Ecuador - Second Development Finance Companies Project

DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not F*4Cb Un FILE COPY Report No. 122a-EC ECUADOR APPRAISAL OF THE SECOND FINANCIERA PROJECT June 6, 1973 Projects Department Latin America and the Caribbean This eport was prepared for official us only by the lank Group. It may not be publihed, quoted ar citedwithout Bank Goup auwhoton. he luk Group don not sacct repo_dbikty for the acuxat ortaplataft" of th report.  Currency kauivalents Currency Uhit - Sucre (S/) US. - S/25.O S/ 1- US$ O.04 S/ 1,00 0 - US$ 40,000 Abbreviations and Acronyma Used BC - Banco Central del Ecuador CV-CFN - Comisi6n de Valores - Corporaci6n Financiera Nacional COFIEC - Ecuatoriana de Desarrollo S. A. - Corporaci6n Financiera Financieras - CV-CFN and COFIEC  ECUADOR APPRAISAL OF THE SECOND FINANCIERA PROJECT TABLE OF CONTENTS Page No. BASIC DATA ON FINANCIERAS i SUMMARY AND CONCLUSICNS ii I. INTRODUCTION 1 The First Bank Loan (721-EC) 1 Cbjectives of the Proposed Loan 1 II. THE ECONOMIC SETTING 2 General Outlook 2 Effect of Government Policies on the Industrial Sector 2 Financing of Industry b Interest Rates 5 III. COFIEC: CONDITION AND PERFORMANCE 6 Organization 6 Resources 8 Financial Results 8 Operations 11 Prospects 12 IV. CV-CFN: CONDITION AND PERFORMANCE 13 Organization 13 Resources 15 Financial Results 15 Operations 17 Prospects 19 V. PROPOSED BANK LOAN 20 The Project 20 Allocation of the Loan 21 Interest Rate 21 Sub-loan Conditions 22 VI. AGREEMETS REACHED AND RECOMMENDATION 22 This report is based on the findings of an appraisal mission, composed of Messrs. Neil Hughes and Andre Cracco of the DFC Projects Division, LAO Regional Office, which visited Ecuador during November 1972 and February 1973.   LIST OF ANNEXES GENERAL 1. ECUADOR: Industrial Development Law (Main Provisions). 2. ECUADOR: Legal Interest and Rediscount Rates. ECUATORIANA DE DESARROLLO S.A. (COMPANIA FINANCIERA) 3. List of Major Shareholders as of September 30, 1972. i;. Lict of Board Members and Alternates as of December 31, 1972. 5. Organization Chart (September 30, 1972). h, Declaration of Policy and Operating Procedures. 7. Analysis of Disbursements from Inception through June 30, 1972. S. Portfolio Review as of September 30, 1972. 9. Equity Investments held - Balances as of June 30, 1972. 10. Audited Balance Sheets as of December 31, 1966-71 and June 30, 1972 (unaudited). 11. Audited Statements of Income and Expenses for the Years ending December 31, 1966-71 and for the Six Months ending June 30, 1972 (unaudited). 12. Projected Industrial Operations 1972-76, compared with 1971. 13. Projected Gap in Foreign Exchange Resources over the Period 1972-76. 1b. Projected Balance Sheets 1972-76, compared with 1971. 15. Projected Statements of Income and Expenses 1972-76, compared with 197-!. 16. Projected Sources and applications of Funds 1972-76. 17. Past and Projected Financial Ratios. COMISION DE VALORES--CORPORACION FINANCIERA NACIONAL I8. List of Board Members and Alternates as of September 30, 1972. 19. Organization Chart September 1972. 20. Declaration of Policies and Procedures. ,'1. Analysis of Loan Approvals from Inception through June 30, 1972.  22. List and Characteristics of -oreign Credit Lines - Disbursements as of June 30, 1972. 23. Lcans and Other Credit Operations--Balances as of June 30, 1972. Equity Investments held - Balances as of June 30, 1972. ?< Audited Balance Sheets as of June 30, 1967-72*. Audited Statements of Income and Expenses for Calendar Years 1964-66, Six Months ended June 30, 1967, and Fiscal Years ended June 30, 1968-72. 27. Projected Industrial Operations 1973-77*,compared with 1972*. --. Projected Gap in Foreign Exchange Resources over the Period 1972-76. 29. Projected Balance Sheets 1973-77*,compared with 1972*- 30. Projected Statements of Income and Expenses 1973-77*, compared with 1972*. 3- Projected Sources and Applications of Funds 1973-77*. 32, Past and Projected Financial Ratios. PROPOSED LOAN 33. Estimated Schedule of Disbursements of the Proposed Loan. * iscal year ending June 30.  - i . ECUADOR: APPRAISAL OF THE SECOND FINANCIERA PROJECT BASIC DATA ON FINANCIERAS CV-CFN COFIEC Established 1964 1966 As of September 30, 1972 No. of shareholders 1/ 203 Share capital (in S/ million) 5-0.o 66e9 Shareholdings as % of total share capital: 1. Ecuadorian Private sector -44.5 2. Ecuadorian Public sector 100.0 7.6 3. Foreign controlled - 2.8 4. Foreign 36.9 5. IFC 8.2 As of June 30, 1972 Assets (in S/ million) Loans 973.2 202.3 i.quity investments 101.5 18.0 Other assets 76.8 75.0 Liabilities (in S/ million) IBRD 26.2 16.3.W Foreign banks 398.0 108.0 Bonds 75.7 3.7 Other 62.3 75.6 Equity Total debt/equity 1.1:1 6e1:1 Equity portfolio as % of net worth 18.3 20.3 Reserves and retained earnings as % of total portfolio 7.7 11.1 Book value as % of par value 111.0 105.9 Last Fiscal YearY/ Operating income (in S/ million) 33.3 21.3 Net income (in S/ million) 24.6