Financial flows and the developing countries 4 (1)

Sectoral Library, 21987 Vol. 4 No. 1 5-- V. 4Sw ' ,.b. ,_ l_  Developing countries are benefiting from New equities 1 6 increased investor confidence and greater access New equity issues rose sharply in the third quarter, to international capital markets, although with the enormous Telefonica del Peru deal com- month-to-month developments are heavily influ- ing to market. Mutual funds targeted at emerging enced by changes in the international environ- markets have grown rapidly over the past few years. ment. The summer months saw some drop-off in both bond and loan financing by developing Foreign direct investment countries. Nevertheless, bond issuance by devel- and privatization 1 8 oping countries hit a record for the first nine Asian and US firms plan continued large invest- months of the year, despite fears of rising interest ments in Latin America. Privatization efforts are rates in the US, and spreads continued to narrow. strengthening in Brazil, Egypt, and Peru, among Emerging stock markets and prices of secondary other countries. market debt instruments fell in July along with the declines in US stock and bond markets, and Official flows then rose in August and September as US markets firmed. New equity issues also rose with the enor- Multilateral flows 20 mous deal brought to market by Telefonica del Multilateral commitments declined in the third Peru, and privatization efforts continued in a quarter, owing to a drop-off of World Bank loans number of countries. at the beginning of the fiscal year. International lending and Bilateral ODA capital markets and export credits 20 Japan and Norway plan increased ODA commit- Bonds 4 ments, and Japan's Export-Import Bank showed Bond issuances eased during the quarter but increased commitments in the third quarter. The remained at record levels for the first nine US EX-IM Bank approved an Environmental months of the year. Spreads declined, and sec- Credit Initiative with Brazil's Banco Credibanco, ondary market prices ended the quarter at their making it the first international commerical bank highest level since January 1994. to increase support for environmentally beneficial projects in cooperation with the US EX-IM Bank. Commercial bank loans 8 Loan commitments declined slightly in the sec- Debt relief update ond quarter to $21.4 billion. Project finance activity rebounded as a result of increased bor- Official creditors 2 1 rowing from Asian countries. The Paris Club reached agreements with Congo, Peru, and Yemen. Market creditworthiness 12 Developing countries' performance continues to Commercial creditors 22 improve, according to Institutional Investor's semi- There were no agreements in the third quarter annual surNey of country credit ratings. to restructure debt owed to commercial banks. Equity portfolio and foreign Financial brief: East Asian direct investment bond issues on the rise 22 Bonds are becoming the fastest-growing source Emerging stock markets 1 3 of financing in East Asian markets, which have The IFC's investable composite index lost 8% in historically relied on bank and equity finance for the third quarter because of July's sharp drop. investment funds. Why the change in the 1990s? * Financial Flows and the Developing Countries  * Contents and summary Statistical appendix Tables on external debt, aggregate long-term resource flows, and foreign d(irect investmentflows are published only as data are updated. New bond issues 25 New loan issues 26 New equity issues 27 9' Bank and trade-related ; nonbank claims 28 Commercial bank claims on developing countries 29 FOR RECONSTP1 ICTION AND DEVELOPMENT Commercial bank claims DEC I Z IZY6 on developing countries, by country of origin 30 SECTORAL LIBRARY INTERNATIONAL BANK Maturities of bank claims on developing countries 34 Funds raised on international capital markets 35 Secondary market debt (bid) prices 36 Emerging stock markets 37 Country groups 38 AVovember 1996  Bonds Sovereign issues from Latin America dominate Developing-country bond issues Latin American borrowers accounted for 56% of decline slightly in the third quarter total bond volume. Sovereign issues increased by Bond activity tends to slow down during the sum- a whopping 65%, to $9.7 billion, while private mer months, and 1996 was no exception. After a sector borrowings fell 53%, to $2.1 billion. Mex- buoyant start the volume of bonds issued by ico topped the bond league table at $8.7 billion, Improved country developing countries tapered off during the followed by Argentina at $1.8 billion and Brazil fundamentals, which quarter to $22.6 billion, slightly below the $23.3 at $928.4 million. The Mexican government boosted investor billion in the previous quarter (table 1). Still, raised $7.7 billion during the quarter, seizing the confidence, and high developing countries raised a record amount window of opportunity created by strong eco- liquidity in the debt during the first nine months of 1996-$65.7 bil- nomic reports-in the second quarter real GDP markets contributed to lion, compared with 1995's record of $57.8 bil- was 7.2% higher than last year's level, and Stan- bond issuances lion-despite considerable volatility in the US dard & Poor's upgraded its debt rating from neg- bond market. ative to stable. Proceeds will be used to repay The increase in bond issuance is mainly some of the loans it received from the Interna- attributed to improved country fundamentals, tional Monetary Fund (IMF) and the US Trea- which boosted investor confidence, and high sury, as well as to buy back some Brady bonds liquidity in the debt markets, a consequence of (recently restructured debt). the record amount of bonds that matured this Also during the quarter United Mexican year. At the same time spreads have continued States issued the largest sovereign Eurobond to fall: the dollar sector saw the smallest decline ever and raised $5.4 billion at a spread of 200 (about 20 basis points), while the deutsche mark basis points over the three-month dollar LIBOR sector saw the largest fall (more than 100 basis with five years to maturity. The issue was rated points). The yen sector landed in between investment grade, a few notches above a (about 40 basis points). sovereign rating, because it is backed by Pemex's oil revenues. Investors included commercial TABLE I Bond issues by type of borrower banks, insurance companies, pension funds, and US$ millions 1996 1996 mutual funds. The government also raised $1 bil- 1 994 1 995 Q2 Q3 lion in the dollar market with a 20 year to matu- All developing countries 50,1 29 57,843 23,254 22,619 rity global bond issue at a spread of 445 basis Privote 2 010 20,489 9 807 5 761 points above comparable US Treasuries. Sub-SaharanAfrca 75 100 0 0 EastAsia and Pacific 8,604 1 1,531 4,668 3,329 In the deutsche mark sector the government South Asia 636 520 200 250 raised $676 million, at a spread of 288 basis Europe and Central Asia 1,598 541 341 46 Lat n America 10,097 7,746 4,539 2,136 points with eight years to maturity. The issue has Mddle East and North Africa 0 50 60 0 a step-up coupon beginning at 8.12% and Sovereign 17, 56 24,253 9,400 3,215 increasing to 10.87% after September 2001. Sub-SaharanAfrca 1,520 496 0 331 EastAsaand Pacific 2,399 569 810 1,760 From the private sector Cemex SA raised $600 South Asia 150 0 150 0 million through two tranches-4 years to matu- Europe and Central Asia 9,1 15 0,204 2,541 978 Latin America 3,572 2,105 5,898 9,719 rity and 10 years to maturity-at spreads of 425 Middle East and North Africa 400 879 0 428 basis points and 587.5 basis points. Some of the Otherpublic 11,963 13,101 4,047 3,643 proceeds will be used to acquire Colombian Sub-Sanaran Afr ca 0 396 140 0 cement producer Cementos Samper. East Asia and Pacific 6,599 8,161 1,860 3,128 South Asia 300 262 20 0 Argentina tapped the deutsche mark, dollar, Europe and Central Asia 1,062 1,501 100 0 and sterling markets for a total of $1.2 billion, as Latin America 4,003 2,731 1,827 465 Middle East and North Africa 0 50 100 50 proposals to reduce the fiscal deficit that were Source: Euromoney Bondware and Wodd Bank. consistent with the IMF program helped boost Financial Flows and the Developing Countries  a International lending and capital markets investor confidence. In the dollar market Largest securitized issue emerged Argentina raised $500 million with a three-year from Asia floating rate note at a spread of three-month Asian borrowers, both public and private, tapped LIBOR plus 270 basis points, compared with a the market for $8.5 billion, of which $3.6 billion five-year issue at a spread of 427 basis points in went to Korean entities (with the banking sector February. In the deutsche mark sector accounting for 83%). The Korea Development Argentina continued to extend the maturity of Bank launched four bond issues in the yen sec- its issues and raised $507.5 million through two tor for $634 million and made a $115.9 million The two issues by tranches, at 7 years and 20 years to mlaturity. debut in the Australian dollar market with a Zhuhai Highway, which Marking the eleventh currency sector in which three year to maturity note at a spread of 28 basis raised $200 million, it has raised funds, Argentina made its debut in points. The Korean Export-Import Bank tapped marked the first bond the sterling sector for $154.5 million with a five the US dollar market for $500 million at a spread offerings from China year to maturity note at a spread of 390 basis of 44 basis points for five years. The government issued without a points. Issues from the private sector included a announced that in 1998 foreigners will be guarantee from a $100 million issue by Banco Hipotecario allowed to invest in unsecured convertible bonds sovereign or state- Nacional and an $85 million issue by Compania issued by large domestic business, but full open- level entity de Transporte de Energia. ing of the domestic bond market will wait until Brazilian entities raised $928.4 million, of the gap between Korean and overseas interest which 40% went to the banking sector. Banko rates narrows to 2% from 6-7% currently. Thai Bradesco and Unibanco raised $100 million each, entities raised $1.4 billion, of which 77% went to Unibanco with a three year to maturity note and a the banking sector. The largest securitization spread of 290 basis points (compared with a simi- during the quarter from an Asian issuer came to lar issue earlier this year at a spread of 370 basis the market when Thai Car Ltd. launched a $250 points). Companhia Brasilera de Projetos e Obras, million, 5.5 year to maturity floating rate note at a private construction company, tapped the a 22 basis point spread over three-month LIBOR. escudo market for $48 million, with an eight year The issue was backed by auto-lease receivables to maturity bond at a spread of 470 basis points and carried an AAA rating by Moody's and Stan- above six-month LIBOR. The issue is the third dard & Poor's. European banks bought most of made this year in the escudo market by a Brazilian the issue. entity. Comrtel Brasileira, a private telecommuni- Chinese entities raised $1.2 billion, with the cations company, issued a $310 million eight-year government tapping the dollar market for $300 bond, the largest issue by a Brazilian firm. million at a spread of 110 basis points for 10 years. With renewed confidenice in the economy, the The two issues by Zhuhai Highway, which raised government of Venezuela raised $437 million in $200 million, marked the first bond offerings from the deutsche mark sector at a spread of 440 basis China issued without a guarantee from a sovereign points for seven years, compared with last year's or state-level entity. Bond issuance by the Philip- three-year issue at a spread of 507 basis points. pines reached $1.5 billion during the quarter, of Basco Ganadero, a Panamanian private bank, which $1.1 billion went to the government. The raised $75 million at a spread of 385 basis points. government launched two debut samurai issues The $125 million issue by Instituto de Fomento for $369 million, which were rated investment Industrial, a Colombian public banking entity, grade by ajapanese rating agency. The 5.5 year to enjoyed a narrower spread (185 basis points) than maturity issue carried a spread of 159 basis points, most other Latin American issues. Chilean entities while the seven-year issue carried a spread of 200 continue to borrow at very favorable terms-Com- basis points. The government followed in Mexico's pania de Telecommunicaciones de Chile raised footsteps, issuing an uncollaterized 20-year fixed- $200 million at a spread of just 83 basis points above rate dollar eurobond for $690 million. Most of the comparable securities, with five years to maturity. proceeds went to buy back Bradys. Demand was November 1996  International lending and capital markets strong, and the spread at launch was 225 basis million at a favorable spread of 58 basis points with points above US Treasuries. five years to maturity. Poland launched its first Spreads on Philippine eurobonds have nar- deutsche mark issue for $164 million at a spread of rowed to 150-250 basis points, compared with 65 basis points. Lithuania raised $50 million, and 300-400 basis points during the Mexican peso cri- a private brewery from the Czech Republic raised sis, because of strong economic fundamentals, a $46 million at a 185 basis point spread with five scarcity of Philippine bonds, and strong demand by years to maturity. In the deutsche mark sector the Slovenia launched its Asian investors for local securities. Indonesia raised Republic of Turkey raised $338 million with four first issue, which raised $568 million, of which 70% went to the govern- years to maturity at a spread of 304 basis points and $325 million at a ment. The Philippines had been absent from the $101 million at a spread of 283 basis points. favorable spread of 58 market for more than 10 years and emerged with a Three issues came from the Middle East and basis points with five $400 million 10-year issue at 100 basis points. There North Africa, totaling $478 million. The govern- years to maturity were two issues from India-Reliance Industries, a ment of Morocco tapped international markets private textiles company, raised $100 million with a for the first time and raised $290 million in the 50-year maturity and a spread of 350 basis points, French franc sector. The issue carried a spread of and SCICI, a private transport and shipping com- 48 basis points and was guaranteed by the French pany, raised $150 million with a five year to matu- government. The Central Bank of Tunisia raised rity note and a spread of 125 basis points. $137 million in the yen sector, the fifth time it has tapped that market. Issues from Lebanon con- More Eastern European and North tinue to trickle in-Byblos Bank, a public entity, African countries tap the market raised $50 million at a spread of 285 basis points Eastern European and Central Asian borrowers with three years to maturity. The Republic of tapped the market for $1 billion. The Republic of South Africa provided the only issue to emerge Slovenia launched its first issue, wvhich raised $325 from Sub-Saharan Africa, for $331 million. FGURF I Bond issues from developing F GURE 2 Bond issues from developing countries, by maturity countries, by type _US$ billions US$ billions Over 15 years U Floating U 11-15 years C Convertible 6-10 years E Fixed rate S 1-5 years a 23.3 22.6 19.8 23.2 19.8 57.8 1996QI 1996Q2 1996Q3 1996QI i 996Q2 1 996Q3 Source: Euromoney Bondware and World Bank. Source: Euromoney Bondware and World Bank. Financial Flows and the Developing Countries  * International lending and capital markets Share of short-term and floating- The volume of Samurai bonds-yen- rate notes increases denominated foreign issues launched in Japan- The share of short-term paper rose to 58% of has increased, driven by deregulation that has total volume from 50% the previous quarter opened the market to issuers of less than invest- (figure 1), aided by the mammoth $5.4 billion ment grade. The Japanese market also has expe- sovereign issue out of Mexico and Argentina's rienced growth in dual currency bond issues (that $500 million bond. The sector accounted for is, coupon payments made in yen but redeemed 60% of the number of issues launched. Develop- in a foreign currency, mainly dollars). Retail ing countries are also reestablishing their pres- demand for these securities has been strong ence on the long end of the market as despite the exchange rate risk, although institu- fundamentals continue to improve. Issues with tional investors have been less enthusiastic, per- maturity of more than 10 years increased to 23% haps because of their losses in US Treasury' of total volume, compared with 13% in the sec- securities several years ago. Developing countries ond quarter. Both Mexico ($1 billion) and continued to diversify their currency borrowing Argentina ($253 million) tapped the 20-year sec- base-Argentina raised $155 million in the ster- tor, as did Thai Farmers Bank ($200 million), a ling sector, a Brazilian company tapped the private bank, while Reliance Industries ($100 escudo market, and Korean entities tapped the FGURE 3 million), a private Indian company, issued a 50 Australian dollar and Swiss franc (SFR) sectors. Currency composition of bond year to maturity bond. The share of issues with issues, 1 996Q3 6-10 years to maturity dropped to 20% of total Secondary market prices recover volume, compared with 36% the previous quar- from decline in July East and South Asia ($7.7 all1 on) ter, with issues mainly out of China and the Prices of secondary-market instruments fell in Philippines. July and then rose in August and September, Yen DM Other ending at their highest point sinceJanuary 1994 17% - Developing-country issuers continue (figure 5). Prices dropped in July in response to SFR to expand funding sources high growth and an unprecedented fall in 1. Developing countries are taking advantage of the unemployment in the US economy, which ana- dollar market's depth by tapping it more often lysts expected would be accompanied by higher 68% Lai merica and for larger deals. In addition, demand by US inflation and interest rates. Emerging-market Latin Aor) investors increased, as confidence rose over the bonds and debt prices plunged, along with the Other course of the year and the investor base for devel- prices of US Treasury bonds. However, the Fed- DM 3% oping-country paper continued to expand. The eral Reserve's decision in early August to leave 13 %i dollar sector's share continued its upward trend Yen and accounted for 71% of total volume (figure FIGUR -4 Sectoral composition of 3). Latin issuers raised $9.7 billion in the dollar developing-country bond issues, US$ sector, of which $6.4 billion went to the govern- 1 996Q3 79% ment of Mexico. Asian issuers also favored the dollar market, accounting for more than two- Manufacturing Europe and Central Asia Bankngl 9% Energy/telecom/ ($ 1.0 billion) thirds of the funds raised by the region. finance 25% utilities 4% US$ Developing countries also continued to tap -Other 37% the German market, with a recent cut in interest Mi/oi 2% rates increasing retail investors' appetite for high- yielding paper. Issues in the deutsche mark sec- Goverment tor accounted for 12% of total volume, the same 58% DM as in the second quarter. The yen sector has been 63% losing ground and accounted for 12% of total vol- Note: "Other" includes utilties, agriculture, construction, transport. and other services. Source: Euromoney Bondware and ume, compared with 23% in the previous quarter. Source Euromoney Bondware and Word Bank. World Bank. November 1996  International lending and capital markets 0 interest rates unchanged heralded an upward increasing numbers of US institutions prepared trend in bond prices. to commit long-term money to emerging mar- Low interest rates in the US and Europe and kets. Confidence in the Mexican economy con- increased creditworthiness of Latin American tinues to grow, and prices of Mexican Bradys and Eastern European economies also have and the $6 billion in eurobonds recently con- encouraged a shift in investor attitudes, with verted from Bradys were high. Prices of Panama's Bradys were higher than expected. Venezuelan issues continue to benefit from FIGURE 5 Secondary market price index, January 1993- improvements in economic policy and rising oil September 1996 prices. Argentine Bradys also rose, with increased confidence in the government's eco- nomic package. Russian eurobond Vnesh paper 220 .. -- . .. had a spread of 700-800 basis points, far wider than any other eurobond. 200 ------ --------- ------ -----------. - - ------------------ -------- v--- - - A -- - /w>P All debt /\_/ V Meanwhile, the Philippines is set to issue $1.9 l80 - ---------- ------- -------- --------------------- ----------------billion in eurobonds in exchange for Brady bonds originally issued to retire commercial bank debt. These new bonds will be issued in the 1 6 0 -- - -- - .---------------.--- form of 15-year floating-rate notes and 20-year fixed-rate bonds. The bonds will not be backed by collateral (unlike Bradys, which are backed by l 20 t>/ Brady bonds . US Treasury bonds), but bond holders accepting this exchange will receive a higher yield. Analysts believe that other countries may follow this 100 approach, particularly Argentina, Brazil, and Venezuela. Brady bonds are the most widely Source: World Bank. traded and liquid form of emerging-market debt, TABLE 2 Loan issues by type of borrower but in the coming years they likely will be over- US$ millions 1995 1995 1995 996 1996 1996 taken by eurobonds. In Latin America the 1994 1995 Q2 Q3 Q4 Qi Q2 Q3 amount of eurobonds in issue has grown from AD developing countries 72,780 1 2,358 22,275 27,700 41,797 24,249 21,944 21,444 zero in the early 1990s to about $80 billion today. Private 32,110 58,965 9,636 16,133 22,181 14,350 16,006 13,138 Although outstanding eurobonds still amount to Sub-Saharan Afnca 1,022 2,606 883 1,105 267 8 15 2,144 446 EastAsiaand Pacific 20,685 36,337 5,518 11,297 12,134 11,139 10,056 9,596 less than the Brady bond market, which is $124 South Asia 1,857 2,400 468 327 300 643 171 304 billion, thev are rapidly catching up. Europe and Central Asia 1.645 5,344 704 910 3,442 816 1,125 1,089 Latin America 6,434 11,621 1,785 2,385 5,987 938 2,255 1,669 Middle East and North Africa 468 657 278 109 50 0 255 35 Commercial bank loans Sovereign 10,604 7,284 2,512 2,483 1,600 1,123 678 915 Sub-Saharan Africa 28 411 23 3 17 56 40 0 375 Syndicated loan conimitments drop East Asia and Pacific 4,074 1,727 751 378 88 98 542 100 South Asia 283 361 161 0 200 375 0 182 New loan commitments fell 2% from the second Europe and Centra Asia 2,585 1,666 500 737 314 60 136 108 LatinAmerica 585 2,914 1,077 1,050 737 350 0 0 quarter, to $21.4 billion (table 2). For the first Middle East and North Africa 3,048 205 0 0 205 200 0 150 nine months of the year new loans reached $67.6 Other public 30,066 46,109 10,127 9,084 18,016 8,775 5,260 7,390 billion, 4% less than the same period in 1995. Sub-Saharan Africa 311 2,649 232 1,317 940 440 185 349 Uncertainty about US interest rates led investors EastAsiaandPacific 14,568 19,634 3,190 3,319 10,446 3,024 1,819 2,310 South Asia 2,411 3,339 932 553 634 968 1,082 720 to favor short-term paper, causing the share of Europe and Central Asia 6,692 6,759 1,225 2,272 2,215 2,845 994 2,374 short-term loans to rise to 29%, up from 25% in Latin America 4,838 5,660 751 1568 2,802 937 1,079 1,627 Middle East and North Africa 1,246 8,067 3,796 55 979 561 100 I 0 the previous quarter. The share of loans with Source: Euromoney Loanware and Word Bank. more than six years to maturity dropped to 19% a Financial Flows and the Developing Countries  International lending and capital markets] from 25% in the second quarter (figure 6). An ters of 1995. Lending commitments to Sub-Saha- overwhelming majority (90%) of new loans were ran African entities fell to $1.2 billion, from $2.3 denominiated in dollars, with yen and deutsche billion the previous quarter. Loan commitments mark loans each accounting for 2% of new loans to Middle Eastern and North African countries (figure 7). In an effort to expand their investor were only $195 million. base, developing countries are continuing to Korean and Chinese entities continue to tap venture into other currencies (Swiss franc, ECU, loan markets at more favorable terms than other sterling), which account for 6% of loans. Asian borrowers. Korean shipping and leasing Korean and Chinese Asia once again took the lion's share of bank companies were most active in the market. The entities continue to tap commitments, raising $13.2 billion. Of this, $4.2 largest loans went to Korean Airlines ($150 mil- loan markets at more billion went to Indonesia, $2.8 billion to China, lion on a secured basis), Hyundai Motor favorable terms than and $2.4 billion to Korea. Most (75%) loans to Finance, and Samsung Hongkong ($100 million other Asian borrowers Asia were directed to private entities, particularly each). China's Guangdong Nortel Telecomm to the infrastructure and finance sectors. New raised $300 million, with three loans that carried loan commitments to European borrowers a spread of 30-100 basis points over LIBOR. reached $3.6 billion, of which $2.4 billion went China Northern Airlines also borrowed $300 mil- to public entities, mainly banks, and $1.1 billion lion, with three loans at narrow spreads-35-85 to the private sector. Loan commitments to Latin basis points over LIBOR and 10 years to maturity. American countries reached $3.3 billion, slightly Indonesian companies raised a record amount less than the previous quarter. Improved investor offunds during the quarter, although most trans- confidence in Latin American paper led several actions carried guarantees. For example, the util- governments to tap the bond market for a record ity company PT Jawa Power raised $972 million amount of funds this year and to stay out of the for a coal-fired power station with a four year to loan market. As a result loan commitments to the maturity loan and two tranches with 15 years to region's governments totaled $350 million dur- maturity that carried a political risk cover guar- ing the first three quarters of 1996, far below the antee extended by US EX-IM Bank and Hermes. $2.2 billion received during the first three quar- Thai entities raised $1.8 billion. Total Access Communication received an export credit of l(,URF r Syndicated loans to developing $223 million that included a sterling tranche countries, by maturity guaranteed by the UK's Export Credit Guarantee U5$ mrnl!ons Department (ECGD). The Export-Import Bank of India raised $100 Over 10years 111 million at a spread of 60 basis points with 1 12,358 6-1lOyears E 2-5 years two seven-year loans, as did the Industrial O-I years U F. 7L Currency composition of loan issues, 1996Q3 Yen DM Other 2%2% 6% 21 ,944 21,444 l995 l996Q2 1996Q3 90% Source: Euromoney Bondware and Word Bank. Source: Euromoney Bondware and Word Bank. November 1996  International lending and capital markets Development Bank of India with a single seven- $21 million at a spread of 550 basis points for a year loan. India's Industrial Credit and Invest- six-month loan. ment Corp., the country's largest development Borrowing by Latin American private entities fell bank, raised $120 million with a medium-term duringthequarterbutat$1.7billionstillaccounted loan at a margin of 62 basis points. The entity is for half of the region's total volume. Chilean enti- a quasi-private bank with foreign institutional ties raised the most-1.3 billion, of which $500 mil- investors holding 33% of its equity. Malaysian lion went to Collahuasi Mining Project and $200 Entities from a number entities raised $693 million, of which 79% was in million to Endesa Chile Overseas under a five-year of European countries local currency. Two loans were made to Viet- loan with a spread of 37.5 basis points over LIBOR. tapped the imarket, namese entities: the Vietnam Bank for Invest- Mexico's Comission Federal de Electricidad raised raising as I ttle as ment and Development raised $30 million with $600 million with two one-year loans at a spread of $2 million (Estonian a five-year loan at LIBOR plus 170 basis points 165 basis points over LIBOR The Argentine public entity) and as much as on a secured basis and a put option, and Viet- utility Edesur raised $180 million for two years at a $750 million nam National Coal raised $62 million with a five- spread of 228 basis points over LIBOR, while YPF, (Czech entity) year loan at LIBOR plus 200 basis points. the giant oil company, raised $125 million with a Entities from a number of European countries four-year loan and a two step-up spread-150 basis tapped the market during the quarter to raise as points over LIBOR for the first year and 200 basis little as $2 million (Estonian entity) and as much points over LIBOR thereafter. Argentine entities as $750 million (SPT Telecom, the recently pri- continue to extend the term of loans when only a vatized Czech telecommunications company). few months ago they were tapping the short end of The loan to SPT Telecomm has five years to the market. Petrobras, the Brazilian oil company, maturity and carries a 25 basis point spread. raised $250 million. Hungarian entities raised $751 million, of which Elsewhere, South African entities raised $661 93% went to the banking sector. The National million. Telkom South Africa borrowed $185 mil- Bank of Hungary raised $350 million with a five- lion with a five-vear loan at a tight margin of 60 year loan at a 50 basis point spread over basis points over LIBOR. The loan carried a BB+ LIBOR-the lowest margin ever paid by a Hun- rating with a positive outlook and was the first ever garian entity. The thin spreads enjoyed by Hun- euromarket loan to be assigned a rating by Stan- garian borrowers may be partly attributed to dard & Poor's. Institutional investors favor such Hungary's OECD membership, which gives the ratings and more euroloan ratings are expected in loan a zero risk weighting under Bank for Inter- the future. A Nigerian private bank raised $5 mil- national Settlement (BIS) guidelines. Two lion and Societe Internationale de Cacao et Cafe Slovenian banks raised $120 million at spreads raised $89.4 million in the French franc sector for of 30-42.5 basis points for six years. SC Siderca, a trade finance facility. Ghana's Cocoa Board a Romanian public company, raised $51 million raised $275 million with a one-vear loan at a 50 in the deutsche mark sector, as did Slovnaft, a basis point spread over LIBOR, while the govern- public oil and gas company in the Slovak Repub- ment raised $100 million. Tunisia tapped the mar- lic. Slovenska Elektrane, a Slovakian public util- ket for $150 million with a seven-year loan at a two ity, raised $150 million at a spread of 88 basis step-up spread-50 basis points over LIBOR for points over LIBOR with three years to maturity, the first five years and 60 basis points over LIBOR Although Standard & Poor's placed Turkey on thereafter. Two Lebanese hotels raised $45 mil- its CreditWatch list, Turkish entities raised $895 lion in the medium-term market. million, practically all of it going to the banking sector. Lithuania raised $75 million at a margin Lending for project finance rebounds of 225 basis points for a one-year loan. The loan Syndicated loans to support project-related activi- with the steepest spread was made to Rossiyskiy ties rebounded in the third quarter as a result of Kredit Bank, a Russian public bank, which raised increased borrowings by Asian countries, with Financial Flows and the Developing Countries  m International lending and capital markets China, Indonesia, Korea, and Thailand responsi- munications. The International Finance Corpo- ble for almost all the funds raised for the region ration (IFC) raised $125 million for a private (table 3). Total commitments for the first nine Czech electric utility that had agreements in months of 1996 reached $14 billion,just over half place to sell its output to the state and that had the $27 billion committed in 1995. The average contracted for an assured supply of major inputs size of projectfinance borrowings edged up to $87 in the generation process. China's Guangdong million, the highest of any quarter this year, pri- Zhuhai Power Station Co. Ltd. has arranged $1.2 marily because of some large deals from Indone- billion in financing for a power plant project in sia (average size $200 million) and Colombia. the form of $125 million in limited recourse Project finance loans accounted for about one- financing from commercial banks with a 12-year fifth of syndicated loans to developing countries maturity, $670 million in loans from EXIMJapan during the third quarter. Although this represents andJapan's Ministry of Trade and Industry (the a substantial recovery from the second quarter, it first time that EXIMJapan has assumed Chinese remains short of the 25% share in 1995. project financing risk), a Renminbi 504 million The margins paid by Asian borrowers aver- loan to be arranged by a local bank, and the aged about 125 basis points, ranging from 35 to remainder in equity by project sponsors. 275 basis points. At the higher end of the range Indonesia's PT Jawa Power raised $970 mil- were nonguaranteed Pakistani transactions, fol- lion for power plant construction, with political lowed by Thai and Vietnamese deals in the 200 risk coverage from the US EX-IM Bank for a $396 basis points area. Indonesian private borrowers' margins averaged 130 basis points, the same as - PT Financing structure of major for India's public sector. Funding for China aver- project financing deals aged 103 basis points over LIBOR, although the - syndicated, 996Q3 range varied from 65 to 145 basis points. At around 60 basis points Koreans had the lowest I IproJects borrowing costs. A state-owned company backed 24% by South Africa was able to raise funds for oil Financing field development with a margin of 35 basis through loan points, although the loan was for less than three syndication 76% years. Infrastructure borrowings account for half the total volume of project financing so far this year, Source: Furamoney Loanware and Word Bank. with almost 80% going to power and telecom- TABIKE 3 Project finance by region and sector UPE Secured project financing US$ milions 1996 1996 1996 syndications, January-September to date Q2 Q3 1996 Region All developing countries 13,997 3,455 5,512 Third party Sub-Saharan Africa 160 5 75 guarantees East Asia and Pacfic 1 10,352 2,517 4,118 38% Miscellaneous South Asia 11,449 106 525 /0% Europe and Centra] Asia 707 302 249 Latin Amenca and Caribbean 1,174 525 500 Revenue flow M ddle East and North Africa 155 0 45 from the project 9% Sector Charge over Sponsors completion Te ecommunications 1,561 632 703 projectassets cas 3grt Transportat on 427 0 270 Other infrastructure 1 878 578 210 Noninfrastructure 1 7,317 2,140 2.541 Note Miellaneou includesalternativestandbyfnanc ng, equity --- maintenance, negative pledges, and specifit financial covenant clauses. Source. Euromoney Loanware and World Bank. Source: Euromoney Loanware and World Bank. November 1996  International lending and capital markets million, four-year loan; 95% coverage for politi- the parent company. A private corporation from cal risk and certain commercial risks from Her- Thailand raised $205 million for construction mes to cover a $494 million, 15-year loan; and the activities. remainder arranged as a revolving credit. Pak- istan's Uch Power Company raised $340 million Market creditworthiness in four tranches to construct a power project. Sovereign foreign The World Bank provided a political risk guar- Institutional Investor survey sees currency debt antee for a $75 million tranche, and the US EX- continuing improvement Long term ratings, as of IM Bank did the same for a $148 million tranche. Institutional Investor's latest semiannual survey of September 9, 1996 Moody's S&P The IFC provided loans worth $115 million, and country credit ratings continues to show Investment grode project sponsors are providing $160 million in improvements in the market's perception of Chile Baa A-AA* equity for the project. Pakistan's other power developing countries' performance. On a scale China A3 BBS2 Colombia Baa3 BBB-/ project involves Fauji Kabirwala Power Company of zero to 100, with 100 representing countries A+2 Ltd., which raised $65 million for a 12-year with the smallest risk of default, Eastern Cyprus A2 M- i Czech Republic Baa A period; the financing was covered by a pledge Europe's average rating improved 1.5 points to Greece Baa3 BBB-' over the project's assets. 27.6, the largest regional gain in the survey's his- India Baa3 BB+ I Indonesa Baa3 BBB/ Companies in Indonesia and Thailand tory. The largest increases were registered by A+' floated large-scale deals in telecommunications. Croatia (4.6 points), Slovenia (4.0 points), and Korea, Rep. of A M-' Indonesia's PT Pramindo Ikat Nusantara, which Poland (3.8 points). Latin America's rating rose Malays a A Ar! Mr*2 has a 15-year concession to operate, manage, an average of 1.1 points to 29.1, with Peru up 2.8 Malta A2 A+/ and expand the telephone network in the points, Brazil 2.5, and Chile 2.0. The Asia-Pacific Poland Baa3 BBB-/ Sumatera region, raised $450 million in two region increased 0.6 points to 48.9, with the SiovakRepublic Baa3 BBB-/ tranches. Of this, $150 million will support rev- Philippines' rating up 2.4 points. The Middle A*I enue guarantees the company provides to the East region went up 0.5 points to 42.1, with the SouthAfrca Baa3 BB+/ state telecommunications company. The IFC largest increases recorded for Jordan (2.6 BB+5*2 played a major role in arranging the second points), Israel (1.4 points), and Egypt (1.1 Thailand A2 A/AMl tranche and also provided a subordinated loan. points). Africa achieved its highest rating in 13 Tunisia Baa3 n.a. Thailand's Total Access Communications pcl years, increasing to 22.5, a 0.5 point rise over the Below investment grade Argentina B' BB-/ raised $223 million in a seven-year loan that was last survey. Uganda was rated 1.6 points higher BBB*P guaranteed for political and commercial risks by and Benin 1.7 points. Barbados Ba2 n.a. Brazil BI B+2 ECGD and various Finnish agencies. The only Hungary Ba BB+ deals in the roads and water sectors came from Mexico's outlook improves, Egypt Jordan Ba3 B+! BBB-9 China. A public company arranged a $200 mil- requests rating, and Turkey and Mex co Ba2/ BB/ lion loan for three years with a margin of 65 basis Pakistan under review Baa3* BrB+*3 Pakistan B' B+