Loan structure offers benefits

Joe Wright, Director, Head of Project and Structured Finance, explains what opportunities NIB’s new lending product, A/B loans, offers the Bank’s customers and partners.

What are the most important characteristics of an A/B loan?

“Under an A/B loan structure, NIB is the lender of record for both the A and the B loan, keeping the A loan for its own account and syndicating the B loan amongst commercial banks. The A/B loan product is offered in emerging markets, where NIB enjoys international financial institution status. The loan structure offers several benefits to the borrower and the participating commercial banks. The most important characteristic from NIB’s perspective is that it permits us to offer larger value financings in pursuit of our lending mandate by mobilising commercial bank lending alongside our own.”

What are the customer’s benefits?

“There are three main benefits for the borrower: (i) the A/B loan makes it possible to provide the borrower with a larger value of financing than NIB could provide working alone; (ii) commercial banks are often willing to provide the borrower longer loan maturities under the A/B loan structure than they would otherwise; (iii) through the A/B loan the borrower is often able to diversify its sources of borrowing, for instance, receive loans from banks, including NIB member country banks, that they might not have done business with before.”

How do commercial banks benefit from lending under NIB’s umbrella?

“The commercial banks that participate in the B loan share in NIB’s status as an international financial institution. In particular this means protection from currency convertibility and transfer risks. The commercial banks also take comfort from working alongside NIB given the Bank’s high standards of due diligence and credit risk appraisal.”

NIB started providing A/B loans last year. What was the reason?

“2008 was a year of very high demand for NIB’s loans, and a year when the Bank focused on aligning its lending with the competitiveness and environment mandate. Both of these factors made it important to develop mechanisms to offer larger value financing and mobilise private sector loans alongside our own.

The implementation of the first A/B loan in 2008 also marked the culmination of more than a year’s preparatory work, in which NIB collaborated closely with the International Finance Corporation and the European Bank for Reconstruction and Development to ensure that we offer an A/B loan product of an equally high quality.

The timing was good as it turned out, because the banking crisis and the economic recession have made the A/B loan structure even more relevant. For one thing commercial banks are more concerned about foreign currency transfer and conversion risks, and about using their own capital efficiently, in today’s environment. There has also been fresh interest in looking at ways for IFIs and commercial banks to collaborate, and the A/B loan structure is a well-proven way to do so.”

Is it only a coincidence that both NIB’s first and second A/B loans are provided to Brazilian telecom operators?

“NIB’s first A/B loan transaction was concluded with Oi (Telemar Norte Leste), Brazil in July 2008. This was a USD 100 million A loan plus a USD 150 million B loan, which was underwritten by BNP Paribas and Banco Bilbao Vizcaya Argentaria. And in February 2009, we concluded our second A/B loan transaction—with Embratel.

Phone operators in Brazil are making enormous investments in rolling-out modern networks, making Brazil a key growth market for Nordic equipment makers such as Nokia Siemens Networks and Ericsson. The A/B loan is well suited to this market given the magnitude of the investments required.

NIB’s plan is to roll out its A/B loan product in the three largest non-member countries where we have large private sector lending operations: Brazil, Russia and India. So, we didn’t plan at the outset to target Brazilian telecom operators for the first transactions, but it was consistent with our goals that it worked out that way.”

What is the role of your unit, Project and Structured Finance, in the Bank’s lending operations?

“The project and structured finance team is an expert resource that works with transaction teams to deliver loan financings that involve more complex risks or financial structures. The team plays a key role in risk identification and mitigation, due diligence, loan structuring, and transaction negotiation. The team members work across regions in partnership with the business origination teams. Most of the transactions that we work on are in the energy, infrastructure and environment sectors. We are a team of six bankers and an assistant.”

What is your professional background?

“I am an economist by training, and I have worked on infrastructure project financing for 13 years. Before joining NIB a little over two years ago I worked for the World Bank Group, located in Washington DC and then in Delhi.”

Have you experienced any changes in your life after moving to Finland?

“My wife, Mari, and I had our first child shortly after moving here—life changes don’t get much bigger than that!”