MOSCOW/CHEBOXARY, June 07, 2006
– Yesterday, the Chuvash Republic issued a five year RUR 1.0 billion bond
in the Russian capital market with a partial credit guarantee provided
by the International Finance Corporation (IFC) through its Municipal Fund
Department. The Chuvash Republic will use the proceeds of the bond to finance
capital expenditure program for 2006, in particular, investments in water
supply and road construction.
Edward Nassim, IFC’s director for Central
& Eastern Europe, said, “IFC is pleased to support the Chuvash Republic’s
effort to improve its ability to tap the local capital markets for long-term
funding needed for basic infrastructure improvement, essential to making
the Republic more attractive to private investors, developing industry,
and improving the living standards of the population.”
The Chuvash bond is the first sub-national
bond in Russia issued with a guarantee from a third party. The amount
of IFC’s guarantee is equivalent to 23% of the outstanding principal of
the bond (RUR230 million) and is payable to the bondholders in the event
that the Chuvash Republic is unable to pay either interest or principal.
As a AAA-rated institution, IFC’s credit enhancement increased the investment
rating of the Chuvash bond one notch to Ba2 on an international scale by
Moody’s and Aa2.ru by Moody’s Interfax. The coupon on the bond
was 7.85%.
Mr. Nicolai Smirnov, Finance Minister
of the Chuvash Republic, said “The Chuvash Republic sees this latest bond
issue enhanced by IFC’s partial credit guarantee as one more example of
the region’s innovative solutions that help ensure the Republic’s continued
economic development. The World Bank Group’s involvement has been
instrumental in developing this innovative product.
This project displays the continued
effort of the World Bank Group to provide assistance to the Russian Federation
in supporting the process of decentralization of fiscal responsibility
to regional and local governments. Kristalina Georgieva, Country
Director for the World Bank in the Russian Federation, said “The Chuvash
Republic has an exemplary history of involvement with the World Bank and
we are pleased to be a part of this project.”
Additional Information
The Chuvash Republic, located approximately
650km east of Moscow, has a population of 1.3 million people and a Gross
Regional Product of RUR60.75 billion (US$2.1 billion). Although per
capita income is about half of the Russian average, the Chuvash Republic
is regarded as one of the more progressive and better performing regional
governments, having been one of the first regions to receive funding in
2002 from the World Bank’s Fiscal Federalism and Regional Fiscal Reform
Loan.
Since 2001 the Russian Federation has
implemented a series of intergovernmental fiscal reforms, which resulted
in new laws that better defined the distribution of responsibilities among
the Federal, regional and local levels of government. These reforms
have led to the adoption of more uniform rules for revenue sharing and
expenditure responsibilities for the regions and have created more certainty
in budget revenues and expenditures that have contributed to the growth
of a sub-national government bond market in Russia.
About IFC
International Finance Corporation (www.ifc.org)
is the private sector arm of the World Bank Group and is headquartered
in Washington, D.C. IFC coordinates its activities with the other
institutions of the World Bank Group but is legally and financially independent.
Its 178 member countries provide its share capital and collectively
determine its policies.
The mission of IFC is to promote sustainable
private sector investment in developing and transition 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, helps clients improve social and environmental sustainability,
and provides technical assistance and advice to governments and businesses.
From its founding in 1956 through FY05, IFC has committed more than $49
billion of its own funds and arranged $24 billion in syndications for 3,319
companies in 140 developing countries. For more information, visit www.ifc.org.
About the Municipal Fund
In 2003, IFC established a new department,
the Municipal Fund, which provides financing to well-run sub-national entities
(local and provincial governments and public utilities) without requiring
sovereign guarantees. This initiative, carried out in close cooperation
with the World Bank, responds to a growing market demand as many countries
have decentralized the provision of essential infrastructure. For more
information, visit www.ifc.org/municipalfund.