Outside Exchange Liquidity Facilities

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2. Calculated Structure of a Foreign Exchange Liquidity Facility: Basic Assumptions. Venture StructureRevenues are gotten in neighborhood currencyRevenues are contractually dedicated to increment with the host country\'s swelling rateThe undertaking will expeditiously change over all nearby money accessible for obligation administration into US dollars at the then-current trade rateFinancing StructureProject is fund

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Slide 1

Remote Exchange Liquidity Facilities World Economic Forum - Financing for Development Workshop Tuesday, October 26, 2004 São Paulo, Brazil

Slide 2

Conceptual Structure of a Foreign Exchange Liquidity Facility: Basic Assumptions Project Structure Revenues are gotten in nearby money Revenues are legally dedicated to increment with the host nation's expansion rate The venture will immediately change over all neighborhood cash money accessible for obligation benefit into US dollars at the then-current conversion scale Financing Structure Project is financed with US dollar-designated long haul obligation Debt is settled rate or gliding, swapped to settled

Slide 3

Conceptual Structure of a Foreign Exchange Liquidity Facility: Draws and Repayments Coverage depends on buying influence equality, instead of supporting changes in ostensible trade rates The scope sets up a "story" for the incentive in US dollars of the organization's money accessible for obligation benefit Draws might be made when the venture's money accessible for obligation benefit, changed over into US dollars, is underneath the floor esteem and is lacking to pay planned obligation benefit Draws from the liquidity office will offer ascent to claims against the venture, confirm by an advance subordinated just to the venture's senior banks, reimbursed when free income permits Draws are liable to a most extreme office sum; recuperations through the subordinated credit component will be accessible for installment of future cases

Slide 4

Conceptual Structure of the Devaluation Coverage: Currency versus Operational Risk Coverage is organized to separate cash hazard from operational hazard Changes in the genuine swapping scale are measured by esteeming the venture's normal money accessible for obligation benefit in view of real swelling and curren t trade rates, as opposed to the anticipated (PPP) values used to make pre-shutting proformas Value of the venture's money accessible for obligation administration is measured on a for every unit-of-yield premise A proforma estimation is performed to decide the degree to which a money setback is a consequence of vacillations in cash values (which offer ascent to a draw under the liquidity office) versus negative operational outcomes (which don't offer ascent to a draw under the liquidity office) Senior moneylenders are presented to every single operational hazard, similarly as though the liquidity office were not set up

Slide 5

Basic Structure of a Foreign Exchange Liquidity Facility Debt Service Coverage Ratio Value in US$ Line 3 Line 1: 100% 1.50 Amount reimbursed to Liquidity Facility 1.0 Line 2: 67% Debt benefit deficit add up to be paid from Liquidity Facility Time (in years) 0 15 Line 1: Projected an incentive in US$ of trade out nearby money, filed to host nation expansion rate (base case projection) Line 2: Annual obligation benefit prerequisites in US$ (important and premium) Line 3: Actual incentive in US$ of trade out nearby cash, filed to host nation swelling rate

Slide 6

Sizing a Foreign Exchange Liquidity Facility Appropriate size of an outside trade liquidity office relies on: The verifiable instability of the genuine swapping scale of the venture's host nation The venture's obligation benefit scope proportion Exposure made by authentic unpredictability of the genuine conversion standard of the host nation relies on where the floor esteem is built up for an individual exchange (i.e., how far the genuine conversion scale must decay before the venture is qualified to draw from the liquidity office) The obligation benefit scope proportion for a venture can be expanded by: Improving the venture's financial aspects, e.g., by charging more for the venture's yield lessening the measure of obligation in the venture's capital structure Lengthening the tenor of the venture's obligation (which is probably going to happen thus of the utilization of a liquidity office)

Slide 7

Reduction in Exposure as a Project's Debt Service Coverage Ratio Increases Value in US$ Debt Service Coverage Ratio Line 4 1.50 Line 1: 100% 1.0 Line 2: 67% Line 3 Time (in years) 0 15 Line 1: Projected an incentive in US$ of trade out nearby money, recorded to host nation swelling rate (base case projection) Line 2: Annual obligation benefit necessities in US$ (key and premium) Line 3: Actual incentive in US$ of trade out neighborhood cash, filed to host nation swelling rate Line 4: Line 3 moved upward to outline a higher DSCR than that of Line 3

Slide 8

Establishing the Floor Value for a Foreign Exchange Liquidity Facility If the floor esteem were to be set up at a level identical to a 1.0 obligation benefit scope proportion, a little operational issue could bring about the venture to default Liquidity office supplier would decrease its introduction to extend operational hazard, however Fixed-pay speculators and rating offices would put little an incentive on the structure (it would take after a US anticipate with a 1.0 obligation benefit scope proportion) The floor esteem ought to be set up at a level adequate to give a satisfactory edge to deviations of operational execution from the execution levels anticipated at shutting

Slide 9

Structure of a Liquidity Facility with a Floor Value Equivalent to a DSCR of 1.20 Debt Service Coverage Ratio Value in US$ Line 3 Line 1: 100% 1.50 Amount reimbursed to Liquidity Facility 1.20 Line 4: 80% 1.0 Line 2: 67% Potential add up to be paid from Liquidity Facility (installments at this level of genuine conversion scale will be made just if important to pay obligation benefit; i.e. just if the venture is working beneath projections) Debt benefit setback add up to be paid from Liquidity Facility Time (in years) 0 15 Line 1: Projected an incentive in US$ of trade out nearby money, recorded to host nation swelling rate (base case projection) Line 2: Annual obligation benefit prerequisites in US$ (foremost and premium) Line 3: Actual incentive in US$ of trade out neighborhood money, ordered to host nation expansion rate Line 4: A line demonstrating the level of money at which the venture has an obligation benefit scope proportion of 1.20 ("Floor Value")

Slide 10

Status of Liquidity Facilities as a New Financial Product The idea has been effectively executed in one exchange (AES Tietê) in one nation (Brazil): US$300 million issue, 10 year normal life, 15 year last development Rated Baa3 by Moody's, BBB-by Fitch First electric influence extend financing in an underneath speculation review nation to accomplish a venture review rating Longest tenor at any point accomplished by a Brazilian corporate guarantor Priced at a level identical to 237 bp not as much as Brazilian sovereign obligation (versus 150 bps for the 7-year Petrobras exchange which evaluated one week before) However, AES Tietê has been minimized for accordingly of conditions in the Brazilian electric segment and the impact of macroeconomic variables on its capacity to disperse money Further utilization of liquidity offices inside the Brazilian electric area was obstructed by the proportioning which happened in 2001-2002

Slide 11

Status of Liquidity Facilities as a New Financial Product The underlying exchange using an outside trade liquidity office got good press scope and industry grants: Infrastructure Journal : Global Deal of the Year Project Finance : Latin America Deal of the Year Project Finance International : Latin America Deal of the Year Euromoney : Best Structured Bond, Latin America Rating organizations have perceived the upgrade gave by scope Report of the Panel on Financing Global Water Infrastructure (the Camdessus Panel) supported the utilization of remote trade liquidity offices as a methods for encouraging financing for the water division

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