Conformed Copy - L2793 - Small- and Medium-Scale Industry Credit Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 2793 AR (Small- and Medium-Scale Industry Credit Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO NACIONAL DE DESARROLLO Dated December 21, 1987 LOAN NUMBER 2793 AR PROJECT AGREEMENT AGREEMENT, dated December 21, 1987, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and BANCO NACIONAL DE DESARROLLO (BANADE). WHEREAS (A) by the Loan Agreement of even date herewith between the Argentine Republic (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred twenty-five million dollars ($125,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that BANADE agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan Agreement to be entered into between the Borrower, Banco Central and BANADE, the proceeds of the loan provided for under the Loan Agreement for Parts A and B (1) of the Project will be made available to BANADE on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS BANADE, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so Page 2 defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) BANADE declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and to this end, shall carry out Part A of the Project through FOPYME, and Part B (1) of the Project through FOPYME and its other departments or units, as appropriate, with due diligence and efficiency and in conformity with appropriate administrative, technical and financial practices, and in accordance with the Operating Regulations, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for such Parts of the Project. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 6 to the Loan Agreement. Section 2.03. BANADE shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project Agreement and Parts A and B (1) of the Project. Section 2.04. BANADE shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, BANADE shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) BANADE shall enter into Participating Agreements with Participating Banks for the purpose of carrying out Part A of the Project on terms and conditions satisfactory to the Bank, including those set forth in the Schedule to this Agreement. (b) Except as the Bank shall otherwise agree, BANADE shall not take or concur in taking any action which would have the effect of amending, abrogating, assigning, waiving or failing to enforce any provision of any Participating Agreement. (c) BANADE shall utilize the proceeds accrued to BANADE from the repayment of principal of Participating Loans and Sub-loans which are not required for purposes of the repayment of principal of the Subsidiary Loan, exclusively for making loans for the same purposes, and under similar terms and conditions as those set forth in this Agreement. Section 2.06. (a) BANADE undertakes that, unless the Bank shall otherwise agree, Sub-loans will be made in accordance with the procedures and on the terms and conditions set forth or referred to in the Schedule to this Agreement, and the Operating Regulations. (b) BANADE shall exercise its rights in relation to each Sub-project in such manner as to: (i) protect the interests of the Bank, the Borrower and BANADE; (ii) comply with its obligations under this Agreement; and (iii) achieve the purposes of the Project. Section 2.07. (a) BANADE shall, at the request of the Bank, exchange views with the Bank with regard to the progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) BANADE shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of Loan, or the performance by BANADE of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.08. BANADE shall: (i) review at least every June 30 and December 31 of each year the appropriateness of the interest rates on Participating Loans and Sub-loans provided for in paragraphs 3 and 4 of the Schedule to this Agreement; (ii) exchange views with the Bank on the results of such review; and (iii) revise such interest rates as required to ensure that such interest rates: (A) are higher than prevailing average rate on deposits, if such deposit rate proves to be, in the opinion Page 3 of the Bank, conducive to resource mobilization and does not result from significant market distortions; or (B) otherwise, cover BANADE's and the Participating Bank's cost of funds, such cost to be calculated in accordance with methods and under assumptions satisfactory to the Bank. ARTICLE III Management and Operations of BANADE Section 3.01. BANADE shall carry on its operations and conduct its affairs in accordance with sound administrative and financial practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. ARTICLE IV Financial Covenants Section 4.01. (a) BANADE shall maintain procedures and separate records and accounts adequate to monitor and record the progress of Parts A and B (1) of the Project, of each Sub-project (including its cost and the benefits to be derived from it) and the operations carried out under FOPYME, and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of BANADE. (b) BANADE shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank, as soon as available but in any case not later than six months after the end of each such year, (A) certified copies of said financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the said records, accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures for Parts A and B (1) of the Project with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, BANADE shall: (i) maintain, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. Section 4.02. (a) Except as the Bank and BANADE shall otherwise agree: (i) BANADE shall maintain at all times a ratio of consolidated long-term unsecured debt of BANADE and all its subsidiaries to the consolidated capital and surplus of BANADE and all its subsidiaries of not more than 8 to 1 at the end of 1987 and during each year thereafter; (ii) BANADE shall maintain at all times a ratio of consolidated unsecured debt of BANADE and all its subsidiaries to the consolidated Page 4 capital and surplus of BANADE and all its subsidiaries of not more than 12 to 1 at the end of 1987 and during each year thereafter; and (iii) BANADE shall maintain at all times a ratio of consolidated long-term debt of BANADE and all its subsidiaries to the consolidated capital and surplus of BANADE and all its subsidiaries not more than 20 to 1 at the end of 1987 and during each year thereafter. (b) For the purposes of this Section: (i) "debt" means any outstanding debt incurred by BANADE or any subsidiary; (ii) "long-term debt" means any debt incurred by BANADE or any subsidiary maturing more than one year after the date on which it is originally incurred; (iii) "unsecured debt" means debt, as so defined, excluding from such debt an amount equal to the outstanding principal of loans made to or guaranteed by BANADE which repayment has been guaranteed or otherwise secured by the Borrower; (iv) debt shall be deemed to be incurred in respect of BANADE or any of its subsidiaries: (i) under a loan contract or agreement on the date and to the extent the amount of the loan is drawn down and outstanding pursuant to such loan contract or agreement; and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into; (v) whenever in connection with this Section it shall be necessary to value in terms of Australes debt payable in foreign currency, such valuation shall be made at the prevailing lawful rate of exchange at which such foreign currency is, at the time of such valuation, obtainable by BANADE for the purposes of servicing such debt; (vi) "subsidiary" means a company, if any, of which a majority of the outstanding voting stock or other proprietary interest is owned or effectively controlled by BANADE and which, in the opinion of the Bank, is engaged in promotional, financial or technical activities similar or complementary to the operations of BANADE; (vii) "consolidated debt of BANADE and all its subsidiaries" means the total amount of debt of BANADE and its subsidiaries, excluding any debt owed by BANADE to any of its subsidiaries or by any of its subsidiaries to BANADE or to any other subsidiary; and (viii) "consolidated capital and surplus of BANADE and all its subsidiaries" means the aggregate of the unimpaired paid-up capital, retained earnings and reserves of BANADE and its subsidiaries not allocated to cover specific liabilities after excluding therefrom such amounts as shall represent: (i) equity interests of BANADE in any subsidiary, or of any subsidiary in BANADE or in any other subisidiary; or (ii) adequate provisions, determined in accordance with sound practices, for probable losses on the outstanding amount of all loans and investments made, or guarantees given, by BANADE. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.O2. This Agreement and all obligations of the Bank and of BANADE thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify BANADE thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. Page 5 ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For BANADE: Banco Nacional de Desarrollo 25 de Mayo 145 Buenos Aires Argentina Cable address: Telex: BANADE 9179/9180/17123 Baires Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of BANADE may be taken or executed by the President of the Board of Directors of BANADE or such other person or persons as the President of the Board of Directors of BANADE shall designate in writing, and BANADE shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ S. Shahid Husain Regional Vice President Latin America and the Caribbean BANCO NACIONAL DE DESARROLLO Page 6 By /s/ Jorge Sakamoto Authorized Representative SCHEDULE Procedures for, and Terms and Conditions of, Sub-loans and Participating Loans 1. Sub-loans shall be made in Australes and principal repayments thereunder shall be adjusted for inflation on the basis of the variation of the Index. 2. Sub-loans shall be repayable within a period of ten years, including a grace period of up to three years, provided, however, that in respect of Working Capital Sub-loans the repayment period shall not exceed three years, including a grace period of up to six months, and in respect of a Technical Assistance Sub-loan the repayment period shall not exceed five years, including a grace period of up to one year. 3. Unless BANADE and the Bank shall otherwise agree pursuant to the provisions of Section 2.08 of the Project Agreement, interest on the principal amount of Sub-loans indexed for inflation pursuant to paragraph 1 above, other than Working Capital Sub-loans and the portion of each Investment Sub-loan made for Part A (1) (ii) of the Project, shall be set at 8% per annum. Interest on the principal amount of Working Capital Sub-loans and the portion of each Investment Sub-loan made for Part A (1) (ii) of the Project, shall be set at 12% per annum. 4. Unless otherwise agreed by the Bank, as a result of the review provided for in Section 2.08 of the Project Agreement, the interest rate spread between Participating Loans and the corresponding Sub-loans shall be of 3.75 percentage points. 5. Participating Banks shall pay to BANADE a commitment charge not exceeding 1% per annum on the principal amount of each Participating Loan not withdrawn from time to time. The Participating Banks may charge such a commitment charge on Sub-loans. 6. When making a Sub-loan, the following limits shall be observed by the Participating Bank: (a) Each Sub-loan shall not exceed: (i) the equivalent of 80% of the estimated cost of the Sub-project for which the Sub-loan is proposed to be made, except for Investment Sub-loans proposed to be made for a Sub-project consisting of the establishment of an Industrial Enterprise, which shall not exceed 60% of the estimated cost of the corresponding Sub-project; and (ii) an amount financed out of the proceeds of the Loan equivalent to $2,000,000 in respect of an Investment Sub-loan, $1,000,000 in respect of a Working Capital Sub-loan, and $200,000 in respect of a Technical Assistance Sub-loan; (b) a Sub-loan shall not exceed an amount financed out of the proceeds of the Loan equivalent to $2,000,000 when added to the principal outstanding amount of all Sub-loans made to the same Industrial Enterprise or any subsidiary of such Industrial Enterprise; for the purpose of this sub-paragraph, the term "subsidiary" means any company of which a majority of the outstanding voting stock or proprietary interest is owned or effectively controlled by an Industrial Enterprise; and (c) the portion of an Investment Sub-loan for the financing of related permanent working capital shall not exceed 50% of the amount of such Sub-loan. 7. Each Sub-project financed out of the proceeds of a Sub-loan in an amount financed out of the proceeds of a Participating Loan equivalent to $100,000 or more shall have an after-tax financial rate of return of at least 12% per annum, calculated in accordance with methods and under assumptions satisfactory to the Bank. 8. Except as expressly provided in this Agreement, Participating Loans shall be made on the same terms and conditions as those applicable to the corresponding Sub-loans. Page 7 9. No expenditures for goods or services required for a Sub-project shall be eligible for financing out of the proceeds of the Loan unless: (a) the Sub-loan for such Sub-project shall have been approved by the Bank and such expenditures shall have been made not earlier than 180 days prior to the date on which the Bank shall have received the application and information required under paragraph 10 (a) of this Schedule in respect of such Sub-loan; or (b) the Sub-loan for such Sub-project shall have been a free-limit Sub-loan for which the Bank has authorized withdrawals from the Loan Account and such expenditures shall have been made not earlier than 180 days prior to the date on which the Bank shall have received the request and information required under paragraph 10 (b) of this Schedule in respect of such free-limit Sub-loan. For the purposes of this Agreement, a free-limit Sub-loan shall be a Sub-loan, other than a Technical Assistance Sub-loan, for a Sub-project in an amount to be financed out of the proceeds of the loan which shall not exceed the sum of $500,000 equivalent, when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Loan or of any other loan provided for in any outstanding loan agreement between the Bank and the Borrower, or between the Bank and BANADE, entered into before the date of this Agreement, the proceeds of which have been or are being used for financing goods and services directly and materially related to such Sub-project. 10. (a) When presenting a Sub-loan (other than a free-limit Sub-loan) to the Bank for approval, BANADE shall furnish to the Bank an application, in form satisfactory to the Bank, together with (i) a description of the Industrial Enterprise and an appraisal of the Sub-project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan; and (iii) such other information as the Bank shall reasonably request. (b) Each request by the Borrower for authorization to make withdrawals from the Loan Account in respect of a free-limit Sub-loan shall contain (i) a summary description of the Industrial Enterprise and the Sub-project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan, and (ii) the terms and conditions of the Sub-loan, including the schedule of amortization therefor. (c) Applications and requests made pursuant to the provisions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Bank on or before December 31, 1990. 11. Each Participating Agreement shall include provisions enabling BANADE to carry out its obligations under this Agreement, and obliging the Participating Bank which is a party to the Participating Agreement to obtain, when making a Sub-loan, by written contract with the Industrial Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank, the Borrower, BANADE and the Participating Bank, including the right to: (a) require the Industrial Enterprise to carry out and operate the Sub-project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) require that: (i) the goods and services to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 6 to the Loan Agreement; and (ii) such goods and services shall be used exclusively in carrying out the Sub-project; (c) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods and the sites, works, plants and construction included in the Sub-project, the operation thereof, and any relevant records and documents; (d) require that: (i) the Industrial Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Industrial Enterprise to replace or repair such goods; (e) obtain all such information as the Bank or BANADE shall reasonably request Page 8 relating to the foregoing and to the administration, operations and financial condition of the Industrial Enterprise and to the benefits to be derived from the Sub-project; and (f) suspend or terminate the right of the Industrial Enterprise to the use of the proceeds of the Loan upon failure by such Industrial Enterprise to perform its obligations under its contract with the Participating Bank.