authority

Project Enterprise/JV

Concession

Loan

Host Country

Home Country

Contractor

ForeignInvestor

Equity/ Shareholder Loan

Infrastructure Works

“Home Country” can be holding company based offshore in a MIGA member country

Certain types of management contracts, whose remuneration depends on revenues or profits of project, are eligible as “equity”

Non-honoring of Sovereign Guarantee possible if Project Enterprise is PPP or JV w/ SOE and Government provides unconditional guarantee on loan

Standard Project Structure


Small Investment ProgramBitaka 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)

covering its equity investment and shareholder loan in

Bitaka S.A. (Bitaka) in Tunisia

The coverage is for a period of up to 5 years against

the risks of transfer restriction, expropriation, and war

and civil disturbance

Bitaka provides low-cost, innovative solutions to

mobile operators in Tunisia. The mobile sector is

mainly pre-paid and relies on payment solutions to

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)

FMC

Bitaka S.A.

Equityinvestment

Shareholder Loan

Spain

Tunisia

riskrisk


MIGA Highlights

Sector breakdown – FY13

Key Figures Supported more than 750 projects for a total of

$27.2 billion during FY90-12 Portfolio: $10.76 billion in June 2013 Issued record $2.8 billion guarantees in 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

5.15.4 5.3

7.3 7.7

FY05 FY06 FY07 FY08 FY09 FY10

6.5

9.1

FY11 FY12

10.3

FY13

10.8MIGA’s Gross Exposure (US$ billion)

1.46

1.89

2.562.78

Total new issuances by region – FY13


Contact Information

Europe Regional OfficeMultilateral Investment Guarantee Agency66 Avenue d'Iéna 75116 Paris Francewww.miga.org/emea

Olivier J. L. Lambert, Regional Managert. [email protected]

Thank You!www.miga.org/emea

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

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MIGA in Zagreb, Croatia October 15, 2013 maintaining FDI flows in a risk-averse world