Sri Lanka - Fourth Development Finance Corporation Project : Credit 0742 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 742 CE Project Agreement (Fourth Development Finance Corporation Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and DEVELOPMENT FINANCE CORPORATION OF CEYLON Dated September 30, 1977 CREDIT NO. 742 CE PROJECT AGREEMENT AGREEMENT, dated September 30, 1977, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and DEVELOPMENT FINANCE CORPORATION OF CEYLON (hereinafter called DFCC). WHEREAS by the Development Credit Agreement of even date herewith between the Republic of Sri Lanka (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower, for on lending to DFCC, an amount in various currencies equivalent to eight million dollars ($8,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that DFCC agrees to undertake such obligations toward the Association as hereinafter set forth; and WHEREAS DFCC, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project; Management and Operations of DFCC Section 2.01. DFCC shall carry out the Project described in Schedule 1 to the Development Credit Agreement and conduct its operations and affairs with due diligence and efficiency and in conformity with appropriate economic, financial and investment standards and practices, with qualified management, and in accordance with the DFCC Act and the Statement of Policy. -2- Section 2.02. (a) In accordance with, and subject to, the provisions of the Development CredJt Agreement, DFCC shall submit Investment Projects to the Association for financing out of the proceeds of the Credit. (b) When submitting a Sub-Loan (other than a free-limit sub-loan) or an Investment to the Association for approval, DFCC shall furnish to the Association an application, in form satisfactory to the Association, together with a description of the Investment Enterprise and an appraisal of the Investment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Credit relent to DFCC under the Subsidiary Loan Agreement) and the proposed terms and conditions of the Sub-Loan or Investment, including the schedule of amortization of the Sub-Loan or of repayment to the Borrower of the amount to be used for the Investment, and such other information as the Association shall reasonably request. (c) Each request by DFCC for authorization to m.4ke with- drawals from the Credit Account in respect of a free-limit sub-loan shall contain a summary description of the Investment Enterprise and the Investment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Credit relent to DFCC under the Subsidary Loan Agreement) and the terms and conditions of such free-limit sub-loan, including the schedule of amortization therefor. (d) The amortization schedule applicable to each Investment Project shall provide for an appropriate period of grace, and, unless the Association and DFCC shall otherwise agree, shall not extend beyond fifteen years from the date of approval by the Association of such Investment Project, or of authorization by the Association to make withdrawals from the Credit Account in respect of such Investment Project, and shall provide for approximately equal semi-annual, or more frequent, aggregate payments of principal and interest or approximately equal semi-annual or more frequent payments of principal. (e) Except as the Association and DFCC shall otherwise agree, DFCC shall submit applications pursuant to the provi- sions of paragraphs (b) and (c) of this Section on or before December 31, 1979. Section 2.03. DFCC undertakes that, unless the Association shall have otherwise agreed or shall otherwise agree, any Sub-Loan -3- or Investment will be made on terms whereby DFCC shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Association and DFCC, including, in the case of any such Sub-Loan and to the extent that it shall be appropriate in the case of any Investment, the right of DFCC to: (i) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to main- tain adequate records; (ii) require that (1) the goods and services to be financed out of the proceeds of the sub-loans shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them and (2) such goods and services shall be used exclusively in the carrying out of the Investment Project; (iii) inspect, by itself or jointly with representatives of the Association if the Association shall so request, such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (iv) require that: (1) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (2) without any limitation upon the foregoing, such insurance shall cover marine, transit and other hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Credit to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (v) obtain all such information as the Association or DFCC shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise; and (vi) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Sub-Loan or Investment upon failure by such Investment Enterprise to perform its obligations under its contract with DFCC. Section 2.04. DFCC shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Association and DFCC, (ii) comply with its obligations under this Agreement and the Subsidiary Loan Agreement, and (iii) achieve the purposes of the Project. -4- Section 2.05. DFCC shall submit to the Association for its prior approval, any substantial changes proposed to be made by DFCC in respect of the repayment provisions of any Sub-Loan. Section 2.06. DFCC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, DFCC shall not take or concur in any action which wou.ild have the effect of assigning, or amending, abrogating or waiving any provision of, the Subsidiary Loan Agreement. Section 2.07. Except as the Association and DFCC shall otherwise agree, DFCC: (i) shall not sell, lease, transfer, encumber or otherwise dispose of any of its property or assets, except in the ordinary course of business and (ii) shall take all action necessary to maintain its corporate existence and right to carry on operations and to acquire, maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of its business. Section 2.08. If DFCC establishes or acquires any Subsidiary, DFCC shall cause such Subsidiary to observe and perform the obli- gations of DFCC hereunder to the extent to which such obligations shall or can be applicable thereto, as though such obligations were binding upon such Subsidiary. Section 2.09. DFCC shall duly perform all its obligations under agreements under which funds have been lent or otherwise put at the disposal of DFCC by the Borrower or its agencies or others for relending, investment or management. DFCC shall promptly inform the Association of any action which would have the effect of assigning, or of amending, abrogating or waiving any material provision of, any such agreement. Section 2.10. DFCC shall establish a scheme for lending to SSIs in accordance with Schedule 1 to this Agreement, as such Schedule may be amended from time to time. Section 2.11. DFCC shall charge an interest rate of at least thirteen per cent (13%) per annum on all its Sub-Loans except those made through intermediaries. ARTICLE III Financial Covenants Section 3.01. DFCC shall maintain records adequate to record the progress of the Project and of each Investment Project -5- (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of DFCC. Section 3.02. DFCC shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited in accordance with sound auditing principles consistently applied, by inde- pendent auditors acceptable to the Association; (ii) furnish to the Association, as soon as available but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information con- cerning the accounts and financial statements of DFCC and the audit thereof as the Association shall from time to time reason- ably request. Section 3.03. Except as the Association shall otherwise agree, DFCC shall: (i) conduct its operations and affairs in such manner as shall be necessary to maintain, at all times, its debt/equity ratio within the limit provided in Section 3.05 of this Agreement; and (ii) if such ratio shall, for reasons beyond the DFCC's control, be exceeded, promptly take all such reasonable action as shall be necessary or advisable to bring such ratio within such limit. Section 3.04. DFCC shall not make any repayment in advance of maturity in respect of any outstanding debt of DFCC which, in the judgment of the Association, would materially affect the DFCC's ability to meet its financial obligations. Section 3.05. Except as shall be otherwise agreed between the Association and DFCC, DFCC shall not incur or permit any Subsidiary to incur any debt if, after the intcurring of such debt, the consolidated debt of DFCC and all its Subsidiaries then incurred and outstanding would be greater than seven times the consolidated capital and surplus of DFCC and all its Subsidiaries. For the purposes of this Section: (a) "debt" means any debt incurred by DFCC or any Subsidiary maturing more than one year after the date on which it is originally incurred. -6- (b) The term incurring of debt includes the assumption and guarantee of debt and any renewal, extension, or modification of the terms of the debt or of the assumption or guarantee thereof. (c) Debt shall be deemed to be incurred: (i) under a loan contract or agreement (including the Subsidiary Loan Agreement) on the date and to the extent the amount of the loan is drawn down and outstanding pursuant to such loan or agreement, and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (d) Whenever in connection with this Section it shall be necessary to value in terms of Rupees debt payable in foreign currency, such valuation shall be made at the prevailing official rate of exchange at which such foreign currency is, at the time of such valuation, obtainable by the DFCC for the purposes of servicing such debt. (e) "consolidated debt o, DFCC and all its Subsidiaries" means the total amount of debt of DFCC and Subsidiaries, excluding any debt owed by DFCC to any Subsidiary or by any Subsidiary to DFCC or to any other Subsidiary. (f) "consolidated capital and surplus of DFCC and Subsid- iaries" means the aggregate of the unimpaired paid-up capital, surplus and free reserves of DFCC and Subsidiaries after excluding therefrom such amounts as shall represent equity interests of DFCC in any Subsidiary or of any Subsidiary in DFCC or any other Subsidiary. Section 3.06. DFCC shall take such steps satisfactory to the Association as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the various currencies (including Rupees) used in its lending and borrowing operations. Section 3.07. The Association and DFCC shall from time to time, at the request of either party, exchange views through their representatives with regard to the administration, operations and financial condition of DFCC and its Subsidiaries, and DFCC shall furnish to the Association all such information as the Association shall reasonably request concerning the expenditure of the pro- ceeds of the Credit relent to DFCC under the Subsidiary Loan Agreement, the Investment Enterprises, the Investment Projects, the Sub-Loans and Investments, the administration, operations and -7- financial condition of DFCC and Subsidiaries, and the progress of the Project. Section 3.08. DFCC shall enable the Association's representa- tives to inspect the records referred to in Section 3.01 of this Agreement and any relevant documents. ARTICLE IV Effective Date; Termination; Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 4.02. (a) This Agreement and all obligations of the Association and of DFCC thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) a date eighteen years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify DFCC of this event. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. ARTICLE V Miscellaneous Provisions Section 5.01. No delay in exercising, or omission to exer- cise, any right, power or remedy accruing to either party under this Agreement upon any default shall impair any such right, power or remedy or be construed to be a waiver thereof or an acquiescence in such default; nor shall the action of such party in respect of any default, or any acquiescence in any default, affect or impair any right, power or remedy of such party in respect of any other or subsequent default. -8- Section 5.02. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address herein- after specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For DFCC: Development Finance Corporation of Ceylon P.O. Box 1397 Colombo, Sri Lanka Cable address: DELCEY Colombo Section 5.03. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of DFCC may be taken or executed by the General Manager of DFCC or such other person or persons as said General Manager shall designate in writing. Section 5.04. DFCC shall furnish to the Association suffi- cient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of DFCC, take any action or execute any documents required or permitted to be taken or executed by DFCC pursuant to any of the provisions of this Agreement. -9- Section 5.05. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By Is/ Ernest Stern Regional Vice President South Asia DEVELOPMENT FINANCE CORPORATION OF CEYLON By /s/ W. Tennekoon Authorized Representative - 10 - SCHEDULE 1 Scheme for Lending to SSIs 1* DFCC will participate in a scheme for the financing of SSIs, together with the Industrial Development Board (IDB), the People's Bank and the Bank of Ceylon, Applications under the scheme will be received and processed by IDB and one or the other of the two banks. ApplicatLns for foreign exchange finance will be submitted to DFCC, which will normally undertake a desk review of the appraisal prepared by the other institutions. DFCC will adopt a simplified appraisal standard under this scheme, and applications will be approved by DFCC's General Manager. Follow-up work will be primarily the responsibility of IDB. 2. The upper limit for finance under the scheme is Rs400,000, of which a maximum of Rsl50,000 (at the official rate of exchange) would be in foreign currency. The foreign exchange interest rate to the SSI borrower will be 13%, of which 3% will represent the spread for the bank p,rticipating in the individual loan. The participating bank will guarantee DFCC's loan against default.