Philippines - Third Small And Medium Ind. Dev. Project : Loan 2169 - Project Agreement - Conformed

OfICIAL DOCMENTS LOAN NUMR 2169 PH Project Agreement (Third Small and Medium Industries Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND IEVELOPMENT and DEVELOPMENT BANK OF THE PHILIPPINES Dated 3 , 1982 LOAN NUMBER 2169 PH PROJECT AGREEHENT AGREEMENT, dated 30 , 1982, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (herein- after called the Bank) and DEVELOPMENT BANK OF THE PHILIPPINES (hereinafter called DBP). WHEREAS (A) by the Loan Agreement of even date herewith between Republic of the Philippines (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred thirty-two million dollars ($132,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that DBP agrees to undertake such obligations toward the Bank as are hereinafter set forth; (B) by a subsidiary loan agreement to be entered into between the Borrower and DBP, part of the proceeds of the loan provided for under the Loan Agreement will be made available to DBP on the terms and conditions therein set forth; and WHEREAS DBP, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Management and Operations of DBP Consultation, Information and Inspection Section 2.01. DBP shall carry out Part A of the Project, described in Schedule 2 to the Loan Agreement, and conduct its operations and affairs, with due diligence and efficiency and in -2- conformity with appropriate administrative, financial, economic and investment standards and practices, with qualified and experienced management and in accordance with its Charter. Section 2.02. DBP shall ensure that: (a) no proceed of the Loan made available to it by the Bor- rower shall be utilized to refinance any Sub-project under Part A (2) of the Project except where such Sub-project shall be carried out through the provision of a Sub-loan made by an Accredited Bank which shall have first been approved by DBP as eligible to receive such refinancing on the basis of criteria satisfactory to the Bank; and (b) under Part A (2) of the Project not less than 60% of the amount of Sub-loans made by the Accredited Banks located outside of the Metropolitan Manila area and refinanced, or proposed to be refinanced by DBP, shall be for Sub-projects located outside the area of Metropolitan Manila. Section 2.03. (a) In accordance with and subject to the provisions of the Loan Agreement, DBP shall submit Sub-projects to the Bank for approval or for authorization for withdrawals to be made from the Loan Account. (b) (i) When submitting a Sub-loan (other than a free- limit Sub-loan for a Sub-project) to the Bank for approval, DBP shall furnish to the Bank an application, in form satisfactory to the Bank, together with a description of the Beneficiary Enter- prise and of the Sub-project to be financed thereunder (including an appraisal of, and a description of the expenditures for, such Sub-project) and the proposed terms and conditions of the Sub- loan, and such other information as the Bank shall reasonably request; and (ii) such appraisal will include a calculation of the economic and financial rates of return of the Sub-project and an evaluation of the financial condition of the Beneficiary Enterprise, all as shall be established in accordance with guide- lines satisfactory to the Bank. (c) Each request by DBP for authorization to make with- drawals from the Loan Account in respect of a free-limit Sub-loan shall contain a summary description of the Beneficiary Enterprise and the Sub-project (including a description of the expenditures proposed to be financed out of the proceeds of the Loan) and an appraisal of the Sub-project which shall include such calculation -3- as referred to in paragraph (b) (ii) of this Section and the terms and conditions of such free-limit Sub-loan, including the schedule of amortization therefor. (d) Except as the Borrower, the Bank and DBP shall other- wise agree, DBP shall submit applications for approval of Sub- projects pursuant to the provisions of paragraph (b) of this Section and requests for authorizations to withdraw from the Loan Account pursuant to the provisions of paragraph (c) of this Section, on or before September 30, 1985. Section 2.04. (a) DBP undertakes that, unless the Bank shall otherwise agree, any Sub-loan will be made on terms whereby DBP shall obtain, by written contract with the Beneficiary Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank and DBP, including the right of DBP to: (i) require the Beneficiary Enterprise to carry out and operate the Sub-project with due diligence and efficiency and in accor- dance with sound technical, financial and managerial standards; (ii) require that: (1) the goods and services to be financed out of the proceeds of the Sub-loan shall be purchased at a reason- able price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them and (2) such goods and services shall be used exclusively in the carrying out of the Sub-project; (iii) inspect, by itself or jointly with repre- sentatives 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; (iv) require that: (1) the Beneficiary 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 (2) 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 Sub-loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Beneficiary Enterprise to replace or repair such goods; (v) obtain all such information as the Bank or the Borrower shall reasonably request relating to the fore- going and to the administration, operations and financial condi- tion of the Beneficiary Enterprise and to the benefits to be derived from the Sub-project; and (vi) suspend or terminate the -4- right of the Beneficiary Enterprise to the use of the proceeds of the Sub-loan upon failure by such Beneficiary Enterprise to perform its obligations under its contract with DBP. (b) DBP shall exercise its rights in relation to each Sub-project in such manner as to: (i) protect the interests of the Bank and DBP; (ii) comply with its obligations under this Agreement and the Subsidiary Loan Agreement; and (iii) achieve the purposes of the Project. Section 2.05. (a) The Bank and DBP shall cooperate fully to assure that the purposes of the Loan will be accomplished. To that end, the Bank and DBP shall from time to time, at the request of either party, exchange views through their repre- sentatives with regard to the progress of Part A of the Project, the performance by DBP of its obligations under this Agreement and the Subsidiary Loan Agreement, the administration, operations and financial condition of DBP and its subsidiaries and other matters relating to the purposes of the Loan. (b) DBP shall furnish to the Bank at regular intervals all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, Part A of the Project, the Beneficiary Enterprises, the Sub-projects, the Sub-loans and, where appropriate, the benefits to be derived from the foregoing, and the administration, operations and financial condition of DBP and its subsidiaries. Section 2.06. DBP shall cooperate fully with the Borrower in the preparation by the Borrower of the report referred to in Section 3.07 (d) of the Loan Agreement and, to that end, shall prepare and furnish to the Borrower all such information as the Borrower may request on the execution and initial operations of the Sub-projects under Part A of the Project, their costs and the benefits derived and to be derived from them, the performance by the Bank and DBP of their respective obligations under this Agreement and the accomplishment of the purposes of the Loan. Section 2.07. DBP shall: (a) duly perform all its obligations in agreements, including the Subsidiary Loan Agreement, under which funds have been lent or otherwise put at the disposal of DBP by the Borrower or its agencies or others for relending, investment or management; (b) promptly inform the Bank of any action which would have the effect of assigning, or of amending, abrogating or waiving any material provisions of, any such -5- agreement; and (c) except as the Bank may otherwise agree, not take or concur in any action which would have the effect of assigning, or amending, abrogating or waiving any provision of, the Subsidiary Loan Agreement. Section 2.08. Except as the Bank and DBP may otherwise agree, DBP: (i) shall not sell, lease, transfer or otherwise dis- pose of any of its property or assets, except in the ordinary course of business; and (ii) shall take all action necessary to maintain its corporate existence and right to carry on operations and to acquire, maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of its business. Section 2.09. DBP shall cause each of its Subsidiaries (if any) to observe and perform the obligations of DBP under this Agreement to the extent to which the same may be made applicable thereto as though such obligations were binding upon each of such Subsidiaries. Section 2.10. (a) DBP shall: (i) issue by September 30, 1982 its lending strategies, including lending guidelines, for cot- tage, small and medium industries under Part A (1) of the Project and for its rediscount operations under Part A (2) of the Pro- ject, acceptable to the Bank; (ii) ensure that the said strate- gies and guidelines are made applicabli to all Sub-loans financed from the proceeds of the Loan under Part A of the Project; and (iii) not amend any provision of said strategies and guidelines except by mutual agreement between DBP and the Bank. (b) DPB shall: (i) by September 30, 1982, issue its Policy and Operational Manual incorporating, inter alia, its criteria and operating policies in respect of the Accredited Banks acceptable to the Bank; and (ii) not make any changes in said Manual without prior consultation with the Bank. Section 2.11. DBP shall consult with the Bank prior to introducing any material changes in the organization or admin- istration of its Department of Development and Rural Banks, or of its operations related to the cottage, small and medium indus- tries. Section 2.12. The Bank and DBP shall from time to time, at the request of either party, exchange views on the progress achieved in carrying out the Action Program and, on the basis of such exchange of views, DBP shall take all such further action, -6- satisfactory to the Bank, as shall be necessary or appropriate to carry out the same. Section 2.13. Except as the Bank may otherwise agree, DBP shall ensure that the interest rates to be charged for the Sub-loans to be made under Part A of the Project shall be as follows: (i) From DBP to Accredited at not more than 14% Banks per annum (ii) From Accredited Banks at not more than to end-users 21% per annum (iii) Direct lending to end- at not more than users 18% per annum for small industries at not more than 21% per annum for medium industries. ARTICLE III Financial Covenants Section 3.01. (a) DBP shall maintain procedures and records adequate to monitor and record the progress of Part A of the Project and of each Sub-project (including its cost and the benefits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of DBP, including, without limitation to the foregoing, separate accounts reflecting all expenditures on account of which withdrawals are requested from the Loan Account on the basis of statements of expenditure. (b) DBP shall retain, until one year after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Loan Account on the basis of statements of expenditure, and shall enable the Bank's representatives to examine such records. Section 3.02. (a) DPB shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited in -7- accordance with sound 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 four 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, includ- ing, without limitation to the foregoing, a separate opinion by said auditors in respect of the expenditures and records referred to in Section 3.01 (b) of this Agreement, as to whether the pro- ceeds of the Loan made available to it and withdrawn from the Loan Account on the basis of statements of expenditure have been used for the purposes for which they were provided; and (iii) furnish to the Bank such other information concerning said accounts, financial statements, records and expenditures and the audit thereof as the Bank shall from time to time reasonably request. (b) Notwithstanding the foregoing provisions of paragraph (a) above, DBP shall furnish to the Bank each year a separate opinion by the auditors referred to in said paragraph (a), on the portfolio (loans outstanding, arrears and collection rates) in respect of DBP's operations of cottage, small and medium indus- tries and of its Department of Development and Rural Banks. Section 3.03. Except as the Bank shall otherwise agree, DBP shall: (i) conduct its operations and affairs in such manner as shall be necessary to maintain, at all times, its debt/equity ratio within the limit referred to in Section 3.04 of this Agree- ment; and (ii) if such ratio shall, for reasons beyond DBP's control, be exceeded, promptly take all such reasonable action as shall be necessary or advisable to bring such ratio within such limit. Section 3.04. Except as the Bank shall otherwise agree, DBP shall not incur or permit any subsidiary to incur any debt if, after the incurring of such debt, the consolidated debt of DBP and all its subsidiaries then incurred and outstanding would be greater than ten times the consolidated capital and surplus of DBP and all its subsidiaries. For the purposes of this Section: (a) "debt" means any debt incurred by DBP or any subsidiary maturing more than one year after the date on which it is originally incurred, including debt assumed or guaranteed by DBP or by a subsidiary; -8- (b) debt shall be deemed to be incurred: (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 but only to the extent that the guaranteed debt is outstanding; (c) whenever in connection with this Section it shall be necessary to value in terms of pesos 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 DPB for the purposes of servicing such debt; (d) "consolidated debt of DBP and all its subsidiaries" means the total amount of debt of DBP and its subsidiaries, excluding any debt owed by DBP to any subsidiary or by any subsidiary to DBP or to any other subsidiary; and (e) "consolidated capital and surplus of DBP and its subsidiaries" means the aggregate of the unimpaired paid-up capital, surplus and free reserves of DBP and its subsidiaries after excluding therefrom such amounts as shall represent equity interests of DBP in any subsidiary or of any subsidiary in DBP or any other subsidiary. Section 3.05. Except as the Bank may otherwise agree, DBP shall not make any repayment in advance of maturity in respect of any outstanding debt of DBP which, in'the judgment of the Bank, would materially affect DBP's ability to meet its financial obligations. Section 3.06. DBP shall take such steps satisfactory to the Bank as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the currencies (including pesos) used in its lending and borrowing operations. Section 3.07. (a) DBP shall cause all Accredited Banks to maintain separate accounts for their loans refinanced by DBP under Part A (2) of the Project; (b) DBP shall cause all Accredited Banks to (i) have their accounts and financial statements for each fiscal year audited, -9- in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to DBP; (ii) furnish to DBP as soon as available, but in any case not later than four 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 DBP shall reasonably request, and (iii) furnish to DBP such other information concerning said accounts and the audit thereof as DBP shall from time to time reasonably request. Section 3.08. Except as the Bank may otherwise agree, DBP shall: (a) open and thereafter maintain a special account, and shall, upon receipt of each repayment of principal, interest and other charges on its Sub-loans, deposit the same in the said special account in accordance with its usual financial pro- cedures. All amounts so deposited in said special account shall be used by DBP, to the extent they are not yet required to meet DBP's repayment obligations to the Borrower pursuant to the Subsidiary Loan Agreement, exclusively to finance such further Sub-Projects as would have been eligible to receive financing out of the proceeds of the Loan; and (b) prepare and furnish to the Bank quarterly reports, in scope and form satisfactory to the Bank, on the status of said special account and the utilizaton of the funds deposited therein in accordance with paragraph (a) of this Section. Section 3.09. DBP shall act as an agent of the Borrower to disburse funds for Pilot Projects to be carried out by the Borrower under Part C (1) of the Project. ARTICLE IV Effective Date; Termination; Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effec- tive. Section 4.02. This Agreement and all obligations of the Bank and of DBP thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify DBP thereof. - 10 - Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 5.01. Any notice or request required or permitted to be given or made under this Ag:7eement 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 DBP: Development Bank of the Philippines Makati, Metro Manila Republic of the Philippines Cable Address: Telex: PHILDEBANK RCA 7222197 BD PHIL Manila EASTERN 3771 DBP PN Section 5.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this - 11 - Agreement on behalf of DBP, or by DBP on behalf of the Borrower under Section 2.12 of the Loan Agreement, may be taken or exe- cuted by the Chairman of DBP or such other person or persons as DBP shall designate in writing, and DBP shall furnish to the Bank sufficient evidence of the authority and the authenticated speci- men signature of each such person. Section 5.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, Unites States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Regional Vice President East Asia and Pacific DEVELOPMENT ANK OF THE PHILIPPINES By// Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this JO day of 4, 198. FOR SECRETARY