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A financial package including a senior loan and a subordinated debt to Mauritius Commercial Bank (MCB) for on-lending to large and medium enterprises in Mauritius and neighbouring countries such as Madagascar, Mozambique and Seychelles. MCB's clients are operating primarily in the following sectors: tourism, manufacturing, transportation, financial services, construction, agro-business, and energy.
The project aims to provide MCB with a LOC with a regional focus for USD 150 mln for on-lending to corporate/SMEs customers in tourism, manufacturing, transportation, financial and business services, telecommunications and construction within Mauritius, the Indian Ocean Region and East Africa. The LOC will promote regional integration through the lending activities of MCB and its subsidiaries in 8 Indian Ocean and East African countries. It will assist MCB manage the current assets/liabilities mismatches in its balance sheet. As at 30th June 2010, MCB had more than MUR 60 bln (USD 2 bln) worth of loan assets in the maturity bucket of 3 years and above; matched against liabilities of MUR 5 bln (USD 167 mln) in the same maturity bucket thereby creating a liquidity gap of more than USD 1.8 bln. The LOC will also assist MCB manage the continuing negative long lasting impacts of the global economic crisis including the reduction in lines of credit available to MCB from international banks due to a combination of risk aversion by international lenders and general contraction of credit available to emerging markets, Africa in particular. The proposed transaction will be a 7 year LOC with an acceptable grace period still to be discussed and agreed with MCB. The LOC will be unsecured.
ADB is being requested by MCB to extend the LOC with regional focus of USD 150 mln with the objective of:
(i) using MCB to channel long term project finance to regional member countries where MCB has a presence;
(ii) make available to MCB long term USD funding to address the fall in USD funding available to MCB due to the withdrawal/reduction in lines of credit from international banks as a result of the global economic crisis; and
(iii) support MCB's project pipeline of USD 200 mln for on-lending to the productive and export sectors
Fit with National and Regional Priorities: The proposed transaction is in line with Mauritius' MDG's. The project will also assist the other regional countries in which MCB has a presence achieve their MDGs. The LOC is also in line with Mauritius's long term development strategies and objectives as espoused in its National Long-Term Perspective Study (NLTPS) - Vision 2020 whose pillars include achievement of well defined targets in private sector development, infrastructural development, environment and gender equality.
Fit with ADB Strategic Priorities: ADB's Mauritius Country Strategy Paper (2009-2013) (CSP) responds to the increased interest by the GoM for a scaled up lending program. The new CSP was aimed at building upon the experiences of the old CSP which expired in 2008. However the level of support provided to Mauritius under the old CSP was below target, to both the public and private sectors. There was no significant direct lending to the private sector, but only indirect lending support through regional investment funds based in Mauritius. The proposed LOC is in line with the new CSP as it will increase the level of private sector support to Mauritius and other regional countries.
Fit with Private Sector Operational Priorities and policies: ADB's private sector operations strategy gives top priority to financial intermediation as a means to provide much needed resources to the private sector. More recently, the strategic focus of Private Sector Operationshas broadened to include selective and targeted assistance to well managed and capitalized financial institutions to create the necessary resilience during financial crisis. This project is being extended to a significant regional bank in Mauritius and is being directed towards private sector companies in Mauritius and other regional member countries in the Indian Ocean and East African region.
Analysis of Economic Impact: The proposed LOC is expected to help to address the economic challenges faced by Mauritius and other regional countries which will benefit from the LOC, specifically the availability of long term F/X funding. The LOC will enable MCB extend assistance to important economic sectors that will support the Mauritian and other regional economies.
Environmental and Social Sustainability: MCB has an Environmental Management Policy in place. The project appraisal team will look closely at the policies and structures that MCB has put in place to ensure that they are aligned to ADB's policies and expectations.
Gender and Social Effects: MCB confirms that the proposed projects in the pipeline will promote the employment of women, the development of SME's and in poverty alleviation in the regional countries within which MCB operates. The project team will verify this during due diligence and against the projects impacts of the sub projects. Women and youth employment will be tracked and quantified.
Private Sector Development and Demonstration effect: The projects to benefit from the LOC are private sector projects and by providing this LOC, ADB will contribute to improved productivity of the private sector target enterprises, and assist both MCB and the sub projects mobilise additional funding through the demonstrative effects of the LOC.
Effects on Governments: The LOC will enhance government revenues, directly through an expanded personal (income) tax base from the funded projects as a result of new employment opportunities created and corporate tax recovered from profits earned by MCB and the sub projects.
Environmental impact: The project will result in better implementation of MCB's environmental policies through ADB's supervision.
The LOC will assist Mauritius in its continuing efforts to improve its economic diversity and play an important role in regional economies. The LOC will also increase the level of support to Mauritius and regional member countries and build on the previous support granted to Mauritius and MCB, assisting in the consolidation of projects previously supported.
Complementarity: The program complements the recommendations of the MCSP (2009-2013) which emphasized on increased support for the country in view of low take off under the previous CSP. The LOC also demonstrates the flexibility and readiness of ADB's private sector window to seize available investment opportunities.
BANDA Jonathan Richard Kamkosi - PIFD