The Overseas Private Investment Corporation – An Overview

National Association of Realtors Legislative and Research WorkshopMay 14, 2003 (Washington, D.C.)

Forrest MetzInvestment Research Analyst

The Overseas Private Investment Corporation – An Overview

What is OPIC?What is OPIC?

Why Do Businesses Use OPIC?

OPIC and Housing

New Small Business Center

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What Is OPIC?

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Self-sustaining government agency that enables U.S. businesses to succeed in emerging markets

– Promotes sustainable development overseas and creates U.S. jobs

– Supports foreign policy objectives of President Bush’s Administration

– Operates at no net cost to the taxpayer

Supports private sector growth in developing countries

– Provides long term financing for U.S. businesses in emerging markets

– Most experienced provider of political risk insurance in the world

– Brings equity capital and to developing countries by supporting private equity investment funds

OPIC’s Mission

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To mobilize and facilitate the participation of United States private capital and skills in the economic and social development of less developed countries and areas, and countries in transition from non-market to market economies, thereby complementing the development assistance objectives of the United States.

Current Portfolio by Region

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OPIC's World Exposure by RegionCombined Maximum Portfolio as of 9/30/02 ($ millions)

Worldwide Total: $13,100M

South America$4,811 (36%)

North Africa/Middle East$523 (4%)

Worldwide Funds$711 (5%)

Sub-Saharan Africa $821 (6%)

Caribbean/Central America 

$935 (7%)

New Independent States$1,260 (10%)

Europe (Including Turkey) 

$1,527 (12%) Asia/Pacific Islands $2,509 (20%)

Current Portfolio by Sector

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OPIC's World Exposure by SectorCombined Maximum Portfolio as of 9/30/02 ($ millions)

Worldwide Total: $13,100

Financial Services (including Investment

Funds)$4,035 (32%)

Oil and Gas$1,970 (15%)

Manufacturing$1,058 (8%)

Communication$714 (5%)

Services$423 (3%)

Tourism/Hotels$419 (3%)

Mining$199 (2%)

Power$3,858 (29%)

Construction$222 (2%)

Transportation$191 (1%)

Agriculture$12 (0%)

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The Overseas Private Investment Corporation – An Overview

What is OPIC?Why Do Businesses Use OPIC?Why Do Businesses Use OPIC?

OPIC and Housing

New Small Business Center

Why Do Businesses Use OPIC?

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Want to protect their investment

against the political risks of doing business in developing

countries

Want the backing of the U.S. Government

behind their foreign investment

Want to partner with experts

who have supported successful businesses in almost every sector in over

140 developing countries

Want to build their business

and need finance for a new project, joint venture, expansion or modernization

• OPIC Finance• OPIC Political Risk Insurance

• OPIC Investment Funds

Maximizing the Opportunities

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OPIC Finance

OPIC Finance - Benefits

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Access to scarcecapital

Flexibleprograms

Unique terms and conditions

• Longer tenor, market rates and significant capacity• Tenor 3-15 years• Rates based on cost of funds plus risk spread• $250 million loan capacity

• Project and corporate finance models• Franchise program• New Small Business Center

• Screening criteria ensures that your project upholds environmental, worker rights, human rights and anti-corruption guidelines

Promote corporate citizenship

• Active in countries that do not attract traditional sources of funding • OPIC loans encourage cooperation among investors, partners and

other lenders

OPIC Finance – Eligibility and Terms

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Eligibility• Commercially viable business plan

and successful track record

• At least 25% U.S. equity ownership

• No adverse impact on U.S. jobs

• Projects meet environmental, labor and human rights standards, anti-corruption guidelines

• OPIC eligible country

• Limited government participation (<50%)

TermsLoan term*

• Amortization of up to 15 yearsAmount of OPIC participation

• $100k to $250 million per project • Up to 50% of total project costs for

new projects• Up to 75% of total project costs for

expansionsLeverage*

• 60% debt to 40% equityPricing

• Market rates of interest (+fees)Limited recourse financing

• Project completion support

* Terms and leverage vary

OPIC Finance Process

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Pre-Screening Screening Disbursement

Application

Disbursement& Monitoring

Screening

Due Diligence

Credit & Policy

Approval

Profits!

Direct Loan Example – Construction Project

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Project Company

Local Partner

75%

U.S. Partner

25%

Cash, land, and local support

Cash, technology,

management & financing OPIC loan

60-70% tpc

Key Issues in Construction Finance

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• Purpose – for rent or for sale?• Collateral – land, completion guaranty, pledge of

shares in project company• “Off-take” arrangement and marketing plan• Target low and lower-middle income clients• Composition of equity – what does the U.S.

partner have at risk?• Capacity to buy – how will clients pay?• Experience of project team

Construction Finance Project Timeline

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Pre-Development and PreSales

Initial Infrastructure Phase One Houses

Phase Two

Houses

Phase Three

Houses

Sales Revenue

OPIC LOAN DISBURSEMENTS

OPIC Finances 60 – 70% of project costs, for 3 years or more

Infrastructure cost generally 25% of total

Draw funds over 18 – 36 months – interest only payments

Minimizing the Risks

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OPIC Political Risk Insurance

OPIC Insurance - Benefits

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Access to scarcecapital

Promote corporate citizenship

Protects your

investment

Facilitates access to

credit

Eliminates risk of unfair interference

• Prevents foreign governments from violating agreements or taking over your business

• Guarantees your ability to repatriate dividends, profits and capital

• OPIC support is signal of security to lenders• Flexible programs for specific business needs (ex. contractors and

exporters)

• Avoid obstacles of resolving investor disputes through use of U.S. Government influence

• Ensures that contract dispute resolution procedures and payments are honored

Strengthens your local presence

• Replace losses resulting from terrorism or war • Protect your income and operating expenses • Provides predictability through long-term fixed rates

OPIC Insurance – Eligibility

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U.S. citizens

Corporations, partnerships or other associations created under laws of the U.S., over 50% U.S. owned

Foreign corporations at least 95% owned by U.S. citizens, corporations, or partnerships.

Other foreign entities 100% U.S. owned

OPIC Political Risk Insurance

OPIC Insurance –Terms and Coverage

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Terms• Policy terms up to 20 years. Premium rates

locked in.

• May be canceled by insured, but not by OPIC

• Typical amount is up to $250 million per project. 10% self-insurance requirement (except for third-party lenders or lessors)

CoverageUp to 90% coverageInconvertibility: earnings, return of

capital, principal and interest payments, technical assistance fees, and similar remittances on insured investments

Expropriation• equity: book value of investment at

time of expropriation • loans :based on outstanding principal

and accrued interestPolitical violence: replacement cost of

assets and income (up to 1yr) of destroyed assets

OPIC Insurance – Construction Project Example

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Sources of Funding

Equity (cash, equipment, land) 3,500,000

Bank Loan 6,500,000

Total Project Cost 10,000,000 Equity coverage

Debt coverage for loan payments

OPIC Insurance protects assets on the ground as well as future profits.

Maximizing Partnerships

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OPIC Investment

Funds

Bridging the Equity Gap – OPIC Investment Funds

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Overview

• OPIC supports 26 private equity funds to address lack of equity investment in emerging markets

• Funds target various regions and sectors, and invest in new, expanding or privatizing companies

• Funds capitalized by OPIC guaranteed debt and private equity

Benefits

• Provides local enterprises in emerging markets with access to risk capital, management guidance, and financial expertise

• Serves as engine of growth in regions most investors consider reluctant to approach

• Improves local business climate by supporting adoption of international reporting standards, transparency and environmental and workers rights standards

How OPIC can Partner with Investors

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OPICOPICInsuranceInsurance

U.S.U.S.BanksBanks

OPICOPICFinanceFinance

OPICOPICInvestment FundsInvestment Funds

U.S. - Foreign U.S. - Foreign Joint VentureJoint Venture

ForeignForeignBanksBanks

U.S. ParentU.S. ParentCompanyCompany

Financing and insuring US - foreign joint ventures, and/or U.S. parent and banks that support them.

OPIC Product Overview

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•Multiplying your returns in international markets

•Encouraging cooperation among you and your suppliers

and other lenders

•Promoting good corporate citizenship

•Protecting your investment

•Defending your right to return profits to U.S.

•Facilitating access to credit

•Strengthening your local presence

•Providing predictability through fixed rates

•Providing local firms with access to capital, management

guidance, and financial expertise

•Improving business climate by support of international

reporting standards, and environmental and workers

rights standards

OPIC

Political Risk Insurance

OPIC

Investment Funds

OPIC

Finance

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The Overseas Private Investment Corporation – An Overview

What is OPIC?

Why Do Businesses Use OPIC?OPIC and HousingOPIC and Housing

New Small Business Center

Housing – An OPIC Strategic Sector

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• Highly developmental sector – social and economic

• Diverse experience and deep capital base in U.S. have export potential (yet to be fully exploited)

• Great need for housing construction and finance around the world

• Opportunities for excellent returns on investment

OPIC Recent Housing Experience

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Country Purpose Product AmountMexico Micro-loans for housing Direct Loan $2.5 mRomania Micro-loans for housing Direct Loan $2.5 mBosnia Construction of apartments Direct Loan and

Insurance$2.5 m

S. Africa Construction of low income houses Loan Guarantee $15 mNicaragua Mortgage finance Direct Loan $30 mGuatemala Mortgage bond Insurance $15 mIndiaIndia Housing components Direct Loan $1.2 mHonduras* Home construction Direct Loan $1.5 mAfghanistan* Home construction Direct Loan $3.0 m*Projects pending approval

OPIC Direct Loan for Mortgages

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Local Private Bank Takes First Loss Position

(manages portfolio)

Local Private Bank Takes First Loss Position

(manages portfolio)

OPIC Long Term Loan (mortgages as collateral)

OPIC Long Term Loan (mortgages as collateral)

Special Purpose Company

U.S./Local Joint Venture

Special Purpose Company

U.S./Local Joint Venture

Supporting Infrastructure:

Trustee

Collateral Agent

Paying Bank

Credit Administrator

Possible devaluation reserve

Issues to Consider with Mortgage Programs

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• OPIC loan is in dollars – can create significant currency risk

• Needs adequate legal framework for mortgage lending and collateral enforcement

• Strong bank experience with underwriting and servicing mortgages is necessary

• Cash is the only equity that works• Will incur significant legal costs

OPIC Capital Markets Programs

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• Political risk insurance to exceed sovereign ceiling for rating

• Financial guarantee to improve credit rating

– OPIC can support an issue targeted to local investors so long as 51% is sold to U.S. investor

• Back-up sovereign guarantee

Mortgage Bond Program

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• Allows local currency lending with proper hedges at the SPV level

• Mobilizes U.S. long term capital and in the long run, local pension fund capital

• Credit enhancement for mortgage bonds not available for non-investment grade countries

• New sovereign coverage could support housing agency issues

Mortgage Bond Model

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SPVOFFSHORE TRUST

BOND ISSUER

OPIC GUARANTY(US GOVERNMENT)

SECOND LOSSEXPOSURE

LOCAL BANKASSUMES FIRSTLOSS EXPOSURE

TO SPV

LOW AND MIDDLE INCOMEHOMEOWNERS

BOND HOLDERS

SEMI ANNUAL BOND PAYMENTSBOND PROCEEDS

MORTGAGE LOANS

MONTHLY MORTGAGE PAYMENTS

BOND PROCEEDS FROM SALE OF MORTGAGES

SALE OF MORTGAGES(Monthly Mortgage Payments)

Other Applicable Approaches w/ Housing

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• On-lending facilities• Direct loans to SPV for long term mortgage

funds or warehousing of mortgages pending sale

• Construction finance• Working capital for service or insurance

entities (also back-up guarantees, reinsurance)

Key Issues to Remember w/ Housing

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• Currency risk – OPIC is dollar lender• Fixed rate, medium/long term financing• Must have U.S. partners “at risk” • Bi-lateral agreements and honoring of

international arbitration• Developmental effects and policy concerns• The timing is good – housing is high priority

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The Overseas Private Investment Corporation – An Overview

What is OPIC?

Why Do Businesses Use OPIC?

OPIC and HousingNew Small Business CenterNew Small Business Center

OPIC Small Business Center – Highlights

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Reduced Response Time

• Goal of 60 days from complete application to loan agreement

Greater Flexibility

• Finance and Insurance officers working with small business transactions and requirements

Increased Small Business Deal Flow

• Goal by end of FY-2004: 100% increase in transactions for both Insurance and Finance products

OPIC Small Business Center – Eligibility

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Eligibility• Commercially viable business plan and successful track record

• U.S. business sponsor with less than $35 million in annual consolidated revenues or $27 million in personal net worth

• Loan amounts ranging in size from $100k up to $10m

• Insurance coverage up to $15m – no minimum investment size

• Projects adhere to OPIC investment policies

OPIC Small Business Center – Terms

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InsuranceTenor: From 3 to 20 years

Amount of OPIC participation• Up to $15 million of coverage per

project

Pricing• Fixed rates-based on nature of risk• ex. Manufacturing Services

(Annual Base Rates per $100 of Active/Current Coverage)

Inconvertibility $0.25 - $0.45

Expropriation $0.50 - $0.70 Political Violence

Business Income $0.30 - $0.50 Assets $0.40 - $0.60

FinanceTenor: From 3 to 15 years

Amount of OPIC participation• Up to $10 million per project

Leverage• Up to 65% debt (35% equity)

Security• Minimum - pledge of shares in the

project

Pricing• Capped at 7% over cost of funds

(lower with collateral availability)• Upfront Facility Fee (<2%) and

Annual Maintenance Fee (<1%)

For more information, finance applications and contact

information, visit our website:

http://www.OPIC.govhttp://www.OPIC.gov

To discuss your project, please contact OPIC’s Investment Development and Economic Growth Department at (202) 336-8688 or

Debbie Erb – Director of Housing Programs(202 336-8472 dlerb@opic.gov