Sovereign Funding / Guarantees

  • Developing countries will need to invest more than $2 trillion a year in infrastructure just to keep pace with projected GDP growth over the next 15 years—yet many of them face challenges in mobilizing the resources to finance this investment, mobilizing credit enhancements and good governance. To close the gap, governments in these countries will need to unlock Private Sector Infrastructure Financing at Scale despite the following facts.
    • International financial markets have changed substantially over the last decade. Reversing their large expansion in the period of 2000-2008, Global Banks have reduced Country Credit Limits and Average Tenor of their loan books, partly driven by new Banking Regulations.
    • On the other hand, improved economic indicators in Emerging Market (“EM”) economies and low yields in Advanced Economies ( "AM" ) have attracted a wider range of investors to emerging financial markets. The total funding pool for EM Bonds stands at about $1 Trillion assets under management (“AuM”), which represents the largest pool of capital available for emerging markets risk.  This is a subset of the larger institutional investor pool made up of Pension Funds, Sovereign Wealth Funds, Asset Managers and the like, estimated at $85 trillion AuM. While the funding pool for EM bonds is significant, many EM Sovereigns and Sub-Sovereigns face major challenges accessing it or achieving desirable terms due to their high risk profile. 
  • For this type of Sovereigns / Sub Sovereigns , SFO Funding™ &  SFO Guarantees and SFO Governance™ provides "CREDIT ENHANCEMENT / CREDIT CAPABILITIES" required to access the market.
SFO Funding To Sovereigns / Sub Sovereigns
  • SFO works with Central Governments ( Sovereigns ) of various countries, State / Province Governments ( Sub-Sovereigns ) within countries and Municipalities ( Sub-Sovereigns ) within States / Provinces of a country to fund projects against Sovereign Guarantees. We fund National / Supranational / Government Projects aimed towards strong development outcomes that support economic growth and improve public services.
  • Types Of Funding 
    • Standalone Sovereign Funding - Where SFO funds either 100% or in proportion of 80% / 20% as mentioned in our Signature Program - SFO - Make Countries Future Ready.
    • Blended Sovereign Funding - Where we work closely with the Ministry of Economics & Finance of respective countries & our Multilateral / Bilateral / Development Finance Partners as listed here
  • Eligibility For Funding - For resources among the Least Developed Countries ( LDC ) / Developing Member Countries (DMCs), eligibility is based on 
    • (i) Gross National Income (GNI) per capita, and 
    • (ii) Creditworthiness for regular Ordinary Capital Resources (OCR) loans or Market Based Resources . 
  • Features / Transactional Services 
    • Initial creation of the securities, including all local regulatory approvals. 
    • Securities will be issued in local currencies in increments (equivalent to approximately $1 Billion US Dollars or as per Sovereign / Sub Sovereign requirements). 
    • Foreign and domestic (local country) potential buying/funding entities. 
    • London Custody and settlement services (with Euroclear / BNY Pershing in London and similar partners worldwide).
    • Transparent CIS/KYC sharing of buying/funding entities for approval, along with a POF leads to issuance / transfer of security to custodial accounts.
    • On purchase, our trustee perfects the security.
SFO Guarantees To Sovereigns / Sub Sovereigns
  • SFO also offers guarantees to enhance financing of sovereign with Sovereign Counter Guarantees. SFO guarantees improve financial terms in Project Financing and Capital Market Instruments and help promote investment.
    • To catalyze capital flows into and within its developing member countries for eligible projects, SFO extends guarantees for eligible projects which enable financing partners to transfer certain risks that they cannot easily absorb or manage on their own to SFO. SFO’s guarantees supportInfrastructure Projects, Financial Institutions, Capital Market Investors and Trade Financiers, and cover a wide variety of Debt Instruments. Guarantees can be provided when SFO has a direct or indirect participation in a project or related sector, through a loan, equity investment or technical assistance.
    • General aspects of SFO Guarantees:
      • Types of Guarantees : Partial Credit Guarantees or Political Risk Guarantees.
        • Partial Credit Guarantees (PCG) which provide lenders and investors with comprehensive credit cover on the portion of the loan or bond guaranteed by SFO; and 
        • Partial Risk Guarantees (PRG) which cover lenders against nonpayment by the borrower caused by Political Risk events
      • Uses of Guarantees : Such Credit Enhancement can be applied to Issues / Loans, Public Bond Issuances, Project Finance(bonds), Asset-Backed Securities, Securities backed by Future Flows, Structured Trade Transactions, Green Bonds with a view of sending a positive signal to the market, supporting target ratings required by investors, and improving tenors.
      • Amounts : Calibrated to optimize impact on the underlying instrument’s rating.
      • Tenor : Maximum guarantee tenor of up to 20-years for policy-based interventions with a maximum weighted average life (WAL) of 12.25 years, and up to 25 years for investment operations with a maximum WAL of 15.25 years.
      • Fees : Pricing neutrality applies between guarantees and loans.
    • Benefits
      • Guarantees have many benefits for SFO and its clients, as well as for debt financiers, particularly commercial banks. The main benefits for SFO and its Developed Member Countries / Developing Member Countries (DMCs) / Least Developed Countries ( LDC ) are:
        • Improved access to finance.
        • Deploy SFO’s risk-taking capacity where it does not have funding capability.
        • Better financing terms and conditions.
        • Enhanced mobilization of resources by enabling debt financiers to get a risk transfer.
        • Lower operational costs.
        • Expand and enhance financial sector in developing countries
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