WASHINGTON, D.C., Sept. 21—The International Finance Corporation (IFC) today announced that it approved US$3.3 billion in financing for 276 projects in 84 countries and regions in its fiscal year ended June 30, 1997. The rise in project approvals was led by an increase in support for projects in the small- and medium-enterprise (SMEs) sector. Projects approved for SMEs jumped 43 percent from the previous fiscal year. The 1997 results reflect IFC’s intensified efforts to mobilize capital for new countries, markets, and sectors where private sector development needs are most acute.
In addition to financing provided from IFC’s own account, the Corporation mobilized US$3.4 billion in financing from other investors through loan syndications, underwritings, and private placements. IFC’s loan syndications program is the main form of direct mobilization of financing from external sources. Since its inception just over 30 years ago, IFC’s syndication program has placed participations of nearly US$14 billion with some 380 financial institutions.
According to IFC’s annual report for fiscal year 1997 (FY97) released today, the Corporation made investments in eight countries where it had never worked before—Azerbaijan, Tajikistan, Cambodia, Georgia, former Yugoslav Republic of Macedonia, Mongolia, Moldova, and Eritrea. Turkmenistan and Cambodia became members of IFC during the fiscal year bringing IFC’s total membership to 172.
IFC continued to expand its support for investments in the social sector in FY97, approving US$16 million for Gleneagles International Diagnostic Services, which will develop approximately 20 private medical diagnostic centers in developing countries throughout East Asia. Moreover, a number of innovative financial products were employed in FY97 to more effectively channel private capital to microenterprise banks and investment funds targeting small-scale enterprises.
"IFC’s results for FY97 reflect a year of innovation and change for the Corporation with activities in more countries and more enterprises and development of more financial products than ever before," said Mr. Jannik Lindbaek, IFC’s Executive Vice President. "We are crossing new frontiers, diversifying our product mix, and shifting our focus away from countries where we are less relevant to those where we are more needed, and in so doing, strengthening our development impact and improving the private sector in our member countries."
To finance its lending program, IFC borrowed a total of approximately US$4 billion in FY97, almost all of which was accessed through the international capital markets. IFC’s emerging markets currency borrowings comprised bond issues in Czech koruna, South African rand, Slovak koruna, and Philippine pesos.
In FY97, IFC signed five new advisory mandates with emerging market governments, including Senegal, India, Russia, and Brazil. IFC approved seven projects incorporating risk management services. These will enable client companies to use risk management techniques to hedge financial risks associated with movements in exchange rates, interest rates, and commodity prices.
IFC’s net income reached an all-time high of US$432 million, from US$346 million in FY96. This represents a return on average net worth of 9.7 percent.
IFC is the private sector arm of the World Bank Group and the largest multilateral source of equity and loan financing for private sector projects in developing countries.
New Initiatives
The 1997 Annual Report highlights a number of IFC initiatives undertaken to maximize the Corporation’s development impact in its client countries:
Infrastructure—Gross investment approvals amounted to US$1.4 billion in FY97, supporting infrastructure projects valued at some US$4 billion. IFC’s infrastructure strategy during FY97 was to reach new countries, develop new products, and work with new clients. This shift in focus to investments in more markets took place as the growth in international private financing for private infrastructure projects in the emerging economies continued its strong momentum. IFC approved investments in most major infrastructure subsectors including transport service, utilities, power, and telecommunications. Power generation took up the bulk of IFC’s activities in infrastructure with 10 investments approved for a total of US$416.2 million. IFC helped arrange financing for about 640 MW in new capacity in five countries, including IFC’s first power generation projects in Brazil, Czech Republic, Mexico, and Senegal.
Environment—In FY97, IFC sought new ways of working proactively with the private sector on priority environmental issues. IFC approved US$135 million, including US$65 million in syndications, for Energy Center Kladno, a power generation plant in the Czech Republic. The IFC financing will be used for an environmental upgrade and expansion of the plant. The plant is subject to new emission standards imposed by the Czech Clean Air Act. In the absence of the major improvements to be achieved, the plant ultimately would be forced to shut down. In Guatemala, IFC will provide an investment of US$29.4 million for a geothermal plant. The plant, which will be built on a Build-Own-Operate basis, will use an indigenous and renewable fuel to provide low-cost power for Guatemala. Moreover, in FY97, IFC supported the Hungary Energy Efficiency cofinancing program which will provide credit guarantees to financial intermediaries to support energy-efficiency financing.
Technical Assistance and Advisory Services—In FY97, IFC continued to provide a broad range of technical assistance and advisory services to its corporate and sovereign clients. IFC undertook 57 capital markets technical assistance projects centered around developing securities markets, establishing legal and regulatory frameworks, creating leasing industries, and strengthening local banking institutions. The Foreign Investment Advisory Service (FIAS), a joint venture of IFC and the World Bank, completed 31 advisory projects in the area of foreign direct investment in infrastructure, administrative barriers to investment, and promotional strategies. Much of IFC’s technical assistance work is supported by bilateral and multilateral donors through its Technical Assistance Trust (TATF) program. The TATF program supports project feasibility and prefeasibility studies, project identification, and capacity-building for private business and government officials. In FY97, the TATF secured funding for 93 projects in
more than 37 countries, totaling almost US$12.8 million in commitments. New trust funds were established with the governments of Australia and New Zealand. Trust Fund replenishments during FY97 were agreed upon with the governments of Australia, Canada, Iceland, Italy, Japan, New Zealand, and Switzerland.
Privatization—IFC continued to support the growing momentum toward privatization in its member countries. In FY97, IFC was the principal adviser in the US$7 billion privatization of Manila’s Metropolitan Water and Sewerage System. IFC’s technical skills and unique position as an "honest broker" helped it find top sponsors who could deliver greatly improved service in this vital aspect of urban infrastructure. IFC also assisted the government of Gabon privatize its water and electricity services, Societe d’Energie et d’Eau du Gabon, the local utility. This project marked Gabon’s first foray into privatization and the first to involve full commitment for future investment by the private operator of a water and electricity utility in Africa.
Extending IFC's Reach—In FY96, the Corporation launched a new initiative to expand the geographic range of IFC’s activities to smaller countries and countries undergoing particularly difficult transitions to market economies. Sixteen countries, or clusters of neighboring countries, were selected for the program. In FY97, IFC approved 16 investments for a total of US$17.6 million under the Reach Program.
Capital Markets—Support for financial services projects increased by 30 percent in FY97. New efforts were begun to promote emerging markets debt instruments, paralleling IFC’s work to establish investor interest in emerging market equities. IFC co-sponsored a US$50 million global portfolio of local currency fixed-income securities issued by emerging market corporate borrowers. Targeted at international investors, this vehicle promotes emerging market debt as an asset class and local currency debt as a subset, resulting in increased financing options for developing-country firms. In FY97, IFC increased efforts to help broaden local financial sectors by strengthening housing finance in developing countries. IFC also approved an investment of US$35.4 million for its own account and a syndicated loan of up to US$65 for Argie Mae in Argentina. This initiative will support a US$100 million specialized mortgage securitization company to help develop Argentina’s mortgage market.
Increased Coverage of Stock Markets—During the fiscal year, IFC extended its Emerging Markets Data Base (EMDB) to cover new countries and expanded its provision of information service to fixed income products. EMDB added 24 new markets to its coverage. In late 1996 EMDB created a new index classification, the frontier markets, which are often newer, smaller, and less well-known than traditional emerging stock markets. Most of the markets introduced were in Sub-Saharan Africa and Eastern Europe. On the equity side, EMDB now covers 51 countries. EMDB expanded its provision of information service to fixed income products and during the year commenced a major initiative to develop corporate debt indexes in emerging markets. This project is directed initially at six East Asian countries.
Support for Micro Finance—To complement the Corporation’s work with commercial banks, IFC targeted microfinance institutions which offer essential financial services to low-income entrepreneurs. In Bosnia and Herzegovina, the Corporation helped structure a new microfinance bank to support microenterprises on a commercial basis and provide technical assistance. IFC also worked to develop a microfinance facility through existing commercial banks in the West Bank and Gaza.
Regional Overview
In sub-Saharan Africa, IFC approved financing of US$285.5 million for its own account and US$100 million in syndications, for 72 projects—a record—in 24 countries during FY97. The number of projects approved continues to reflect IFC’s commitment to the region: one out of every four IFC approvals in FY97 was in Africa. Seventy percent of IFC’s projects in Africa were small- and medium-sized enterprises, reflecting the Corporation’s priority on strengthening small- and medium-sized enterprises in the region. Capital market development continued to be a priority for IFC in sub-Saharan Africa. IFC’s investment approvals included setting up the first discount house in Zambia; the provision of the first loan option facility in Kenya; and the creation of a commercial bank in Burkina Faso. This year in sub-Saharan Africa, IFC approved one of its largest investments for its own account anywhere in the world. IFC approved US$120 million in long-term loan and quasi-equity financing for Mozambique Aluminum, a 245,0
00 ton-a-year greenfield aluminum smelter, to be built near the port of Maputo, Mozambique. In addition to boosting Mozambique’s GDP by more than 7 percent a year in the first few years of operation, the project will create jobs and infrastructure development in an environmentally and socially responsible and sustainable manner.
In Asia, IFC approved financing of US$790 million for its own account and mobilized an additional US$830 million through its loan syndications and underwriting for 50 projects in 12 countries and 4 regional projects. In China, IFC’s priorities continued to be to develop limited recourse financing; encourage globally competitive industries by attracting capable foreign sponsors, particularly to the inland provinces; assist in restructuring state-owned enterprises; support the growth of domestic nonstate sectors; and promote capital markets development. IFC approved 9 projects with net investments of US$133.6 million in China in FY97, including a project in the interior region of Hubei Province. IFC approved US$43.7 million for Plantation Timber Products Holdings Ltd. for a medium-density fiberboard plant in Hubei, which will create jobs and help improve the well-being of hundreds of thousands of farmers in the area. Through the "Extending IFC’s Reach" initiative, the Corporation approved its first investment
in Mongolia to support the manufacture of leather garments and its first in Cambodia to support tourism. In Vietnam, IFC approved five projects in the construction, agro-industrial, and tourism industries, including support for IFC’s first 100 percent private joint enterprise in Vietnam
IFC approved 41 projects in 9 countries and the West Bank and Gaza in Central Asia, the Middle East and North Africa, as well as two regional projects, for a total of US$387 million in financing for its own account. Reflecting its emphasis on mobilizing additional resources to private enterprises in the region, IFC approved US$223 million in loan syndications and underwriting. In Egypt, IFC made seven investments in the financial, tourism and industrial sectors and helped to structure one of Egypt’s first international equity funds. In Lebanon, IFC’s investments focused on supporting SMEs, including a set of long-term credit lines to four private commercial banks for on-lending to local SMEs and middle-income housing finance. In Central Asia, the financial sector and infrastructure were important IFC priorities. In Kazakhstan, IFC approved four projects, including, a share registry company, a first leasing company, a credit line to a commercial bank and an agro-processing project. In Uzbekistan, IFC investe
d in five projects in the manufacturing and financial sectors, including pharmaceuticals, furniture, agricultural equipment, and leasing.
In Europe, IFC approved financing of US$563 million for its own account and US$548 million in syndications for 45 projects in 15 countries, as well as one project with a regional focus. IFC’s broad strategy in Europe was to assist with the transition to successful market economies through a broad range of instruments. Reflecting IFC’s increased commitment to Russia and neighboring countries, IFC upgraded its Moscow representation to a regional hub as the base for its new Europe II Department. This structure will cultivate alliances with potential regional partners, appraise complex projects, and further expand IFC’s growing investment pipeline in the region. Among project approvals for the Europe region, IFC approved a US$11.58 million loan to upgrade and modernize T.C. Koromanco, a cement plant in Croatia, and US$15 million investment for Amerbank, Poland, for on-lending to SMEs. The Corporation also approved its first investment in Georgia, in the Georgian Glass and Mineral Water Company to help moderniz
e and expand its facilities for bottling "Borjomi" mineral water.
IFC approved US$1.2 billion for its own account and US$1.6 billion in syndications for 57 projects in 15 countries, including three regional projects, in Latin America and the Caribbean. IFC investment approvals included direct support for second-tier companies in an array of industries and countries ranging from support for a cement producer in El Salvador, a cut flower exporter in Ecuador, an engine block manufacturer in Mexico, and a soap producer in Honduras. In the area of private infrastructure investment, IFC approved financing for the Presidente Dutra highway, a toll road between Brazil’s two largest cities and grain ports in Argentina and Mexico. IFC also supported domestic capital market development in Latin America, approving a US$5 million investment in Fondo Chiapaas in Mexico. This project will help provide small and medium-sized enterprises in the State of Chiapas in Mexico with a fresh source of equity for their new investments and restructuring. As part of its effort to develop closer relati
onships with its clients, IFC opened two new satellite resident missions in Rio de Janeiro and in Fortaleza which will support IFC’s growing role in supporting SMEs and infrastructure projects in the northeast region of Brazil.
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