Mexico - Financial Sector Technical Assistance Project : Loan 3838 - Loan Agreement - 1 - Conformed

LOAN NUMBER 3838-ME Loan Agreement (Financial Sector Technical Assistance Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and NACIONAL FINANCIERA, S.N.C. Dated (V\radi C ,1995 LOAN NUMBER 3838-ME LOAN AGREEMENT AGREEMENT, dated Y\ 0- "CAA , 1995, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and NACIONAL FINANCIERA, S.N.C. (the Borrower). WHEREAS (A) United Mexican States (the Guarantor) and the Borrower, having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, have requested the Bank to assist in the financing of the Project; (B) by an agreement (the Guarantee Agreement) of even date herewith between the Guarantor and the Bank, the Guarantor has agreed to guarantee the obligations of the Borrower in respect of the Loan and to undertake such other obligations as set forth in the Guarantee Agreement; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications set forth below (the General Conditions) constitute an integral part of this Agreement: (a) The last sentence of Section 3.02 is deleted. (b) In Section 6.02, subparagraph (k) is relettered as subparagraph (1) and a new subparagraph (k) is added to read: "(k) An extraordinary situation shall have arisen under which any further withdrawals under the Loan would be inconsistent with the provisions of Article III, Section 3 of the Bank's Articles of Agreement." Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and it the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: -2- (a) "Comisi6n Nacional Bancaria" or "CNB" means the Guarantor's National Banking Commission; (b) "Comisi6n Nacional de Seguros y Fianzas" or "CNSF" means the Guarantor's National Insurance and Bonding Commission; (c) "Comisi6n Nacional del Sistema de Ahorro para el Retiro" or "CONSAR" means the Guarantor's National Commission of the Retirement Savings System; (d) "Comisi6n Nacional de Valores" or "CNV" means the Guarantor's National Securities Commission; (e) "Commissions" means the Comisi6n Nacional Bancaria the Comisi6n Nacional de Valores, the Comisi6n Nacional de Seguros v Fianzas and the Comisi6n Nacional del Sistema de Ahorro para el Retiro; (f) "SAR" means the Guarantor's retirement savings system ("Sistema de Ahorro para el Retiro"); (g) "SHCP" means the Guarantor's Secretariat of Finance and Public Credit, ("Secretaria de Hacienda Y Cr6dito Pfiblico"); (h) "Special Account" means the account referred to in Section 2.02(b) of this Agreement; and (i) "Workplan" means the workplan referred to in Section 3.04 (a) of the Guarantee Agreement. ARTICLE H The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, various currencies that shall have an aggregate value equivalent to the amount of twenty-three million six hundred thousand dollars ($23,600,000), being the sum of withdrawals of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal. Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and -3- services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. (b) The Borrower may, for the purposes of the Project, open and maintain in dollars a special deposit account in Banco de Mexico on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 4 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1998 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Interest Period equal to the Cost of Qualified Borrowings determined in respect of the preceding Semester, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rate applicable during such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower and the Guarantor of the Cost of Qualified Borrowings determined in respect of such Semester. (c) For the purposes of this Section: (i) "Interest Period" means a six-month period ending on the date immediately preceding each date specified in Section 2.06 of this Agreement, beginning with the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost, as reasonably determined by the Bank and expressed as a percentage per annum, of the outstanding borrowings of the Bank drawn down after June 30, 1982, excluding such borrowings or portions thereof as the Bank has allocated to fund: (A) the Bank's investments; and (B) loans which may be made by the Bank after -4- July 1, 1989 bearing interest rates determined otherwise than as provided in paragraph (a) of this Section. (iii) "Semester" means the first six months or the second six months of a calendar year. (d) On such date as the Bank may specify by no less than six months' notice to the Borrower, paragraphs (a), (b) and (c) (iii) of this Section shall be amended to read as follows: "(a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Quarter equal to the Cost of Qualified Borrowings determined in respect of the preceding Quarter, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agrelement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rates applicable during such Interest Period." "(b) As soon as practicable after the end of each Quarter, the Bank shall notify the Borrower and the Guarantor of the Cost of Qualified Borrowings determined in respect of such Quarter." "(c) (iii) 'Quarter' means a three-month period commencing on January 1, April 1, July 1 or October 1 in a calendar year." Section 2.06. Interest and other charges shall be payable semiannually on April 1 and October 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. -5- ARTICLE II Transfer of Loan Proceeds; Other Covenants Section 3.01. (a) The Borrower shall enter into contractual arrangements with the Guarantor, satisfactory to the Bank, providing, inter alia, for: (i) the transfer to the Guarantor of the proceeds of the Loan for the carrying out of the Project; and (ii) the transfer by the Guarantor to the Borrower of such funds as the Borrower shall be required to pay to the Bank on account of principal, interest and other charges on the Loan. Except as the Bank may otherwise agree, the Borrower shall not amend or fail to enforce any provision of such contractual arrangements. (b) The Borrower shall exercise its rights under the contractual arrangements referred to in paragraph (a) above in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan. Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods 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 the Schedule to the Guarantee Agreement. Section 3.03. The Bank and the Borrower hereby agree that 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) shall be carried out by, or shall caused to be carried out by, the Guarantor pursuant to Section 3.03 of the Guarantee Agreement. Section 3.04. The Borrower shall participate in the reviews referred to in Section 3.05 of the Guarantee Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and separate accounts adequate to reflect in accordance with sound accounting practices the resources and expenditures in connection with the execution of the Project. (b) The Borrower shall: -6- (i) have its records and accounts referred to in paragraph (a) of this Section, and the records and accounts for the Special Account, for each fiscal year audited, in accordance with generally accepted auditing standards and procedures consistently applied, by independent and qualified auditors; (ii) furnish to tie Bank as soon as available, but in any case not later than six months after the end of each such year, 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 each month certified statements of the Special Account; and (iv) furnish to the Bank such other information concerning, said records and accounts as well as the audit thereof as the Eank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall provide to the Guarantor any information that may be required by the Guarantor to comply with the Guarantor's obligations under Section 4.01(c) of the Guarantee Agreement. ARTICLE V Effective Date; Termination Section 5.01. The following event is specified as an additional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01(c) of the General Conditions, namely, that the contractual arrangements referred to in Section 3.01(a) of this Agreement have been executed. Section 5.02. The following is specified as an additional matter, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank, namely, that the contractual arrangements referred to in Section 3.01(a) of this Agreement have been duly authorized or ratified by the Borrower and the Guarantor, have been duly executed by them, and are legally binding upon the Borrower and the Guarantor in accordance with their terms. Section 6.03. The date I0U Y1 e- , 1995 is hereby specified for the purposes of Section 12.04 of the General Conditions. -7- ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Director Internacional of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: 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 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For the Borrower: Direcci6n Internacional Nacional Financiera, S.N.C. Plaza Inn, Insurgentes Sur 1971 Torre IV, Piso 8 01020 M6xico, D.F. Mexico Cable address: Telex: NAFIN NAFIME 383-1775765 Mexico City Mexico City -8- IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Mexico, D.F., United Mexican States, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By CLk"A -T 2U 1-k/ Regional Vice President Latin America and the Caribbean NACIONAL FINANCIERA, S.N.C. By i b torize Rep0 reeave Authorized Representative -9- SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Goods 4,600,000 100% of foreign expenditures and 90% of local expenditures (2) Consultants' - 19,000,000 100% services and training TOTAL 23,600,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Guarantor for goods or services supplied from the territory of any country other than that of the Guarantor; and (b) the term "local expenditures" means expenditures in the currency of the Guarantor or for goods or services supplied from the territory of the Guarantor. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not to exceed $1,900,000, may be made in respect of Categories (1) and (2) on account of payments made for expenditures before that date but after October 1, 1994. - 10 - 4. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure for expenditures for goods under contracts not exceeding $350,000 equivalent, and for expenditures for consulting firms not exceeding $100,000 equivalent and for individual consultants and training services not exceeding $50,000 equivalent, under such terms and conditions as the Bank shall specify by notice to the Borrower. - 11 - SCHEDULE 2 Description of the Project The objectives of the Project are: (a) to improve the safety and soundness of the financial system through improved prudential regulation and supervision, and through greater incentives for self-policing by market participants; (b) to support the development of the pension system; and (c) to improve public investment evaluation and budgeting. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: Part A: Financial Sector Regulation and Supervision Provision of coordinated technical assistance through SHCP with respect to: 1. Comisi6n Nacional Bancaria Analysis and improvement of: authorization policies and procedures; regulatory and supervision policies; regulatory reporting; regulatory accounting principles; supervision processes (both in . situ and extra situ); procedures for consolidation of regulatory reports and consolidated supervision of financial conglomerates; modernization of the information systems; and institutionalization of human resource development. 2. Comisi6n Nacional de Valores Analysis and improvement of: the regulatory and supervisory policy framework of the organized securities markets; self-regulation, disclosure of financial information by securities issuers, mutual funds and brokerage firms; the legal, regulatory and supervision policy framework for new financial instruments such as, for example, derivatives and asset-backed securities; and regulatory and reporting requirements for brokerage firms consistent with those adopted in the other Commissions. 3. Comisi6n Nacional de Seguros y Fianzas Analysis and improvement of: supervision processes; regulatory and supervisory policies applicable to insurance companies, insurance brokers, adjusters and reinsurance companies; CNSF's capacity to evaluate actuarial audits; certification procedures for actuaries; and regulatory reporting standards and accounting principles consistent with those adopted in the other Commissions. - 12 - 4. Comisi6n Nacional del Sistema de Ahorro para el Retiro Provision of technical assistance to permit CONSAR to carry out its primary functions, including: the development of CONSAR's internal communications system; the development of CONSAR's national information network; the procurement and use of computer and communications hardware and software for these purposes; and execution of a study by CONSAR, jointly with CNSF, of the annuities market and its implications for its further development as the SAR matures, with emphasis on international experience. Part B: Public Investment Evaluation and Budgeting Provision of technical assistance to SHCP's unit responsible for public investment evaluation and budgeting with respect to: inter-institutional coordination; establishment of evaluation standards, dissemination of these standards and training in project evaluation; evaluation of sector- and region-specific public investment projects; establishment of a national inventory of public investment projects and a system for ranking and prioritization within and across economic sectors; multi-annual budgeting; and ex-post monitoring and evaluation. The Project is expected to be completed by December 31, 1997. - 13 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each April 1 and October 1 beginning October 1, 2000 through October 1, 2009 1,180,000 And on April 1, 2010 1,180,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and 4.03. - 14 - Premiums on Prepayment Pursuant to Section 3.04 (b) of the General Conditions, the premium payable on the principal amount of any maturity of the Loan to be prepaid shall be the percentage specified for the applicable time of prepayment below: Time of Prepayment Premium The interest rate (expressed as a percentage per annum) applicable to the Loan on the day of prepayment multiplied by: Not more than three years 0.20 before maturity More than three years but - 0.40 not more than six years before maturity More than six years but 0.73 not more than 11 years before maturity More than 11 years but not 0.87 more than 13 years before maturity More than 13 years before 1.00 maturity - 15 - SCHEDULE 4 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) and (2) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule I to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $2,300,000 to be withdrawn from the Loan Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Bank shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $1,000,000 until the aggregate amount of withdrawals from the Loan Account plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of $4,600,000. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. - 16 - (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Bank requests for deposits into the Special Account at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) if the Borrower shall have failed to furnish to the Bank, within the period of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports required to be furnished to the Bank pursuant to said Section in respect of the audit of the records and accounts for the Special Account; (c) if, at any time, the Bank shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Loan Account pursuant to the provisions of Section 6.02 of the General Conditions; or - 17 - (d) once the total unwithdrawn amount of the Loan allocated to the eligible Categories, less the amount of any outstanding special commitment entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. 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 International Bank for Reconstruction and Development. FOR SECRETARY