Transcript NAFTA and Investment Opportunities

The Overseas Private Investment Corporation –
An Overview
Forrest Metz
Investment Research Analyst
National Association of Realtors Legislative and Research Workshop
May 14, 2003 (Washington, D.C.)
The Overseas Private Investment Corporation – An Overview
What is OPIC?
Why Do Businesses Use OPIC?
OPIC and Housing
New Small Business Center
2
What Is OPIC?
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
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OPIC’s Mission
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.
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Current Portfolio by Region
OPIC's World Exposure by Region
Combined Maximum Portfolio as of 9/30/02 ($ millions)
Worldwide Total: $13,100M
Sub-Saharan Africa
$821 (6%)
Caribbean/Central
America
$935 (7%)
Worldwide Funds
$711 (5%)
North Africa/Middle East
$523 (4%)
South America
$4,811 (36%)
New Independent States
$1,260 (10%)
Europe (Including
Turkey)
$1,527 (12%)
Asia/Pacific Islands
$2,509 (20%)
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Current Portfolio by Sector
OPIC's World Exposure by Sector
Combined Maximum Portfolio as of 9/30/02 ($ millions)
Mining
$199 (2%)
Tourism/Hotels
$419 (3%)
Services
$423 (3%)
Worldwide Total: $13,100
Construction
$222 (2%)
Agriculture
$12 (0%) Transportation
$191 (1%)
Power
$3,858 (29%)
Communication
$714 (5%)
Manufacturing
$1,058 (8%)
Oil and Gas
$1,970 (15%)
Financial Services
(including Investment
Funds)
$4,035 (32%)
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The Overseas Private Investment Corporation – An Overview
What is OPIC?
Why Do Businesses Use OPIC?
OPIC and Housing
New Small Business Center
7
Why Do Businesses Use OPIC?
Want to build their business
and need finance for
a new project, joint venture,
expansion or modernization
Want to protect their
investment
against the political risks of
doing business in developing
countries
• OPIC Finance
• OPIC Political Risk Insurance
• OPIC Investment Funds
Want to partner
with experts
Want the backing of the
U.S. Government
behind their foreign investment
who have supported successful
businesses in almost
every sector in over
140 developing countries
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Maximizing the Opportunities
OPIC Finance
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OPIC Finance - Benefits
Access to
scarce
capital
• Active in countries that do not attract traditional sources of funding
• OPIC loans encourage cooperation among investors, partners and
other lenders
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
Flexible
programs
• Project and corporate finance models
• Franchise program
• New Small Business Center
Promote
corporate
citizenship
• Screening criteria ensures that your project upholds environmental,
worker rights, human rights and anti-corruption guidelines
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OPIC Finance – Eligibility and Terms
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, anticorruption guidelines
OPIC eligible country
Limited government participation
(<50%)
Terms
Loan term*
• Amortization of up to 15 years
Amount 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
expansions
Leverage*
• 60% debt to 40% equity
Pricing
• Market rates of interest (+fees)
Limited recourse financing
• Project completion support
* Terms and leverage vary
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OPIC Finance Process
Profits!
Credit &
Policy
Approval
Disbursement
& Monitoring
Due
Diligence
Screening
Application
Pre-Screening
Screening
Disbursement
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Direct Loan Example – Construction Project
Local
Partner
Cash, land, and
local support
75%
Project Company
U.S. Partner
25%
Cash,
technology,
management &
financing
OPIC loan
60-70% tpc
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Key Issues in Construction Finance
• 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
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Construction Finance Project Timeline
PreDevelopment
and PreSales
Initial Infrastructure
Phase One Houses
Phase Two
Phase Three
Houses
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
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Minimizing the Risks
OPIC Political
Risk Insurance
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OPIC Insurance - Benefits
Access
to
Protects
scarce
your
capital
investment
• Replace losses resulting from terrorism or war
• Protect your income and operating expenses
• Provides predictability through long-term fixed rates
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
Facilitates
access to
credit
• OPIC support is signal of security to lenders
• Flexible programs for specific business needs (ex. contractors and
exporters)
Strengthens
Promote
your
local
corporate
presence
citizenship
• Avoid obstacles of resolving investor disputes through use of U.S.
Government influence
• Ensures that contract dispute resolution procedures and payments are
honored
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OPIC Insurance – Eligibility
U.S. citizens
OPIC Political
Risk Insurance
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
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OPIC Insurance –Terms and Coverage
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% selfinsurance requirement (except for
third-party lenders or lessors)
Coverage
Up to 90% coverage
Inconvertibility: 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 interest
Political violence: replacement cost of
assets and income (up to 1yr) of
destroyed assets
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OPIC Insurance – Construction Project Example
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.
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Maximizing Partnerships
OPIC
Investment
Funds
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Bridging the Equity Gap – OPIC Investment Funds
Benefits
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
•
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Funds capitalized by OPIC
guaranteed debt and private
equity
•
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
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How OPIC can Partner with Investors
Financing and insuring US
- foreign joint ventures,
and/or U.S. parent and
banks that support them.
OPIC
Insurance
OPIC
Investment Funds
Foreign
Banks
U.S.
Banks
U.S. - Foreign
Joint Venture
OPIC
Finance
U.S. Parent
Company
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OPIC Product Overview
OPIC
Finance
•Multiplying your returns in
international markets
•Encouraging cooperation
among you and your suppliers
and other lenders
•Promoting good corporate
citizenship
OPIC
OPIC
Political Risk
Insurance
Investment
Funds
•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
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The Overseas Private Investment Corporation – An Overview
What is OPIC?
Why Do Businesses Use OPIC?
OPIC and Housing
New Small Business Center
25
Housing – An OPIC Strategic Sector
• 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
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OPIC Recent Housing Experience
Country
Mexico
Romania
Bosnia
Purpose
Micro-loans for housing
Micro-loans for housing
Construction of apartments
S. Africa
Nicaragua
Guatemala
IndiaIndia
Honduras*
Afghanistan*
Construction of low income houses
Mortgage finance
Mortgage bond
Housing components
Home construction
Home construction
Product
Direct Loan
Direct Loan
Direct Loan and
Insurance
Loan Guarantee
Direct Loan
Insurance
Direct Loan
Direct Loan
Direct Loan
Amount
$2.5 m
$2.5 m
$2.5 m
$15 m
$30 m
$15 m
$1.2 m
$1.5 m
$3.0 m
*Projects pending approval
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OPIC Direct Loan for Mortgages
Local Private Bank
Takes First Loss Position
(manages portfolio)
Special Purpose
Company
U.S./Local Joint Venture
OPIC Long Term Loan
(mortgages as collateral)
Supporting Infrastructure:
Trustee
Collateral Agent
Paying Bank
Credit Administrator
Possible devaluation reserve
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Issues to Consider with Mortgage Programs
• 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
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OPIC Capital Markets Programs
• 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
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Mortgage Bond Program
• 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
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Mortgage Bond Model
BOND
HOLDERS
BOND PROCEEDS
OPIC GUARANTY
(US GOVERNMENT)
SECOND LOSS
EXPOSURE
BOND PROCEEDS FROM
SALE OF MORTGAGES
LOCAL BANK
ASSUMES FIRST
LOSS EXPOSURE
TO SPV
SEMI ANNUAL BOND PAYMENTS
SPV
OFFSHORE TRUST
BOND ISSUER
SALE OF MORTGAGES
(Monthly Mortgage Payments)
MORTGAGE LOANS
MONTHLY MORTGAGE PAYMENTS
LOW AND
MIDDLE INCOME
HOMEOWNERS
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Other Applicable Approaches w/ Housing
• 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)
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Key Issues to Remember w/ Housing
•
•
•
•
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 Housing
New Small Business Center
35
OPIC Small Business Center – Highlights
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
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OPIC Small Business Center – Eligibility
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
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OPIC Small Business Center – Terms
Insurance
Finance
Tenor: From 3 to 20 years
Tenor: From 3 to 15 years
Amount of OPIC participation
• Up to $15 million of coverage per
project
Amount of OPIC participation
• Up to $10 million 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
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%)
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For more information, finance applications and contact
information, visit our website:
http://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 [email protected]