Coop Est

Summary of Proposed Investment

This Summary of Proposed Investment 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. Board dates are estimates only.

Project number	24531
Company name	Coopest S.A.
Country	Poland
Sector	Finance & Insurance
Environmental category	FI-1
Department	Global Financial Markets Group
Status	Active

Date SPI disclosed	August 11, 2006
Projected board date	September 15, 2006
Previous Events	Invested: May 29, 2007 Signed: December 28, 2006 Approved: December 27, 2006

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The COOP-EST project entails the creation of a €30 million structured investment vehicle dedicated to providing senior and subordinated loans to micro and small businesses as well as to community-based projects in selected countries CEU region (Poland, Slovakia, the Czech republic, Hungary, the Baltic states, as well as countries of the former Yugoslavia). COOP-EST will be incorporated as a corporation under Belgian law. COOPEST aims to attract investments from cooperative banks and multilateral and social investors to reach, via multiple closings, a size of €30 million. The first closing is expected to be €15 million.

COOP-EST will be set up as a three tier structured vehicle (the facility) comprised of three bond tranches, as per the following proposed characteristics:

- Junior A notes for up to €6 million, representing 20% of the issue;
- Mezzanine B notes for up to €9.0 million, representing 30% of the issue; and
- Senior C notes for up to €15 million, representing 50% of the issue.

The junior A notes will act as the first loss cushion and be fully subordinated to the B and C notes.

The main sponsors (see below) will invest up to € 8 million in the project, subscribing to all the A bonds and smaller portions of the B and C bonds. It is proposed that IFC invest up to €4 million in B notes alongside EBRD.

The project sponsors have sought the support of Soficatra, a Belgian investment management and consulting company that specializes in project finance at the community level, financial engineering, and consultancy on mergers and acquisitions. Soficatra plans to invest €1.0 million, with the same allocation between A and C notes as the founding partners.

- Investment Approach

COOP-EST will provide the financing either directly to local financial institutions or through regional bank intermediaries (such as Bank BISE and its subsidiary TISE in Poland) that serve such local financial institutions. The risk retained by COOP-EST will be that of local financial institutions and regional bank intermediaries. Poland and Slovakia are expected to be among the first countries targeted by the fund. The overall geographic balance of the fund’s investment will depend largely on the existence of a sufficiently stable legal framework, as well as the existence of reliable and readily operational partners. Proposed exposure guidelines include a 15% single client exposure limit and a 15% single country exposure limit (with the exception of Poland). In addition, the proceeds of the facility are subject to limitations in terms of the type of beneficiary institution (bank or non-bank) and type of investment (equity or debt).

- Fund Management

COOP-EST will be managed by a steering management group which initially will be staffed by three key members. COOP-EST will also create regional offices both in Poland (TISE) and in Slovakia (VERNUS). These offices will be responsible for prospecting eligible projects, and TISE will have the added responsibility of undertaking the due diligence of all eligible projects. The management group will have at its disposal an investment committee consisting of recognized investment professionals. The back-office functions of COOP-EST would be managed by Soficatra in Belgium, which would be responsible for follow-up and reporting.

Anticipated development impact of the project

The project has high development impact in terms of financial sector development, improved financial infrastructure and small scale entrepreneurial activity. The project would create a mechanism through which IFC can leverage its resources by a factor of five and provide a significant flow of financing to micro and small business banks that support the access of micro as well as small and medium sized entrepreneurs to credit and other financial services. The key development impacts would be to:

- providing greater access to financing for underserved entrepreneurs;
- supporting a financial infrastructure that facilitates the long-term access of micro and small business banks to sustainable sources of funding;
- fostering the integration of microfinance institutions and cooperative banks into the mainstream financial sector; and
- promoting of microfinance as a viable asset class to institutional investors.

IFC's expected development contribution

IFC’s main role lies in facilitating the process of commercialization of micro and small business finance. IFC's growing experience in structuring financial sector investment vehicles will ensure that COOP-EST incorporates best practices. The project will allow IFC to further develop and nurture a diversified network of investment partnerships and promote commercial micro and small business finance by creating a demonstration and replication effect through the introduction of a new asset class to the commercial institutional investors. IFC will play a key role in the design of the project’s risk sharing structure.

Environmental and social issues - Category FI-1

This is an FI type 1 project. COOP-EST will commit to appoint a management person to act as its environmental advisor and to designate staff who will participate in an environmental capacity-building exercise. COOP-EST will further commit to ensure that each of its investee institutions will maintain an environmental management system to ensure that relevant operations comply with applicable host country standards and IFC’s Microfinance Exclusion List, and to submit to IFC annual environmental performance reports providing a summary of annual environmental performance reports from its investee institutions.

IFC PROJECTS