Vertice HF / EE

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	26164
Company name	Hipotecaria Vertice
Country	Mexico
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Pending Disbursement

Date SPI disclosed	December 18, 2007
Projected board date	January 18, 2008
Date revised SPI disclosed	December 21, 2007
Previous Events	Signed: April 22, 2008 Approved: April 22, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed project consists of a two-stage, long term revolving credit facility of up to MXP445 million ($40 million-equivalent) to Hipotecaria Vértice Sociedad Financiera de Objeto Limitado (Vértice or the company), to allow the company to provide additional mortgage financing to middle-and lower-income home buyers; as well as an equity investment of up to $6 million-equivalent to support the company’s growth strategy, with an option for IFC to purchase up to an additional $2 million-equivalent amount of Vértice’s equity.

Some of the homes being financed with proceeds from the IFC credit line may involve dwellings that have been designed and constructed to include pre-determined energy-efficiency and/or natural resource-conservation features (such as solar-powered water-heaters).

IFC’s Mexico housing finance strategy is currently in a transition stage, moving from a period of high investment in the primary and secondary mortgage segments towards a focus on funding mobilization, as well as targeted interventions involving specific niches and underserved areas of the country’s housing markets. The project represents an example of the latter component of this overall strategy, where IFC aims to partner with innovative and/or mid-sized entities in the sector in order to support the introduction of new types of affordable housing finance products.

Project sponsor and major shareholders of project company

Hipotecaria Vértice, a Sofol, or special-purpose financial company, began operations in 2004. Vértice an independent Sofol, ranked 13th in terms of assets out of 20 dedicated housing Sofoles. Vértice is headquartered in Mexico City, and has five regional offices covering 19 states in Mexico. To date, approximately 70% of Vértice’s business has involved construction financing. As of end-June 2007, Vértice had an outstanding loan portfolio of $178 million-equivalent, up from $25 million-equivalent as of December 2004. As part of its overall growth strategy, Vértice plans to further develop its mortgage business in order to achieve a more even split between its construction and mortgage finance activities within the next 3 to 5 years.

The company’s CEO, Samuel Suchoweicky Cohen, together with a group of selected investors and executives with expertise in key areas of the operations of the company, have developed a strategy to maintain the quality of its operations while expanding to new geographical markets in Mexico, and to increase Vértice’s size through the growth of its construction finance and individual mortgage businesses. Further, the company is interested in developing and promoting energy- and natural resource-efficient building practices within the markets where they operate.

Total project cost and amount and nature of IFC's investment

The proposed IFC long term revolving credit facility will be for up to $40 million-equivalent accompanied by an IFC equity investment in Vértice of up to $6 million-equivalent--with the option for IFC to purchase up to an additional $2 million-equivalent amount of the company’s equity in the future. This section has been revised to reflect this option for IFC to purchase additional equity.

Location of project and description of site

The company is located in Mexico City and it has branches in Guadalajara, Villa Hermosa, Puerto Vallarta, Tijuana, and Queretaro.

Anticipated development impact of the project

The development impact of IFC’s financing to Vértice is expected to be high in the following areas:

- Extending mortgage financing to previously underserved groups: The project will help address Mexico’s housing deficit, and enable the purchase of homes by lower-income population segments.

- Enabling incremental funding of housing finance activities through non-governmental means: Vértice will gain access to a much-needed alternative source of funds, as it seeks to replace financing currently obtained directly or indirectly from SHF.

- Improving energy-efficiency and natural resource-conservation efforts in Mexican households, by making available financing for homes with specific energy-efficiency and resource-conservation features.

IFC's expected development contribution

IFC’s primary role in the project consists of:

- helping to meet a growing demand for housing in Mexico;
- providing financing alternatives/solutions to a drying source of governmental funding for the housing Sofoles, especially for second-tier institutions that focus on the lower-income segments of the population; and
- supporting the strategic goals of Vértice to diversify its asset composition (by increasing the percentage of mortgage loans in its total asset portfolio); provide new products such as financing for home improvements related to energy-efficiency and natural resource-conservation; and become a first-tier Sofol in the next few years.

Environmental and social issues - Category FI

This project has been provisionally classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. During appraisal, IFC will analyze the FI portfolio, for types of transactions, size, tenor and industry sectors and determine the Applicable Performance Requirements, if any, that may include a combination of:

- The IFC FI Exclusion List;
- The applicable National Social and Environmental Laws and regulations; and/or
- IFC Performance Standards

IFC will also review if required, the capacity of the FI to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS). If required, IFC will suggest Supplemental Actions to address any gaps in the SEMS. Based on the review, the project may be required to:

- Develop an, or upgrade, if necessary, any existing SEMS, prior to disbursement to the satisfaction of IFC;
- Identify responsible, qualified persons to manage and implement the SEMS;
- Commit to implement the SEMS, to ensure that its investments/activities are in compliance with the Applicable Performance Requirements.
- Submit a periodic report to IFC as per a format to be provided by IFC.

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