Washington D.C, June 26, 2003
— The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has approved an investment of up to $10 million in a public debt securities offering by
Exportadores II
, an Argentine-domiciled financial trust that will securitize pre-shipment export loans to a selected group of Argentine companies. In total, it is anticipated that
Exportadores II
will make $20-30 million of 270-day funding available to these exporters.
When completed, the
Exportadores II
transaction will be the second public securities offering undertaken through the
Exportadores
Program, an initiative that provides pre-shipment export financing to Argentine companies. The Program was launched in late 2002 by HSBC Bank Argentina S.A., BBVA Banco Frances S.A. and Banco Rio de La Plata S.A, three leading Argentine banks, with a pilot financial trust that raised $15 million of 180-day funding for several, major Argentine exporters. As was the case with this initial transaction under the Program, the same three arranging banks will target domestic institutional investors, such as pension funds and insurance companies, as principal investors for
Exportadores II
. Due to improved economic conditions in Argentina over the last several months, however, they will also market the
Exportadores II
investment opportunity now to selected private banking clients, correspondent banks, and international investors.
While the financial trust structure has been used previously in Argentina to securitize other asset classes, it has not been traditionally applied to trade finance transactions - which were normally funded in the bank markets. Nonetheless, as a consequence of the country’s severe economic crisis, credit lines to Argentina from international banks have been severely reduced. This, in turn, has resulted in a shortage of conventional trade finance offered by domestic banks to exporters.
In response to this situation, some Argentine financial intermediaries have started to arrange capital markets transactions that access trade finance funding from non-traditional sources, such as domestic pension funds and other institutional investors. The
Exportadores
Program, with its use of the financial trust structure, is one example of this trend. In light of that, supporting further growth of the Program - both in term of greater aggregate loan amounts, as well as longer tenors made available to exporters - is a principal goal of IFC's participation in the upcoming
Exportadores II
transaction. That, in turn, should help make the structured trade finance alternative offered by the
Exportadores
Program more widely accessible in the future to an increasing number of Argentine companies, including SMEs.
Karl Voltaire, IFC's Director of Global Financial Markets, observed: "This project signals to potential investors and lenders that multi-issuer, structured trade finance transactions are feasible in Argentina, despite its still evolving macroeconomic situation. As such, it complements IFC's current strategy in Argentina of arranging single-issuer financings for sound, export-oriented companies, of which there were already several examples in 2002 and 2003."
Underlying export competitiveness in Argentina increased sharply in 2002, as a result of Peso devaluation and lower-than-expected domestic inflation. But lack of funding for exporters, as well as lower international prices for their products, hindered growth in the US Dollar value of the country's exports. Therefore, while physical volumes of Argentine exports remained constant, their monetary value actually declined by 5%. With financing constraints easing in the last few months, however, this trend has been reversed, and exports rose 13.5% during the first four months of 2003 to an annualized level of $26.7 billion.
Bernard Pasquier, IFC's Director for Latin America and the Caribbean, noted: "As a result of cutbacks in conventional trade finance from banks, Argentine exporters face difficulties in obtaining needed funding. The IFC investment in
Exportadores II
will help to address this situation, by supporting an innovative program that provides new sources of funding to exporters, and thereby allows them to capitalize on improved international competitiveness."
IFC’s investment will also promote further development of Argentina's local capital markets by enlarging the supply of securitized trade finance loans, a new asset class that is likely to become increasingly attractive for domestic institutional investors, who have ample and growing liquidity.
Nina Shapiro, IFC's Vice President Finance and Treasurer, added: "The loans that are to be securitized in
Exportadores II
are characterized by relatively low credit risk, and the transaction's financial trust will be structured to partially mitigate against several forms of cross-border risk. Therefore, like the first financing under the
Exportadores
Program, we hope that this transaction will elicit favorable interest from local financial investors, who have faced a shortage of private sector investment opportunities, as a result of the drought in Argentine capital markets issuance activity since the onset of the country's crisis in late 2001."
IFC's mission (www.ifc.org) is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956, IFC has committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries. IFC's committed portfolio at the end of FY02 was $15.1 billion with an additional $6.5 billion held for participants in loan syndications.
