Conformed Copy - L2974 PH - Housing Sector Project - Project Agreement 2

Page 1 CONFORMED COPY LOAN NUMBER 2974 PH (Housing Sector Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and NATIONAL HOUSING AUTHORITY Dated September 1, 1988 PROJECT AGREEMENT AGREEMENT, dated September 1, 1988, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and NATIONAL HOUSING AUTHORITY (NHA). WHEREAS (A) by the Loan Agreement of even date herewith between the Republic of the Philippines (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred sixty million dollars ($160,000,000), on the terms and conditions set forth in the Loan Agreement, provided that NHA agrees to undertake such obligations toward the Bank as are set forth in this Agreement; and (B) by the Project Agreement of even date herewith between the Bank and the National Home Mortgage Finance Corporation (NHMFC) (the NHMFC Project Agreement), NHMFC has agreed to undertake such obligations toward the Bank in respect of the Project as are set forth in the NHMFC Project Agreement; and Page 2 WHEREAS NHA, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. NHA declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out Parts B and C 1(a) of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and housing practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for Parts B and C 1(a) of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to the Loan Agreement. Section 2.03. NHA shall carry out 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) in respect of the NHA Project Agreement and Part C 1(a) of the Project. Section 2.04. (a) NHA shall, at the request of the Bank, exchange views with the Bank with regard to progress of the Project, the performance of its obligations under this Agreement and other matters relating to the purposes of the Loan. (b) NHA shall promptly inform the Bank of any condition with respect to itself which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of Loan, or the performance by NHA of its obligations under this Agreement. Section 2.05. NHA shall take all necessary action on a timely basis to carry out the NHA Institutional Action Plan and the NHA Policy Statement. ARTICLE III Management and Operations of NHA Section 3.01. NHA shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, and housing practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. NHA shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and NHA practices. Page 3 Section 3.03. NHA shall take out and maintain with respon- sible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) NHA shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) NHA shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. (a) Except as the Bank and NHA shall otherwise agree, NHA shall earn, for each of its fiscal years after its fiscal year ending on December 31, 1992, a real return on equity, consistent with applicable standards established by the Borrower for government corporations and taking into account NHA's social and economic development mandate, calculated as set out in the NHA Policy Statement after excluding from such calculation operations financed with funds administered for social purposes on behalf of the Borrower. (b) Before June 30 in each of its fiscal years, NHA shall, on the basis of forecasts prepared by NHA and satisfactory to the Bank, review whether it would meet the requirements set forth in paragraph (a) in respect of: (i) the previous fiscal year; (ii) such fiscal year; and (iii) the next following fiscal year and shall furnish to the Bank the results of such review upon its completion. (c) If any such review shows that NHA would not meet the requirements set forth in paragraph (a) for NHA's fiscal years covered by such review, NHA shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its prices) in order to meet such requirements. (d) NHA shall, every six months, furnish to the Bank for review and comment a projection of its financial performance for the following five fiscal years. (e) For purposes of this Section: (i) The annual return on equity shall be calculated by dividing NHA's net operating income for the fiscal year in question by one half of the sum of NHA's equity (capital and retained earnings) at the beginning and at the end of that fiscal year. Page 4 (ii) The term "net operating income" means total operat- ing revenues less total operating expenses. (iii) The term "total operating revenues" means revenues from all sources related to operations. (iv) The term "total operating expenses" means all expenses related to operations, including adminis- tration, adequate maintenance, taxes and payments in lieu of taxes, and provision for depreciation on a straight-line basis at a rate of not less than 4% per annum of the average current gross value of NHA's fixed assets in operation, or other basis acceptable to the Bank, but excluding interest and other charges on debt. Section 4.03. (a) Except as the Bank shall otherwise agree, NHA shall take all such action as necessary to maintain: (i) a debt to equity ratio of no more than 15:1; and (ii) an internal cash generation ratio for each fiscal year at least equal to 1.1 times the projected debt service requirement. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of NHA maturing, partly or fully, by its terms more than one year after the date on which it is originally incurred. (ii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (iii) The term "internal cash generation" means the difference between: (A) the sum of cash inflows from receipts and Loan repayments from all sources related to operations and net non-operating cash inflows (including the beginning cash balance); and (B) the sum of all cash outflows for expenses related to operations including administra- tion, adequate maintenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non cash operating charges and interest and other charges on debt. (iv) The term "net non-operating cash inflows" means the difference between: (A) cash inflows of revenues collected from all sources other than those related to opera- tions; and (B) cash outflows for expenses, including taxes and payments in lieu of taxes, incurred in the generation of the cash inflows referred to in (A) above. (v) The term "debt service requirements" means the aggregate of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. Page 5 (vi) For the purposes of this Section, the projected debt service requirement referred to in Section 4.03 (a)(ii) of this Agreement shall be based on a forecast prepared by NHA every six months which both the Bank and NHA accept as reasonable and as to which the Bank has notified NHA of its accept- ability, provided that no event has occurred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of NHA. (vii) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Bank. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.O2. This Agreement and all obligations of the Bank and of NHA thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify NHA thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. 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 hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For NHA: National Housing Authority Page 6 Quezon Memorial Elliptical Road Diliman, Quezon City Metro Manila, Philippines Telex: 722 22367 PH Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of NHA may be taken or executed by its Chairman or such other person or persons as the Chairman shall designate in writing, and NHA shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ A. Karaosmanoglu Regional Vice President Asia NATIONAL HOUSING AUTHORITY By /s/ Emmanuel Pelaez Authorized Representative