Colombia - Fifth Development Finance Companies Project

FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 65a-CO THE FIFTH FINANCIERA PROJECT COLOMBIA APPENDICES TO THE APPRAISAL REPORT INDIVIDUAL APPRAISALS OF THE EIGHT FINANCIERAS April 23, 1973 Projects Department Latin America and the Caribbean This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currenc-r Erraivalertsi/ Currencr Unit - Colcmbian Peso (Ool$) US$l.OO = Col$23.15 Co1$' = US$O.CU2 ColSl.0 million = US$43,197 PrinciDal Abbreviations and Acronyms Used BR - Banco de la Republica (Colorbia's Central Bank) CAT - Certificado de Abono Tributario (Tax Credit Certificate) DDC - Department of Development Credit of BR (Departa- mento de Credito de Fomento) EDR - Economic Development Reserve (Reserva de Desarrcllo Economico) Federacion - Federacion Nacional de Cafeteros (National Coffee Growers' Federation) F-md - Stabilization Fund (Fondo de Estabilizacion) IFT - Industrial Financing :Fund (Fondo Financiero Industrial) IFI - Insti-tuto de Fc.,ento Industrial (Industrial Develozmnent Institute) PIF - Private Investm-ent Fund (Fcndo para Inversiones Privadas) UDF - Urban Developr.ent Fund (Frondo de Zesarrollo Uroano) 17 As of the end of I..arch 1973.  COLOMBIA THE FIFTH FINANCIERA PROJECT APPENDICES TO THE APPRAISAL REPORT APPRAISALS OF THE EIGHT FINANCIERAS TABLE OF CONTENTS BASIC DATA ON FINANCIERAS APPENDIX A Corporacion Financiera Colombiana APPENDIX B Corporacion Financiera Nacional APPENDIX C Corporacion Financiera del Valle APPENDIX D Corporacion Financiera de Caldas APPENDIX E Corporacion Financiera del Norte APPENDIX F Corporacion Financiera de Occidente APPENDIX G Corporacion Financiera del Caribe APPENDIX H Corporacion Financiera de Santander This report contains individual evaluations of each intermediary. An identical sequence of presentation has been followed for the eight financieras in Appendices A-H. An appendix letter identifies each page of text and annex. For ease of reference, the basic data sheet from the Appraisal Report has been reproduced on the following page. It provides some basic information on each of the financieras for purposes of conparison and contains preliminary 1972 financial data. While major developments in 1972-73 are reflected in the text, actual financial statements for 1972 have not been included in the annexes, as audited figures are not yet available.   COWEBIA APPRAISAL OF THE FIF1H *N8CIRA PROJECT BtSIC DATA ON FINNCIER8AS The Five Financieras The Three New Financieras Colombiaza Nacional V'lle Caldas Norte Occidente Caribe Santander Established in 1q~999 1959 -1761 -1961- I- 1-6- 16 99 -19 Location bogot1 1i9edellin Cali hanizales Barranquilla Yere.- Bogota Bucaramanga As of Dec. 31, 1971 T10 . of shaholers 'du203 183 187 242 5S1 233 15 98 Share Capital (in Col$ mil.) 139.8 129.7 115.0 116.2 48.7 2, .; 20.0 23.0 Shareholdings as % of Wil total share capital, 1. Colombian Private Sector 53.7 62.8 68.2 71.2 41.9 90.0 25.1 89.1 2. Colombian Public Sector .3 3.7 6.2 8.5 12.5 9.7 - 10.9 3. Foreign Controlled 3.1 2.8 2.1 - 2.1 2.6 7.6 - 4. Foreign 28.9 22.5 17.0 11.6 28.1 37.7 67.3 5. IFC 14.C 8.2 6.5 6.5 15-4 - - - Assets (,in Co1$ mil.) 1186.4 612.8 804.1 421.9 356.2 125.5 69.8 107.4 =ans/ 763.6 647.1 649.2 209.8 260.9 90.7 45.1 88.1 Ecoort-Import finaocirg 164 2 31.6 70.5 24.1 27.8 ;2. - 9.1 Equity InvestmentsW/ 168.3 102.1 33.6 118.4 24.7 16.5 1.4 4.3 Other Assets 90.3 32.0 50.8 69.6 40.68 5. 3.3 9.9 Liabilities (in Col$ oil.) 966 . 5991.6 626.7 327.0 2b82. 90.6 24.2 76.9 399.6 232 216.9 126.b 68.6 20.9 6. 16.6 TB?D 213.1 263.7 186.8 53.0 129.1 - - Porei7n banks 119.7 31.7 125.8 22.8 W4.6 21.6 0.2 27.4 Bonds 161.8 22.1 27.1 10,1 12.2 26.3 - 3.4 O the~- 94.6 60.9 68.5 114.3 2P.C 22.2 7.6 27.5 Equity (in Col$ mil.) 241.6 221.2 179.4 94.9 71.5 34.9 25.6 32.5 Total Debt/Fquity 4.3 2.9 3.7 3.9 4.0 2.9 .9 2.4 Squity Portfolio as i of net worth 69.7 53.1 18.6 126.6 3h.6 46.' 5.5 13.1 Reserves and retained earnings as 7 of total rorttolio 8.6 8.3 8.8 2.7 7.2 2.3 13,0 10.0 hook value as t of par value 160.8 150.8 156.0 81.7 166.8 123.8 126.0 161.3 January-Deacember 1971 c ta -intone(in Col ril.) 136.3 115.0 105.5 46.9 46.8 16.6 7.5 13.3 '.L c -.sxr'e, n .nnn mil.) 31-3 36.9 27.0 0.2 10.0 3.5 2-3 6.4 Net incone as % af average 3hare canital 22.6 30.0 25.2 0.2 21.0 12.2 13.1 20.0 at4ulty 13.2 17.8 16.4 0.2 147. 10 !' 106 l46 Dotal assets 2.7 5.0 3.6 0.0 3.3 3.7 5.5 1.7 General expenses as % of average total assets 1.5 1.1 1.5 2.2 2.2 2.9 5.4 2.6 Dividend en 1971 profits, as / of year-end capital 12.0 21.6 14.4 - 13.2 10.0 - 20.0 Dividend pay-sut % 59.o 75.9 61.5 - 64.o 82.9 - 52.3 A5 of 2t. 311 1972 (Vd1t.) Assets (in Cols$ mil.) 1346.6 1036.3 1017.0 546.1 485.1 192.7 B0.7 114.6 IsaneE/ 1054.5 869.8 902.74' 340.3 399.7 161.8 71.1 63.6 Equity Investments 169.4 120.0 41.44/ 113.2 33.1 16.741 1.4A/ 8. 4/ Other Assets 122.7 46.5 72.9 92.6 52.3 13.2 8.2 22.6 1iabilities (in Cols mil.) 1067.5 766.9 803.1 420.6 401.5 150.5 50.2 83.5 Equity (in Col$ mil.)3/ 279.1 269.4 213.9 125.5 83.6 41.2 30.5 31.1 of which: Share Capital 144.0 147.0 130.0 116.3 56.4 31.8 20.5 24.2 Total Debt/Equity 4.6 3.1 3.9 3.6 4.8 3.7 1.7 2.6 Jamear-y-Desember 1972 (l(3o.udit.d) sTotl Income <ir Col$ mil.) 161.5 149.6 144,7 66.1 64.5 25.9 11.5 14.6 Net Income (in Col$ mil.) 35.6 43.5 32.0 5.1 12.5 6.3 3.6 4.3 Net Income as % of Average Equity 13.7 17.7 16.3 4.0 16.1 16.5 17.9 13.5 General Expenses as /2 of Average Total Assets 1.6 1.0 1.7 2z.i/ 2.1 2.4 5.4 2.9 Dividend on 1972 Profits as X of Year-End Capital 13.2 22.8 16.8 14.4 12.0 5.0 n.a. Dividend Pay-Out % 53.4 77.0 68.3 - 65.0 60.8 28.8 n.a. T/ Net of provisions. 2/ Includitg export-import financing. 3/ Including provisions for possible leases. 4/ Estimate. LCPDF Ppril 23, 1973  I  APPENDIX A COLOMBIA FIFTH FflANCIERA PROJECT CORPORACION FINANCIERA COLOMBIANA TABLE OF CONTENTS Page No. INTRODUCTION . . . . . . . . * . . . . . . . . . . . . . . . 1 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . 1 Share Capital and Ownership ..... .. ....... 1 Board of Directors and Management . . . . . . ... . . 1 Staff and Internal Organization ........ .... 1 Appraisal and Follow up ............. ... 1 Procurement and Disbursement Procedures . . . . . . . . 2 OPffiATIONS . . ..................... 2 Lending Operations ..................... 2 Equity Investments and Promotions . . . . . . . . . . . 2 Other Operations . . . . . . . . . . . . . . . . . . . . 3 FINANCIAL POSITION AND RESULTS . . . . . . . . . . ..... 3 Borrowings and Resource Position . . . . . . . . . . . . 3 Financial Structure . . . . . . . . . . . . . . . . . . 4 Income, Expenses and Profitability . . . . . . . . . . .4 Quality of Loan and Investment Portfolios . . . . . . . 4 Reserves and Dividend Policy . d . . .. . .. . . .. 5 Foreign Exchange 3Rsk ... .*.a. .*a. .. . 6 Audit of Accounts . . . . . . . . . . . . . . . . . . . 6 PROSPECTS . . . . . ..*. . .... .. . 6 Business Forecasts . .#. . . . . . . . . . . . . . . . . 6 Sources of Funds . * a . . . . . . . . . . . .. . 6 Financial Projections .......... . . ... . 7 CONCLUSIONS AND RECOWiENDATIONS . . . . . . . . . . . . . . 7   APPENDIX A CORPORACION FINANCIERA COLONBIANA LIST OF ANNEXES ANNEX 1 List of Major Shareholders ANNEX 2 Board of Directors ANNEX 3 Organization Chart ANNEX 4 Analysis of Peso Loans Approved ANNEX 5 Status of Equity Investments ANNEX 6 Page 1 Audited Balance Sheets as of December 31, 1967-1971 Page 2 Audited Profit and Loss Statements for Periods ending December 31, 1967-1971 ANNEX 7 Page 1 Projections of Operations 1972-1976 Page 2 Projected Balance Sheets 1972-1976 Page 3 Projected Profit and Loss Statements 1972-1976 Page 4 Projected Sources and Uses of Funds 1972-1976   APPENDIX A Page 1 CORPORACION FINANCIERA COLOMBIANA INTRODUCTION 1. Colombiana, the oldest and still leading financiera, was established in 1959 and began operations in the same year. Although it concentrates its activities in the Bogota area, which is the country's most industrialized, it is also active in most of the other Departments of Colombia. IFC became a shareholder as early as 1961. ORGANIZATION 2. Share Capital and Ownership. Colombiana's share capital increased only 1.5% to Col$139.8 million during 1971, and to Col$144.0 million in 1972. New subscriptions were made entirely by Colombiana private shareholders. Own- ership (Annex 1) changed little. At the end of 1971, priPrate Colombian share- holders owned 53.7% of the total, foreign and foreign-controlled shareholders, 32.0%, IFC, 14.0%, and two governmental shareholders 0.3%. Colombiana con- tinued to be widely owned by 203 shareholders, of which Banco de Bogota and Colseguros, jointly, held about one third of the total. Banco de Bogota with 18.75% had remained the largest shareholder, followed by IFC. 3. Board of Directors and Management. Colombiana's Board of Directors, (Annex 2) which comprises leading Colombian and foreign bankers and business- men, has continued to meet weekly and to follow closely Colomoiana's operations. In April 1971, Dr. Luis Machado, IFC's Consultant, was appoirnted Advisor to Colombiana's Board. 4. No changes have occurred in Colombiana's management. Mr. Ignacio Copete has been President since 1967. He has an impressive professional record and manages the financiera efficiently. He is assisted effectively by three Vice-Presidents. 5. Staff and Internal Organization. The financiera's organization (Annex 3) is adequate, given its present level of operations. Colombiana's professional staff, which continues to be large compared with other financie- ras, seems to be the most competent of all financieras, on balance. Internal procedures and management reporting are satisfactory. 6. Appraisal and Follow-up. Colombiana's appraisal work continues to be of generally good quality. Coverage of engineering asnects by a capable team of engineers is adequate. Colombiana has become most familiar with the technique and interpretation of the effective protection calculation which all financieras introduced in connection with the last Bank loan. Colombiana's supervision system is well designed. Powever, actual supervision work in 1971 was relatively poor as staff efforts concentrated on preparing sub-projects for submission under the last Bank loan, at the expense of follow-up which has tended to be limited to Colombiana's largest exposures, problem cases and firms  APPENDIX A Page 2 in the construction stage. Management, being aware of the need for improved supervision employed five new staff members in 1972 who, once they have been trained, should permit Colombiana to do a satisfactory follow-up job. 7. Procurement and Disbursement Procedures. Colombiana, like the other financieras, largely relies on its clients for proper equipment selection. Only in the case of larger projects does it require its clients to present quotations from different suppliers. Disbursement for imported goods follow adequate standardized procedures and internal control of disbursements is satisfactory. However, disbursement control could be improved through more frequent site visits. OPERATI ONS 8. Lending Operations. A break-down of peso lending operations, in- cluding loans for import financing with Bank funds, is given in Annex 4. As Colombiana has approved the largest portion of all financieras under the latest Bank loan, the total loan approvals almost doubled in 1971 to Col$674.0 million. Most of the approvals (95.2%) have been for manufacturing, with textiles/ apparel, non-metallic minerals and metals/engineering receiving the largest share; approvals are well diversified among industrial sectors. Reflecting the increasing portion of Bank-financed projects in 1971, loans approved were larger than those of 1970--80% against 60% exceeded Col$5 million--loans for fixed capital financing went up from 51% to 68% and loan maturities of more than five years increased from 50% to 68%. The geographical distribution of Colombiana's lending has remained the most widespread among the financieras; 46% of its 1971 loan approvals involved clients outside its home Department of Cundinamarca. Reflecting partly the increasing volume of Bank-financed projects, Colombiana's foreign exchange financing, in particular short-term export and import financing, grew substantially in 1971, from US$4.9 million to US$7.9 million. 9. Equity Investments and Promotions. Colombiana's equity portfolio (Annex 5) increased by 7.0% to Col$176.1 million in 1971. As of the end of 1971, equity investments equalled 69.7% of Colombiana's own equity, compared with 68.3% a year earlier. The main new investments involved Col$30.9 million in Celanese Colombiana, and Col$5.7 million in Acabados y Estampados Tintorex (both operating profitably). Investments of Col$9.0 million in Forjas de Colombia (in liquidation) and a Col$12.0 million portion of an investment in El Labrador (operating at a loss) were sold at fractions of cost. The remainder of the El Labrador investment was exchanged for shares of Col$6.5 million in a new company continuing one line of El Labrador's operations. The financiera's Policy Statement limits its holdings normally to 25% of any one company's equity and its total exposure in any one company to 25% of its own equity. Equity investments in excess of the first limit involve ten companies. Al- though Colombiana intends to decrease its exposure in most of these companies, sales of shares are difficult for lack of maturity of the investments and the thin equity market. Only Colombiana's total exposure in Cales y Cementos de Toluvitjo (Tolcemento), amounting to 71.7% of the financiera's equity, exceeded  APPENDIX A Page 3 the second limit as of end 1971. However, although Colombiana's total exposure has remained unchanged, the financiera has been able to sell since then most of its equity investment in the company thereby decreasing loss prospects (see para. 14). In its earlier years of operations, Colombiana was active in promoting new enterprises. Since 1967 priority was rightly given to the con- solidation of portfolio. In 1971, Colombiana played a substantial role in the promotion and consolidation of Acabados y Estampados Tintorex. Colombiana is reviewing several investment possibilities, particularly in connection with markets operated through the Andean Pact, which may lead to equity investments. 10. Other Pperations. Together with Valle and IFC, Colombiana partici- pated in the underwqriting of a Col$8.6 million share issue of Pro-hoteles,.of which more than 80% has been placed. Colombiana has somewhat decreased its guarantee operations and commitments. Guarantees outstanding, at the end of 1971 were Col$84.3 million, compared to Col$97.7 million a year earlier, the drop being largely due to converting guarantees for Tolcemento into loans. FINANCIAL POSITION AND RESULTS 11. Borrowings and Resource Position. In 1971, Colombiana's growth of total assets was only a modest 7.6%, compared to 13.5% in 1972. The 1971 increase was financed as shown below (in Col$ million): Dec6mber 31, 1970 December 31, 1971 Increase/ % of % of (decrease) Amount Total Amount Total Amount % IBRD 188.1 17.1 213.1 18.0 25.0 29.9 Own equity 234.0 21.2 241.6 20.4 7.6 9.1 Br, lines 338.5 30.7 355.6 3.0.0 17.1 20.5 Foreign commercial banks 73.6 6.6 119.7 10.1 46.1 55.1 Bonds 141.9 12.9 161.8 13.6 19.9 23.8 Other 126.7 11.5 94.6 7.9 (2.1)(38.4) Total liabilities and equity 1,102.8 100.0 1,186.4 100.0 83.6 100.0 BR lines continued to be Colombiana's single most important source of finance and accounted for 30.0% of total resources at the end of 1971. Own equity although dropping from 21.2% in 1970 to 20.4% of the total, remained second in importance. Use of Bank funds increased by a relatively low 13.3%, accounting for 18.0% of total resources at the end of 1971. Mainly by selling bonds to institutional investors, who are shareholders of Colombiana, the company has been the most successful financiera in raising local resources in the bond market. Although, as of 1971, 13.6% of total resources came from bond place- ments, Colombiana, like the other financieras, continues to be faced with a tight local currency position. Ilowever, the five financieras have been making great effort to raise additional local resources by selling bonds jointly.  APPENDIX A Page 4 Finally, the increasing utilization of short-term credit lines from foreign commercial banks reflects wide fluctuations, which have also occurred in the past, rather than a trend. 12. Financial Structure. Historic financial statements, covering fiscal years 1967-71 (Annex 6), show that Colombiana has maintained a sound overall financial structure. The financiera's total debt/equity ratio increased from 4.1:1 in 1970, to 4.3:1 in 1971, making allowance for estimated prudent provisions (see para. 16) in both years, and to 4.6:1 in 1972, thus approaching the maximum of 5:1, stipulated in the Loan Agreements with the Bank and in Colombiana's own Policy Statements. Colombiana's short-term liquidity sit- uation is satisfactory; short-term assets and the normal monthly cash flow cover short-term liabilities comfortably. 13. Income, Expenses and Profitability. Colombiana's operating results have been satisfactory. Its net profit increased by 13.8% from Col$31.3 nil- lion in 1971 to Col$35.6 million in 1972 and return, both on average paid-in capital (25.6%) and on average equity (13.7%) improved accordingly. The over- whelming part of Colombiana's income is derived from lending operations. Ad- ministrative costs continue to be high compared with Nacional, a development finance company comparable in size and age. Colombiana has, however, built up a large and competent staff which should be able to handle the expected substantially larger volume of business in the future. 14. Quality of Loan and Investment Portfolios. Colombiana's loan and guarantee portfolio is intrinsically sound. Of the year-end 1971 total, more than two thirds were outstanding to companies operating profitably, over one quarter to companies operating at a loss (of which Tolcemento accounted for almost one half), and Col$5.1 million to three companies in liquidation. Total principal and interest of clients in arrears for more than three months amounted to Col$43.2 million, whereas the total amount outstanding with these clients was Col$57.8 million, or 5.3% of the total portfolio of loans and guarantees extended. Although this is not excessive, Colombiana should continue giving attention to improving its collection record. Colombiana is well secured in most cases and apparently has more than ample guarantees for the loans to companies in liquidation. The financiera's management considers that Col$8.5 million is adequate to provide for possible losses on doubtful loans. 15. As of end 1971, the quality of Colombiana's equity portfolio (Annex 5) contained a considerable element of risk, mainly because of the financiera's substantial and increasing exposure (equal to about three quarters of its own equity) in Tolcemento, a cement company well known to the Bank Group, which has incurred increasingly high losses and whose prospects of turning around do not seem to be clear. Colombiana's auditors qualified their opinion regarding equity investments of Col$68.7 million, or 39% of the total equity investments, in six companies in pre-operation or operating at a loss, of which Tolcemento accounted for almost three quarters. Colombiana's total year-pnd 1971 exposure (investments plus loans and guarantees) in these  APPENDIX A Page 5 companies amounted to Col$210.9 million, of which Col$173.2 million referred to the exposure of Tolcemento. In 1972, however, except for Col$8.7 million, Colombiana was able to sell its equity investment in Tolcemento at par to a competing cement producer. As conditions of the sale the financiera had to convert an additional Col$34.7 million of loans into equity, and to finance the entire purchasing price of Col$75.2 million at concessionary terms. As a result of this transaction 1/ Colombiana's total exposure in Tolcemento has remained unchanged, but the inherent risk of losses in Colombiana's portfolio has been substantially reduced, at the fair cost of an interest subsidy which will affect the financiera's income over the 14-year term of the loan to the purchaser. Of Colombiana's other large exposures in companies in pre-operation or operating at a loss, prospects of Grasas del Litoral and Palmeras de la Costa, both agricultural enterprises, continuing mainly El Labrador's pro- duction lines, remain unclear. So are the prospects of Tennessee Colombia/ Petroleos Nacionales, operating in the risky field of oil exploration. Pro- spects of Pro-hoteles and V. Burrowes Industrias are discussed in para. 15 of Appendix C. Overall, with the sale of shares in Tolcemento, Forjas de Colombia and El Labrador (para. 9) the quality of Colombiana's equity port- folio has improved. Equity write-offs in 1971-72 were insignificant. 16. Reserves and Dividend Policy. Like the other financieras, Colombiana does not have provisions for portfolio losses. However, the 1971 audit report separated for the first time from Colombiana's equity reserves for possible losses of Col$16.3 million 2/, indicating thereby the level of provisions which, in the opinion of Colombiana's Board, would be sufficient to cover possible losses on the realization of loans and investments. Excluding this amount and dividends declared out of 1971 earnings, Colombiana had total reserves and retained earnings of Col$85.0 million, equivalent to 7.6% of total loan and equity portfolio; Colombiana allocated 45.4% of 1972 earnings to reserves. Overall, reserves appear adequate given the present quality of Colombiana's loan and equity portfolio, but as the financiera grows it should continue to strengthen its reserves position. 17. Colombiana's shares are not listed at either of the Colombian stock exchanges. During 1971, Colombiana placed some 200,000 shares with investors under the economic development reserve at 125% of par; reported private trans- actions, however, did not exceed par. This compares with a book value of 160.8% of par at the end of 1971. The low price is a reflection of the financiera's poor dividend record which, in turn, is a result of the need to build up substantive portfolio reserves. Since profitability is expected to 1/ Not reflected in the projections in Annex 7. 2/ Col$8.5 million for doubtful loans and Col$7.8 million for equity investments.  APPENDIX A Page 6 continue to improve, Colombiana should be able to gradually increase its dividends. However, return to investors will probably not become attractive enough for some time to create a significant market for Colombiana shares. Out of 1972 earnings, Colombiana declared a 13.2% dividend, representing a 53.4% pay-out, compared to 12% and 53.6%, and 12% and 59.4%, respectively, in 1971 and 1970. Reflecting a higher level of necessary provisions in 1971, as indicated by the auditors' report, book value of shares increased only marginally from 157.8% to 160.7% of par. Earnings per share rose faster, from Col$2.01 to Col$2.24 and to Col$2.47 in 1972, which, however, is still low compared to Nacional and Valle. 18. Foreign Exchange Risk. In all cases examined by the mission, the financiera had followed its policy of not incurring the foreign exchange risks. 19. Audit of Accounts. Colombiana's accounts are audited annually by Price Waterhouse & Co. whose 1971 report contains a qualification with respect to the realization value of approximately Col$68 million in equity investments (see para. 15). PROSPECTS 20. Business Forecasts. Colombiana's forecasts (Annex 7) of operations for 1972-76 assume rather modest rates of growth. Local currency loan appro- vals, after a drop of 431% in 1972 over the unusually high level of approvals in 1971 (due to Colombiana's very large participation under the last Bank Loan) are projected to grow at an annual rate of 11% from 1973 to 1976. Foreign currency loan approvals, mainly import financing in connection with the last Bank Loan, would increase by 23% in 1972, then level off at an average annual growth rate of 8%. New equity investments would drop from Col$51.7 million in 1971 to Col$34.5 million in 1972, mainly in line with previously made commitments. As no such commitments exist beyond 1972, new equity investments from 1973 through end 1976 are projected very conservatively between Col$4.5-5.0 million annually. Considering the expected continuing strong demand for industrial finance and Colombiana's ample project evaluation capacity, these projections should be easily attainable, if Colombiana can obtain the expected resources for financing of equipment imports. Colombiana's projections also indicate that the financiera intends to further consolidate its portfolio by taking a conservative approach to equity investments. 21. Sources of Funds. The projected increases in resources assume sub- stantial Bank support as well as fresh funds from PIF, IFF and BR. Colombiana also expects to use extensivelv foreign commercial bank lines for export-import financing. Projected commitments of Bank funds are partly based on a pipeline of projects which are either under study by Colombiana or for which definite investment proposals are expected. Projected bond placements seem somewhat conservative. Considering the success of joint bond issues in 1972, Colombiana should well exceed the projected targets throughout 1976. By attracting sub- scriptions mainly from Colombian enterprises, Colombiana expects to increase  APPENDIX A Page 7 its shlare capital by Col$60 million to reach Col$200 million by 1976. This may be difficult to achieve. Overall, however, Colombiana's projections may result to be conservative. Developments in 1972 support this assumption. 22. Financial Prolections. In line with its expected business, Colom- biana's total assets would grow at an annual average rate of about 10%, from Col$1,186.4 million in 1971 to Col$1,954.1 million in 1976, which compares wiith annual growth rates of total assets of 7.6%"' in 1971 and 24.2% in 1970. Since equity investments would expand more slowly than loans--and expected increases in owm equity--from Col$168.3 million in 1971 to Col$222.3 million in 1976, Colombiana's equity portfolio as a proportion of its net worth would decrease from 69.7% in 1971 to 54.6% in 1976. Due to rather substantial capital increases expected in the period 1972-74, Colombiana's indebtedness would remain within its present debt/equity limitation of 5:1, even dropping from 4.3:1 in 1971 to 4.1:1 in 1976. As Colonbiana may not be able to raise the projected additional capital and to provide an incentive for higlher indebted- ness through local resource mobilization beyond its present limitation on leverage, Colorbiana's contractual debt/equity ratio would be relaxed to 6:1. Colombiana's operating experience, the level of its provisions and improvement of the quiality of its portfolio provide an adequate basis for this increase. 23. Reserves and retained earnings (including total annual net income) are expected to increase slightly from 8.6% of total portfolio in 1971 to 10.5% in 197T, which should allow adequate portfolio coverage. Projected liquidity, expected to improve somewhat, would remain sufficient. Throughout the forecast period debt-service coverage is projected to remain adequate. 24. If Colombiana can achieve the expected volume of business and financial margins, its net profit xwould almost double, from Col$31.3 million in 1971 to Col$56.5 million in 1976. Rates of returns on average equity would increase from 13.2% in 1971 to 14.3% ir 1976. Increasing profitability is also reflected in dividends, expected to rise slowly from 12.0% of par in 1