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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 | 10742 |
| Project name | Konsolidacni Banka |
| Country | Czech Republic |
| Sector | Finance & Insurance |
| Department | Global Financial Markets Group |
| Company name | CDV-1 Holding Company, L.P. |
| Environmental category | FI |
| Date SPI disclosed | December 27, 2000 |
| Projected board date | January 25, 2001 |
| Status | Active |
| Previous Events | Invested: June 27, 2001
Signed: June 22, 2001
Approved: January 23, 2001 |
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| Project sponsor and major shareholders of project company |
As part of a pilot program to resolve Konsolidacni Banka's (KoB) US$10 billion portfolio of non-performing loans (NPLs), the Czech Government is auctioning US$500 million of KoB's NPLs (the pilot portfolio), which primarily comprise loans collateralized by real estate and inventory. The government has qualified three bidders --Goldman Sachs, Lone Star and GE Capital-- to submit bids for the pilot portfolio on or before January 10, 2001. The winning bidder will, pursuant to an asset management and disposition plan, proceed to liquidate the pilot portfolio on a loan-by-loan basis.
It is proposed that IFC participate in the Czech government's sale of the pilot portfolio by providing up to US$20 million of finance to Goldman Sachs. To participate in the significant upside potential of the structure, IFC would explore allocating a portion of its total exposure to the "equity" tranche alongside Goldman Sachs (i.e., up to US$5 million).
Goldman Sachs has extensive experience in making principal investments in NPL portfolios in Brazil, France, Italy, Japan, Mexico, South Korea, Thailand and the US. It was the first firm to structure an NPL securitization, Bank of America's Kearney Street deal, which closed in 1992. Moreover, its principal investments group is dedicated to purchasing NPL portfolios in Central and Eastern Europe and is currently focusing on portfolios in Czech Republic, Hungary, Poland and Slovakia. Goldman has expressed an interest in working with IFC throughout the region. Archon, Goldman's asset management subsidiary, has experience in managing over US$11 billion of NPLs world-wide. In addition, Goldman has an extensive debt distribution network, which IFC would access to syndicate this or future NPL financings.
KoB is the Czech government's institution for management, recovery and implementation of problematic assets. In 1991, the Czech government established KoB for the purpose of taking over those loans made on non-commercial terms that large banks inherited from the former economic system. Since then, KoB has directly undertaken other restructuring operations including the purchase of bad loans from state banks prior to their privatizations. Moreover, KoB has expanded its operations to include development finance activities and, as a commercial bank, accepting deposits and making loans to commercial customers. KoB has relationships with more than 4,000 Czech enterprises. KoB relies on future privatization proceeds for its funding and its annual operating losses are funded by an ex-post contribution from the State budget. |
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| Total project cost and proposed IFC investment |
Total project cost: US$50.0 million to US$100.0 million
Proposed IFC financing:
Quasi Equity.................................... US$15.0 million
Equity.............................................. US$ 5.0 million
Total................................................ US$20.0 million |
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| Location of project and description of site |
| The pilot portfolio comprises loans to borrowers throughout the Czech Republic. |
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| Description of company and purpose of project |
The project would have the following developmental impacts:
Development of the Domestic Financial Sector. The project would comprise the first attempt to resolve the Czech Republic's large overhang of bad debt and it would help stimulate the development of the local financial market.
Mobilization of a New Class of Investors. Notwithstanding the success of NPL sales in the US, Japan, and Italy, it has been, and will continue to be, difficult to attract international insitutional investors to participate in emerging market NPL sales. IFC's participation in these projects would help attract a new class of international institutional investor to this asset class.
Enhanced Credit Culture. Shifting NPLs from the government to the private sector, creates a credit culture where liens are enforced and borrowers are required to repay debts. Such credit culture would increase banks' incentives to make new loans.
IFC would have a strong role in the project as a honest broker and neutral partner. The Czech government could lose its appetite to support the terms of the bidding process and/or terms of the transaction, making it difficult to select an appropriate manager or to properly execute the asset management and disposition plan. IFC's presence would provide support to the Czech government. Such support is crucial because of the highly politicized nature of large-scale government NPL disposition programs. By participating in the bidding process and in the NPL resolution program, IFC would provide the government with much needed support during this critical period of restructuring the Czech financial sector. |
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| Environmental and social issues - Category FI |
The project has been classified as Category FI Type 1 according to IFC's environmental and social review procedure. However, as the first of its kind to be undertaken by IFC, the project presents a different set of issues to IFC's typical investments in the financial markets sector. By its very nature, the pilot portfolio of NPLs may include some companies that do not fully comply with Czech environmental standards or which have other pre-existing environmental problems (such as contaminated real estate) that could translate into financial risks to the project. The circumstances of the project also mean that it will not be possible or appropriate for the Manager to cause such environmental issues to be completely corrected or remediated in the timescale required for liquidation of the portfolio's assets. Goldman Sachs will therefore undertake appropriate due diligence to ensure that such environmental risks are adequately identified, evaluated and managed during the project, including the commissioning of environmental audits on individual NPLs as required on a case-by-case basis. Goldman Sachs will also provide IFC with regular reports on any environmental issues arising during implementation of the project. IFC's appraisal will include a review of the likely environmental significance of the pilot NPL portfolio and liaison with Goldman Sachs on the optimum approach to environmental due diligence.
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| To contact the project company, please write to: |
| EStrawderman@ifc.org |
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