IFC Supports Bosnian Banks' Privatization in Landmark Transaction
Afshin Molavi
Phone: (202) 458-5674
Fax: (202) 974-4384
E-mail: amolavi@ifc.org
Washington D.C., December 17, 2001—In
a ground-breaking transaction that will support the privatization of an
important group of Bosnian banks, the International Finance Corporation
(IFC) is providing critical and innovative financing to settle the crippling
liabilities of several state-owned banks, paving the way for a subsequent
sale of these banks to strategic foreign investors.
After the war in Bosnia ended, the government engaged in a vigorous effort
to privatize formerly state-owned banks. Privredna Banka Sarajevo,
a well-known banking group also known as the PBS banks, faced a major stumbling
block to privatization: it had inherited joint and several liabilities
on account of pre-war guarantees that made it impossible to attract strategic
investors before these obligations were settled. Due to these liabilities,
the banks faced the threat of liquidation by December 31, 2001, according
to Bosnia’s bank privatization law.
To solve this dilemma, IFC stepped in with an innovative financing plan
crafted by its Southern Europe and Central Asia investment team, designed
to help the banks stave off liquidation and move toward privatization.
To this end, IFC has created a Special Purpose Vehicle (SPV). With
funding from IFC and the manager of the SPV (B.P. Invest Consult
GMBH), all of these creditors’ claims will be settled, albeit at a significant
discount. In return, the SPV will acquire majority stakes in selected
PBS banks, which would then be considered privatized. Following such
privatization, IFC will consider extending subordinated convertible loans
to these banks to strengthen their capital base and help them prepare for
a subsequent sale to strategic foreign investors.
“The structure of this transaction is unique,” said Mr. Khosrow Zamani,
IFC’s Director for Southern Europe and Central Asia. “We managed
to cut the ‘Gordian knot’ that prevented these banks from moving toward
privatization. This transaction shows that IFC is finding innovative
solutions to support the banking sector, in this case in Bosnia.”
“The project has wide-ranging benefits,” Mr. Zamani added. “For
the beneficiaries of the guarantees it will resolve a long-standing and
difficult situation. For the local government, it will facilitate
an important privatization previously thought impossible. Finally,
it will strengthen the banking system, thus ensuring better banking services
and the availability of longer-term funds for local companies,” he said.
The trust funds established with IFC by the Ministry of Foreign Affairs
of Italy has approved technical assistance funding for the in-depth review
of four PBS banks, which includes portfolio analysis and assessment of
the banks’ internal organization. Moreover, SIDA, the Swedish International
Development Cooperation Agency, will provide funding for long-term technical
assistance to the SPV, as well as a back-stop facility to support the overall
transaction.
The investment reflects a key strategic goal of IFC: the strengthening
of private banks in emerging markets and developing countries. A
vibrant, efficient, and well-capitalized private banking sector helps fuel
the investment that spurs poverty-alleviating growth.
IFC’s mission is to promote sustainable private sector investment in developing
countries, helping to reduce poverty and improve people’s lives. IFC
finances private sector investments in the developing world, mobilizes
capital in the international financial markets, and provides technical
assistance and advice to governments and businesses. Since its founding
in 1956, IFC has committed more than $31 billion of its own funds and arranged
$20 billion in syndications for 2,636 companies in 140 developing countries.
IFC's committed portfolio at the end of FY01 was $14.3 billion.
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