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| This Summary of Project Information is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. |
Summary of Project Information (SPI) |
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| Project number | 11769 |
| Project name | Pakistan Trade Enhancement Facility II (PTEF2) |
| Country | Pakistan |
| Sector | Finance & Insurance |
| Department | Global Financial Markets Group |
| Company name | Pakistan Trade Enhancement Facility II |
| Environmental category | C |
| Date SPI disclosed | November 25, 2002 |
| Projected board date | December 31, 2002 |
| Status | Completed |
| Previous Events | Signed: January 29, 2003
Approved: January 8, 2003 |
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| Project sponsor and major shareholders of project company |
ABN AMRO NV, which will act as the confirming bank, is a leading international commercial bank. ABN AMRO ranks among the top 15 banks world-wide, with assets of over $598 billion as of September 30, 2002. Return on equity, as of December 31, 2001 was 20.5%. The Tier I ratio currently stands at 7.0%. With a 175- year history of financing international trade, ABN AMRO has more than 3,500 locations in over 60 countries; including locations in many emerging countries which provide whole sale banking services and products to domestic corporates and internationally operating clients. One of the most active trade finance banks in Pakistan, ABN AMRO is committed to providing industry-leading trade finance solutions and was recently awarded the 2002 euromoney.com inernet award for the best bank trade finance site.
ABN AMRO has consistently focused on international trade and related activities with a Global Transactions Services team in recognition of the importance of international transactions and related services in the bank. Specifically in trade and trade related activities, ABN AMRO is consistently ranked in the Top 5 service providers by independent surveys. ABN AMRO estimates that it handles about 1.6% of all trade transactions for which about 25% are L/Cs (in line with world trade flow estimating L/Cs to be about 20%).
ABN is assigned an AA- rating by Standard and Poors. It has also an "Aa3" rating for long term credit by Moody's. |
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| Total project cost and proposed IFC investment |
The project involves the renewal of a 3 year $80 million Pakistan Trade Enhancement Facility (PTEF II) with ABN AMRO NV to guarantee documentary letters of credits ( L/ Cs) originated by selected commercial banks in Pakistan. The facility is designed with the objective of meeting the need for longer tenor L/Cs up to 365 days in the local market and; the continued demand for import trade finance for private sector businesses in Pakistan. IFC’s risk exposure will be up to $40 million counter guaranteeing half of ABN's exposure under the facility, and allowing ABN to double its trade finance exposure in Pakistan. The facility will make use of the legal documentation and reporting systems already developed for the first PTEF and address specific issues to improve utilization and meet market demand. Measures would include extending tenors and retaining flexibility in pricing. The facility will be renewable for another two years if necessary.
The facility would be structured as a 50-50 risk guarantee between IFC and ABN AMRO whereby IFC would counterguarantee 50% of the exposure, up to a maximum amount of $40 million, of the confirming bank, ABN AMRO, under the facility. L/C confirmation is a form of trade finance where a confirming bank (in most cases a foreign bank) acts as a guarantor of the issuing bank's (in most cases a local bank) obligation and takes on its credit risk and country risk. The confirming bank, subject to L/C terms, may discount the bill of exchange drawn by an exporter which allows the exporter to receive payment immediately after shipment. |
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| Location of project and description of site |
| Pakistan. |
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| Description of company and purpose of project |
This proposed facility will enhance the availability of trade finance to Pakistani importers and exporters by helping supplement country limits currently available to commercial banks operating in Pakistan. Given the various adverse economic shocks such as continued impact of September 11, drought, high oil prices and security problems, it is particularly important to maintain trade flows as they contribute significantly to the level of economic activity in Pakistan. IFC’s participation will also help promote confidence in the banking sector at a time where investor confidence is still low, affected by the deterioration in the global economy. The indicator for the project’s development impact will be the degree of utilization and revenues earned from this facility.
IFC Role:
- IFC will play a catalytic role through risk mitigation and credit enhancement. IFC also has a role in increasing the availability and tenor of trade finance to private sector Pakistani businesses but helping to twice leverage ABN's existing country limits to Pakistan.
- Through its participation in the project, IFC will continue to promote confidence in Pakistan's commercial banking sector.
- A further long term benefit would be the continued downward trend of costs for trade finance in Pakistan.
- IFC will continue to play a role in assisting local banks improve their disclosure standards through its requirements that local banks provide regular reports to IFC. This also allows IFC to continue to play a role in the commercial banking sector and strengthen its relationships.
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| Environmental and social issues - Category C |
This is a Category C project, according to IFC’s Procedure for Environmental and Social Review of Projects, because it is likely to have minimal or no adverse environmental impacts.
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| To contact the project company, please write to: |
Momina Aijazuddin, Investment Officer
Email: MAijazuddin@ifc.org |
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