Funded Trade Investment Instruments (FTIIs)
To be eligible for funding under GTLP, the underlying trade instruments must meet the following criteria:
- Negotiation/purchase or discount of documentary presentations by the UB under deferred payment letters of credit issued byIBs;
- Extensions of credit to IBs to refinance obligations in respect of sight letters of credits issued by such IBs;Reimbursements under letters of credit issued by the IBs that create a deferred payment obligation of the IB to the UB;
- Purchase/discount of drafts/ bills of exchange or promissory notes issued by or accepted by IBs; and
- Bankers’ Acceptances funded or guaranteed by the bank.
- Stated to be payable or reimbursable by the relevant IB on a date not less than 90 days but not more than 360 days following the date of booking;
- Documented in accordance with International Chamber of Commerce guidelines known as the Uniform Customs and Practices 600 or the International Standby Practices 98 or revisions thereof;
- Expressed in U.S. Dollars and to be in respect of a face amount not more than USD 5 million;
- Not issued in relation to an excluded transaction identified in the syndicated participation agreement and agreed with the UB and the Participants, in each case as amended from time to time by written notice from the Agent;
- Originated in accordance with the UB’s policies and procedures as if such FTII were being held 100% for the UB’s own account; and
- The UB will represent to the Participants that all FTIIs in the portfolio meet the eligibility criteria. The Participants reserve the right to require the UB to remove/replace FTIIs that do not meet the eligibility criteria.
The principal legal document that will underpin the GTLP is the Co-investment and Administration Agreement (CIAA). The CIAA, which is in respect of participations and loans relating to Trade and Investment Instruments, will be signed by all Participants (including IFC both as Participant and Agent). Its main provisions comprise the following:
- Conditions and procedures for funding by each Participant of its pro-rata portion; payment of each Participant’s portion of principal, interest and fees; rights of each Participant
- Regional allocation requirements of Participants
- Criteria and guidelines to select the UBs
- Role and duties of IFC as Agent for the Participants
- Establishment of a GTLP master account (for all cash flows) to be administered by an approved processing bank, and
- Required information to be provided, including the Information
- Memorandum for each UB, to Participants for their review and approval.
In addition to the CIAA, there will a Risk Participation Agreement that will be entered into between all Participants and each approved UB. It will incorporate provisions relating to the participations and administration by the Bank of each FTII, i.e. waivers, amendments, conditions of disbursement, covenants, events of default and other standard terms and conditions for transactions of this nature.
Role of the Agent
As Sponsor, the IFC will also act as Agent on behalf of all GTLP Participants. In this role, the IFC will be responsible for a number of functions:
- Utilization Banks The IFC will appraise and propose the UBs for theProgram, including the maximum facility size for each UB. Each UB willneed to meet the following criteria:
- To be financially and operationallysound with a public credit rating or a rating of 4 or better on IFC’s internal risk scale;
- To be a client in good standing of the IFC for the immediately preceding 3 years;
- To be a majority, privately owned entity located in an IFC member country (an AfDB member country for AfDB’s resources),
- To have an existing wide reach in trade finance in the target geographical
- To have a predicted high utilization. IFC will conduct full due diligence on each prospective UB and present a comprehensive report in the form of an Information Memorandum to each Participant for review and approval.
- For each qualifying UB under the risk-sharing structure, the IFC will prepare a separate UB Trade Facility Agreement, whereby the Participants will collectively share the risk of the underlying portfolio of funded trade finance transactions on a pro-rata basis by purchasing up to 40% of eligible pools of newly generated trade receivables from the UBs. Each agreement will stipulate, among other things, the level of Participant funding; eligibility criteria; a list of pre-approved Issuing Banks and their limits; and regional distribution to meet the Participants’ requirements. For each UB qualifying under the direct line of credit structure, the IFC will prepare aspecific loan agreement between the UB and the Participant. The primary financial terms will mirror the terms of the agreement between the UB and the IFC.
Each agreement with each of the UBs will specify that the underlying goods to the transactions supported by the GTLP will meet the requirements of the IFC’s Exclusion List, and will require the UB to report on implementation. In addition, for projects that follow the risk-sharing model, each trade pool will be supported by underlying documentation and the IFC will have the right to review the details of the underlying trade transactions. As part of IFC’s appraisal, there will be verification that each UB has a process and system in place that can screen and check all transactions in connection with IFC’s Exclusion List.
- Issuing Banks The IFC will review and approve IBs for participation in the GTLP based on proposals from each qualifying UB. Each IB will be required to:
- Have a public or internal IFC rating of 4 or better;
- Be a client in good standing of the UB for the immediately preceding 3 years and for which the IFC does not have knowledge of any adverse information;
- Not be on the IFC's watch-list for credit risk monitoring; and
- Be located in an IFC member country (an AfDB member country for AfDB’s resources). IFC will inform each Participant of the proposed IBs and Participants will have the option to eliminate the IB from the UB list. The exposure limits for each IB will be determined by the IFC in accordance with its risk and exposure management policy but Participants will have theright to impose additional exposure limits on IBs.
- Monitoring and Reporting The IFC will oversee the implementation ofthe Program and take corrective actions as necessary. It will issue comprehensive semi-annual reports on all trade finance operations under the direct lines of credit structure and quarterly reports on all activities under the risk-sharing structure. Each Participant will also receive an annual report summarizing the utilization effectiveness of the Program including sectors, regions, countries, etc.
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