Washington, D.C., May 25, 2001
—The International Finance Corporation announces three new investments in pharmaceuticals, software, and banking—in south Asia, the Middle East, and Central Asia—to support sustainable private sector enterprises in the developing world. IFC also advised the government of Mauritania on the privatization of the national telecommunications operator, Mauritel, and organized seminars and conferences on securitization and global private equity in Europe and the U.S. In addition, IFC has released a new discussion paper which focuses on India's IT industry and the Internet.
The mission of IFC, part of the World Bank Group, is to promote sustainable private sector investment in developing countries as a way to reduce poverty and improve people’s lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.
IFC advised the government of Mauritania on the privatization of the national telecommunications operator, Mauritel—a process that was successfully completed on April 12, 2001. The winning bidder, Maroc Telecom, paid $48.1 million for 54 percent of the company valuing it at $4,065 per access line. This compares well with other telecom privatizations in Africa, which have averaged around $2,500 per access line.
IFC's mandate included reviewing and finalizing the competitive framework, defining the privatization strategy, conducting a $43 million financial restructuring to improve the company’s financial situation and allowing it to acquire its cellular license for $28 million prior to privatization, marketing the transaction to investors, assisting in negotiations with investors, organizing the bidding process, and closing the transaction. The privatization was completed in 13 months.
Mauritel's privatization—expected to result in significant improvement in consumer services—is part of a broader liberalization of the country’s telecom sector, which includes implementation of a legal and regulatory framework, creation of an independent regulator, and the award of two cellular licenses in July 2000 for $28 million each. Mauritel is also required to quadruple the size of its fixed network in five years and meet international quality standards.
IFC will make its first investment in the pharmaceuticals sector in south Asia by helping Orchid Chemicals & Pharmaceuticals Ltd., India, to transform itself from a predominantly bulk drug business into a well-integrated, research and technology driven, pharmaceutical enterprise. Orchid’s $116 million expansion and diversification program will help improve its portfolio and diversify into anti-ulcerants, analgesics, and biotechnology products; obtain U.S. Food and
Drug Administration and U.K. Medicines Control Agency certifications to expand into regulated markets; set up state-of-the-art manufacturing facilities and bolster its distribution network; and enhance its research and development capabilities by focusing on drug discovery and drug delivery systems.
The project will help promote the global pharmaceutical industry, thereby increasing the availability of high-quality drugs at lower costs to other developing countries. It also demonstrates how Indian companies can shift gears to meet WTO-induced regulatory reforms and use their strong comparative advantages of low-cost production and a pool of trained scientists toward development of new technologies.
IFC’s investment includes subscribing to $20 million worth of foreign currency convertible bonds (FCCBs) to be issued by Orchid and a loan for IFC’s own account of $10 million. The FCCBs will be convertible into equity shares of the company at a future date after which IFC will hold about 13.5 percent of the company’s share capital. This is the first time that IFC is using FCCBs to make an investment in India. Orchid was set up by Mr. K. Raghavendra Rao, a first-generation entrepreneur. Starting from a one-product company in 1994, in a short span of seven years, Orchid has built up a wide portfolio of oral and sterile antibiotics and nutritional supplements with a turnover of $80 million in financial year 2001.
IFC will invest $2.5 million in IT Worx (
), an Egyptian software and consulting firm, to assist its expansion efforts, meet its growing demand for services, and enter into new Internet-related activities. The project is in line with IFC’s global strategy of bridging the “digital divide” by investing in technology companies in the developing world. It will also help retain and enhance local talent.
The company’s $6 million expansion plan involves the purchase of computing hardware and software tools, infrastructure support, and an expanded marketing plan designed to attract a broader client base. It also includes an ambitious Internet strategy that seeks to support regional e-businesses.
In addition to IFC, the Commercial International Investment Company (S.A.E), a leading Egyptian financial institution, has already invested $2.54 million and will invest an additional $500,000 in the current round of financing. Since its inception in 1994, IT Worx has grown steadily, attracting a few Fortune 500 companies to its list of clients. The company has also been a leading trainer of Egyptian information technology professionals. The regional and international penetration of local IT companies is expected to be an important factor for their growth and success in the Middle East and North Africa region.
IFC will help develop the local banking sector in western Kazakhstan by providing a subordinated loan of $2.5 million to NefteBank, the entire amount of which will be convertible into equity. NefteBank is a privately owned regional commercial bank mainly serving companies related to the oil and gas sector of the Caspian Sea region and is also active in financing small and medium enterprises in the Mangistau region.
NefteBank will use the loan to consolidate its position in the Kazakh banking sector and expand its lending operations. IFC's loan will also enhance the limited resources of long-term financing to local small and medium enterprises in western Kazakhstan. The project will help NefteBank to reach category A bank status enabling it to issue local bonds to strengthen its institutional base by improving its main funding sources.
This project is expected to encourage further investment in the country's emerging financial sector and signals IFC's commitment to support the Kazakh private sector by providing long-term financing that is not easily available, especially for remote regions of the country. It will help improve overall economic development, particularly in the areas of employment creation and competitiveness. IFC has also arranged a substantial long-term technical assistance program, supported by trust funds from the Dutch government, to further modernize the bank.
IFC organized two securitization seminars in Prague, Czech Republic and Budapest, Hungary, in April 2001 to develop understanding of securitization and to create awareness for the developmental benefits securitization can bring to emerging financial markets. Each seminar was attended by about 70 participants, representing banks and other finance companies, regulators, legal, tax and accounting experts. The conferences were co-chaired by senior government officials—in Prague by Mr. Jan Mladek, deputy minister of finance, and in Budapest by Mr. Zsigmond Jarai, president of the National Bank of Hungary—who stressed the important role securitization can play in the development of their local economies and signaled support in amending the applicable regulatory framework. Working groups are being formed in both countries to review the existing legal, regulatory, and tax framework for securitization and to issue recommendations to regulators.
Securitization is an innovative and increasingly popular financing technique for developed capital markets and offers great development benefits in an emerging market context ranging from the provision of cheaper and potentially longer-term credit for consumers and corporations to being a valuable risk management tool for sponsoring institutions. For instance, securitization has been used worldwide to manage several types of risk, including interest rate and liquidity risk, credit risk, prepayment, and operational risk, and can also be a means to deal with capital constraints or to liquidate pools of nonperforming assets.
IFC’s experience in securitization goes back to 1995 when a portion of its investment portfolio was securitized. Over the past two years, IFC’s structured finance team has helped close a number of securitizations for clients. IFC believes that securitization and other forms of asset-backed finance present a real opportunity for clients to broaden their financing sources, deepen their understanding of risk management techniques, and learn about their own asset portfolios in an often challenging and labor-intensive structuring process.
GLOBAL PRIVATE EQUITY CONFERENCE
IFC’s Private Equity and Investment Funds department held its second Global Private Equity Conference near Washington, D.C. from May 9 to 11. The event was organized primarily for IFC’s investee fund managers to discuss topics of interest in the fast evolving world of private equity. The conference focused on new sectors such as logistics, branding, e-commerce, and biotech, and on finding new ways to add value such as through corporate governance, environmental management, and human resources development.
Conference speakers included Esther Dyson, Chairman, EDventure Holdings, also known as “Internet philosopher”, publisher, and active investor in IT start-ups in central Europe; David Morgenthaler, founder of one of the most productive and profitable venture capital firms based in the U.S.; Nizan Guanaes, known as the “branding guru” of Brazil’s technology industry; Josh Lerner, a professor at Harvard Business School; and representatives from McKinsey, Headstrong, Infotech, Endeavor, and others. Two interactive sessions led by representatives from McKinsey and Core Capital addressed various types of term sheets and responded to a survey on corporate governance issues.
To access conference materials please visit
. IFC’s Global Information and Communication Technologies Department held a parallel conference on IT investments at the same time so that participants could choose between the two tracks. More information on the IT conference will be available in next month’s
DISCUSSION PAPER—INDIA’S IT INDUSTRY AND THE INTERNET
IFC has released a new discussion paper titled “Leapfrogging? India’s Information Technology Industry and the Internet (No. 42)”, which focuses on the IT industry, and particularly the Internet, as a vehicle that might accelerate economic growth. The author of the paper is Dr. Robert R. Miller, a consultant to IFC’s Economics Department.
The paper extends to emerging markets a discussion that is ongoing in the United States. According to the paper, progress in telecommunications and other infrastructure—including education and transport as well as changes in government involvement with the economy—will govern the pace at which IT and the Internet will generate productivity gains. Using India as a case example—one already positively affected by the IT industry through private development of sophisticated software—the paper reviews the status of the Internet, its likely impact on development, and how associated industries (software and hardware production, telecommunications infrastructure, and the like) promise to contribute to more widespread Internet use.To access the discussion paper, visit
. Reporters who would like to receive a hard copy of the paper should call or e-mail Sujani Eli, telephone (202) 458-0933, e-mail