Latin Finance - November 2008 - 26

of the 2008 “Institutional financing will be scarce and expensive.” Joining Forces Multilaterals have for the last five years slugged it out in an effort to redefine themselves at a time when markets were so liquid there was no need for a lender of last resort. Some came up with new products and guarantees to act as a catalyst, others focused on second tier corporates excluded from capital markets. The IFC and CAF kicked off local currency issuance campaigns to help spur domestic capital markets development. There was clear and healthy competition for business as recently as the summer. But as the crisis took hold, multilaterals put down their weapons and agreed to work together. “In this market there is no competition between multilaterals,” says Schulz. In October, the IDB, IFC and Mexico’s Sociedad Hipotecaria Federal mortgage regulator worked to come up with a $300 million IFC facility to support Mexico’s RMBS market by buying up bonds if necessary. The IDB was to roll out its own $150 million similar vehicle shortly after. “We can put together a sizeable pool of money, that if the market is not there, can fund mortgages. Maybe other multilaterals can help, and perhaps some commercial banks,” says Atul Mehta, the IFC’s head of LatAm and Caribbean. “We can persuade the private sector to remain engaged alongside us, by showing them that certain risks are acceptable in this environment,” Mehta explains. Encouraging the private sector and working with other multilateral institutions are the IFC’s two key objectives during this crisis. “If we are able to join forces we can move with much greater impact,” he adds. According to Mehta, new IFC products will focus on preserving development gains made during its more pro-cyclical period. It will also adapt existing products to borrowers’ new needs, for example making trade facilities funded as opposed to unfunded. Expediency, say both lenders and borrowers, is key. “We’re ahead of the curve this time,” says CAF CFO Hugo Sarmiento, speaking of the multilaterals’ proactive measures. His bank’s capitalization – 40% to risk-adjusted assets – means it can meet additional demand next year while waiting to go to market itself if need be. CAF President Enrique García hopes CAF can help reopen public channels. “We hope that, like we did in previous crises, we will go to market as a signal of confidence and trust to try to reopen it for the region,” García says. “Of course we don’t intend to go to market this week. We have very sound liquidity, but we are opportunistic,” the official told LatinFinance mid-October. The two also teamed up on the $2.25 billion debt financing for Hunt Oil’s Peru LNG terminal, which received more than $2.00 billion in development bank financing, including a $400 million IDB Bloan syndicated by commercial banks. The IFC lent $2.94 billion in its financial year ended September 30, up from $1.78 billion in the prior corresponding period. The IDB approved $7.03 billion through September 30, after a record disbursement of $9.60 billion in 2007. A New Relevance Over the last four decades, the region has moved between needing development banks less in prosperous periods and more as crises arise. Sarmiento notes that for CAF, the swings might not be as dramatic as for other banks, due to the permanent savings gap among member nations. CAF will operate as normal, Lending More, Buying More On the domestic side, state-backed development banks like Brazil’s BNDES and Mexico’s Banobras have also seen their relevance skyrocket, as governments try to maintain ambitious infrastructure agendas. BNDES president Luciano Coutinho expects Brazil’s plans to proceed as scheduled. “Most of the infrastructure on the side of credit was funded by BNDES, which will have the availability of funds to keep on financing,” Coutinho tells LatinFinance. “On the equity side, given the high rate of return, what we see is that investors are willing to bet on Brazilian infrastructure. Of course some foreign investors for a while might not bid, we don’t expect that interest for high-return low risk investment in infrastructure to vanish.” The bank expects to disburse 80-90 million reais this year, up from 65 billion reais last year, having reached 53 billion reais as of September. For Brazil’s companies – underleveraged but facing uncertain export conditions next year – the bank has upped export credit availability to 5 billion reais, and stands by to prepare emergency facilities if needed. Given strong capitalization at Brazil’s banks, however, Coutinho expects BNDES to play only a minor role in terms of putting out fires. This year it has already granted large loans to the likes of TIM, Telemar, Votorantim and financed a merger between the two largest domestic data providers, Totvs and Datasul. The bank has taken large equity positions in companies through its BNDESPar arm, such as a stake in beef producer JBS that it boosted to 21% this spring. Maria Isabel Aboim, BNDES director of finance, says the bank has a portfolio of about 50 billion reais, down Approved Lending in Latin America ($bn) IFC still growing IDB* IFC** CAF* 2008 7.03 4.56 4.94 2007 8.97 2.08 6.60 2006 6.38 2.64 5.50 *Q1-Q3 as of 9/31 **FY ends 9/31 Source: IDB, IFC, CAF albeit with a greater sense of urgency. He stresses the importance of not losing sight of the ultimate goal: deepening local markets. Multilaterals’ offering new product lines and lending to new sectors might be less of a priority. “When things get difficult, it’s always the best response to go back to basics,” Sarmiento says. “Sound monetary policy, sound fiscal policy and sound project evaluation.” Banks like IFC and IDB are more accustomed to the switching between pro and counter-cyclical support. Before Lehman fell, multilaterals were having a banner lending year, particularly for infrastructure. The IDB recently closed a $370 million A/B loan supporting the CCRled Via Quatro consortium’s construction of São Paulo’s new Linha 4 metro line, which Schulz calls Brazil’s first real public-private partnership. 26 LATINFINANCE November 2008

Latin Finance - November 2008

Table of Contents for the Digital Edition of Latin Finance - November 2008