IFC, NDB close largest loan syndication in SL

Wednesday, 25 June 2014 00:00 - - {{hitsCtrl.values.hits}}

NDB raises $ 75 m in addition to $ 125 m raised in March 2014
IFC says success of syndication is due to investor confidence in SL
$ 200 m to promote financial inclusion in the country
Loans to be extended to about 50,000 micro and SMEs across the country

By Shabiya Ali Ahlam The International Finance Corporation (IFC) yesterday concluded its largest syndication of $ 200 million to National Development Bank (NDB) by including an addition of $ 75 million to the already-extended $ 125 million. Led by the IFC, the syndication which is expected to give a fresh boost to the nation’s Micro, Small and Medium Enterprises (MSMEs) was initially signed in March this year.

The fundraising exercise has been fully supported by the Central Bank, which is keen to ensure diversification of sources for borrowing as well as lower interest rates and boost lending for SMEs. While the package marked the largest syndication the IFC has facilitated in the country to date, the loan is also the largest borrowing NDB has taken, making it a key transaction for the bank. With the objective of promoting long-term lending, funds will be used to extend finance to about 50,000 customers at “realistic” interest rates and tenures ranging up to eight years with suitable grace periods. The transaction, which included a total of 11 lenders, comprises a loan from IFC’s own account of $ 20 million, a $ 105 million syndicated facility with six international banks, and $ 75 million from leading development financial institutions, namely Deutsche Investitions – und Entwicklungsgesellschaft mbH (DEG), Oesterreichische Entwicklungsbank AG (OeEB), the OPEC Fund for International Development (OFID), the Netherlands Development Finance Company (FMO), and the Swiss Investment Fund for Emerging Markets (SIFEM). Noting that some of the institutions are first-time investors in Sri Lanka, IFC Global Financial Markets Senior Investment Officer Ehsanul Azim said: “It is IFC’s largest syndication package in Sri Lanka to date. The success of this mobilisation and this syndication is really because of investor confidence in the country. This demonstrates the confidence and the strength of NDB’s governance and its business model.” He added that the expectation from this financing is for NDB to be able to extend financing solutions to the MSMEs established across Sri Lanka. “Timely access to finance and making finance more accessible to the MSMEs is the key strategy for IFC and we firmly believe that this is the key catalyst for Sri Lanka’s economic growth. A large part of our portfolio is invested in Sri Lanka and there is significant work done with strong financial institutions like NDB that share our priorities in promoting financial inclusion across Sri Lanka,” expressed Azim at the event that was graced by Central Bank Deputy Governor Ananda Silva and senior officials from both the lending and borrowing institutions. NDB is long-standing client for IFC in Sri Lanka and together they have been working on projects that support the country’s economic growth. The conclusion of the $ 200 million loan is observed to fill well with IFC’s strategic goals in the region, which is to promote inclusive growth and regional integration, according to the IFC Senior Investment officer. Last year IFC extended a loan of $ 24 million to NDB to support the bank’s growth plans, generating employment opportunities and providing access to long-term funding to small businesses. Asserting that it was a unique privilege to be associated with IFC, NDB Chief Executive Officer/Director Rajendra Theagarajah said the bank had benefitted from the immense input, not just in terms of access to affordable funding, but also in terms of technical assistance in a number of areas, such as building a solid risk governance framework within the bank. “In an environment like ours, where we look forward to economic growth and pumping credit growth, for institutions like NDB, we need to have our foundations in place. I think the NDB team, with the support of the likes of IFC, has done a tremendous job in creating and solidifying the foundation in terms of credit risk management and governance infrastructure, which will now be able to take on more appetite to push credit in this fast-growing environment. This (loan syndication) is a tremendous woo for banking in Sri Lanka for bringing these two important development partners and exposing them to the country,” expressed Theagarajah. He added that while the addition of the $ 75 million complementing IFC’s financing package is a validation of NDB’s successful scaling-up of its loan portfolio across the country, the long-term tenor of the syndication will enable the bank to pass on the benefits to its clients. NDB in the first quarter of 2014 had extended loans to the SME sector amounting to Rs. 3 billion and aims to lend Rs. 20 billion by the end of the year, which is an increase of Rs. 5 billion from 2013. With the $ 200 million financing, IFC’s committed portfolio in Sri Lanka is $ 519 million, covering projects across a range of sectors, including infrastructure, tourism, renewable energy, finance, and healthcare. IFC also provides advisory services to promote sustainable growth among small and medium enterprises by facilitating access to finance, and by offering capacity-building and training opportunities.