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INDUSTRIAL DEVELOPMENT CORPORATION (IDC) LOC II


Aperçu

  • Référence: P-ZA-HA0-003
  • Date d’approbation: 19/05/2010
  • Date de début: 26/09/2011
  • Date d'évaluation: 23/07/2009
  • Statut: En coursOnGo
  • Agence d'implémentation: IDC- Private sector
  • Emplacement: Multinational

Description

The project is a LoC of up to USD 200 million to provide long-term funding to IDC to finance projects outside of South Africa. IDC will use the proceeds of the LoC to on-lend to projects in its current lending pipeline or new projects that may arise in the near future. As discussed in further detail below, IDC's role as a financier of development projects across Africa is growing and is an integral part of its strategy. Although IDC often provides equity to companies and projects, the funds will only be used for loans. Typically, IDC will provide loans on a long term basis, particularly in the case of infrastructure, often with an initial grace period and priced with a project-specific, risk-based lending margin over the reference index (i.e., LIBOR or EURIBOR).

The LoC is designed to support IDC's strategy to develop its financing activities outside South Africa. It will also expand the Bank's reach by providing funding for a number of projects where the Bank is not involved. Through the LoC, the Bank will be leveraging a strong financial institution that is capable of assessing and taking risks in lower-income countries (LICs) and fragile states. The pipeline of projects to be supported by the LoC is composed exclusively of projects in LICs. Since there is no overlap of the Bank's project pipeline and IDC's, the Bank will be able reach additional projects.

The LoC will support a substantial pipeline of transactions in economic and social infrastructure, agribusiness and other industries. The pipeline is diversified geographically, but will not be used for transactions in South Africa that are typically funded in ZAR, which IDC can raise on reasonable terms in the local capital markets. The LoC will not be used for loans to small- and medium-sized enterprises (SMEs).


Objectifs

Improve macroeconomic fundamentals and personal livelihoods by increasing the availability of private finance for sustainable, prod uctive projects


Justificatif

Financial additionality The proposed LoC will provide a financial product that is not available from commercial sources on acceptable terms. IDC has approached the ADB for a LoC because it needs long-term hard currency funding to support the expansion of its project finance operations in Africa outside South Africa. IDC has been unable to raise long-term hard currency from commercial sources. The weighted-average tenor of its commercial hard currency facilities is only 2.5 years (see paragraph 2.14). It has relied on DFIs such as the Bank for longer term facilities yet still runs a maturity mismatch in USD (see paragraphs 3.18-19). The LoC will allow IDC to fund its pipeline of long-term development projects (weighted average tenor of 9 years) with appropriate long-term funding. While it is possible that IDC could borrow similar funds at very high costs, this would not be economical. IDC would be forced to delay or withdraw its participation in these project finance transactions or pass through its high borrowing costs to project sponsors, which would impair the commercial viability of these development projects. Therefore, the LoC will significantly reduce financial risks and allow IDC to play a more active role.

Improved development outcomes The Bank is contributing to improved development outcomes through establishment of more comprehensive development outcome targets. As previously discussed, IDC has its Development Scorecard and tracks a number of pertinent development indicators such as job creation and export development. However, the Bank has worked with IDC to define at set of ex-ante targets for additional indicators including jobs for women, intra-African trade and purchases from local suppliers. The LoC will put greater emphasis on these important indicators, and encourage IDC to ensure that they are achieved through reporting requirements.


Bénéfices

Household benefits The LoC will create household benefits through jobs created by the pipeline projects to be financed. IDC estimates that the pipeline projects will generate roughly 7,000 new permanent jobs. Of these, roughly 25% will be skilled positions. In addition, the sub-projects will generate up to 3,000 temporary jobs during construction and 715 seasonal jobs. This will be a significant source of additional income for households, particularly in rural areas.

Infrastructure Several of the pipeline projects will contribute to better access to infrastructure. In particular, the water project should generate 73 billion liters of drinking water per year, sufficient to supply 1.4 people with clean water. The agribusiness projects will expand irrigated farmland by 8,300 hectares.

Government All of the pipeline projects are expected to generate incremental government revenues in the form of taxes, duties or roy alties. This should improve the fiscal balance and generate resources that can be invested in poverty reduction and development programs. IDC estimates that the pipeline projects will generate more than USD 75 million per year in incremental government revenues.

Macroeconomic resilience The pipeline projects will contribute to macroeconomic resilience through the promotion of regional integration via increased intra-African trade, generation of exports and foreign exchange savings through the reduction of imports. The pipeline projects are expected to generate roughly USD 140 million per year in additional exports, of which USD 4.6 million will be to other African countries. Combined with expected imports from African countries of approximately USD 10 million per year, the total creation of intra-African trade will be close to USD 15 million per year. The pipeline projects are also expected to lead to foreign currency savings of USD 2 million per year.

Environmental effects In some cases, infrastructure and other projects can have potential negative environmental effects that need to be mitigated. IDC recognizes that the projects it finances have an impact on the environment and has implemented since 2005 an environmental management policy to assess and mitigate these impacts. IDC's policy is benchmarked to IFC performance standards and the Equator Principles (EPs) going beyond these requirements in some cases. For example, the Equator Principles generally only apply to large transactions, whereas IDC applies these principles even to SME clients.

In its lending activities, environmental risk assessment is mainstreamed within IDC's normal project review and management procedures. The timely and correct identification of environmental risk assists IDC to make solid credit decisions and reduce the risk of lender liability and reputational damage. All investment proposals assess environmental and social risks and, where relevant, require satisfactory completion of ESIAs and ESMPs. Post-approval, the environment, health and safety unit selects a number of portfolio projects at random each year for assessment. In 2008, 38 projects were assessed and 45 projects were assessed in 2009. The findings are reported annually to IDC's executive committee and Board risk committee.

Gender and social effects The pipeline projects are expected to generate 1,384 jobs for women or 20% of total jobs created. The projects will also create training opportunities. IDC estimates that more than 2 ,000 employees will receive professional training each year when the projects are fully implemented. Project contributions to local development funds are expected to be nearly USD 2 million over the next 10 years. The hospital project will also make a significant contribution to better healthcare. With 135 beds, the hospital will add nearly 50,000 bed-days in capacity per year. The hospital expects to treat roughly 5 ,500 inpatient cases per year.

Private sector development and demonstration effects The projects will create linkages and encourage local business development through purchases from local suppliers, which are expected to be roughly USD 6 million per year. One of the primary development outputs of the LoC will be an increase in the availability finance for development projects in Africa. The outcome of better availability of finance should be more projects financed on better terms ultimately leading to faster growth. Based on IDC's proposed financing share, the LoC will catalyze seven projects for a total of USD 545 million in long-term investment. The weighted-average tenor of the pipeline projects is nearly nine years. The LoC should have a demonstration effect by providing additional examples of commercially and economically viable private investment in African LICs. By contributing to greater private investment flows, the LoC should increase investor familiarity with this asset class. Longer term, this should draw in more African commercial banks and other private investors and further improve the terms and availability of finance.

Business success The LoC is expected to make a positive contribution to IDC profitability. IDC's all-in cost of funds for the LoC will be approximately LIBOR plus 238 basis points and it will on lend the funds at an average margin of LIBOR plus 500 basis points. Therefore, IDC will earn a spread of roughly 262 basis points. This should generate nearly USD 5 million in additional revenues per year for IDC.


Contacts clés

ANSAH Dennis - PIFD0


Coûts

Source Montant
BADUSD 129.692.434
DeltaUSD 129.692.434
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