PROJECT FINANCING OVERSEAS PRIVATE INVESTMENT CORPORATION
| Jurisdiction | United States |
(Feb 1995)
PROJECT FINANCING OVERSEAS PRIVATE INVESTMENT CORPORATION
Overseas Private Investment Corporation
Washington, D.C.
Table of Contents
Introduction
OPIC Programs
Finance
Political Risk Insurance
Pre-Investment Services
OPIC's Approach to Project Finance
Eligibility
Credit Issues
OPIC Financing Documents
The Finance Agreement
Article I, Definitions and Article II, Amount and Terms of the Loan
Article III, Representations and Warranties
Article IV, Conditions Precedent to First Disbursement and Article V, Conditions Precedent to Each Disbursement
Article VI, Affirmative Covenants and Article VII, Negative Covenants
Article VIII, Defaults and Remedies
Article IX, Miscellaneous
Conclusion
Appendix A -- OPIC Program Handbook 15
Appendix B -- Sample Finance Agreement
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Introduction
This paper briefly outlines the mission and programs of the Overseas Private Investment Corporation ("OPIC"), discusses OPIC's approach to project finance, and reviews the basic elements of the documentation typically found in an OPIC finance project, with particular reference to the finance agreement. Copies of OPIC's Program Handbook as well as a sample finance agreement are included as appendices to this paper.
The Overseas Private Investment Corporation, a United States government corporation, grew out of the Marshall Plan programs that were created after World War II to encourage U.S. companies to invest in Europe in order to help with the reconstruction of those devastated economies. By the 1960's the same programs were reoriented towards the developing world with the recognition that encouragement of U.S. private investment was an efficient way to assist economic development throughout the third world. Today, OPIC programs are available in over 140 countries, including not only developing countries in the traditional sense, but also the emerging economies of the former Soviet states, including Central and Eastern Europe as well as the newly independent states of the former Soviet Union.
OPIC encourages U.S. investment in eligible countries by providing credit or otherwise sharing the risks inherent in doing business in unfamiliar environments. Its programs include financing for projects involving U.S. investment in developing countries; insurance against the political risks to which investment capital is exposed in those countries; and services designed to inform U.S. investors about investment opportunities in the developing world.
OPIC Programs
OPIC encourages U.S. businesses to invest in developing countries and emerging market economies through three main programs: project finance, political risk insurance, and pre-investment services.
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Finance
OPIC's finance program provides medium-to-long-term, limited recourse project financing in the form of direct loans and loan guaranties to overseas investment projects with significant U.S. equity participation.
Loan amounts have until recently ranged from $2,000,000 to $10,000,000, and loan guaranties from $10,000,000 to $50,000,000. However, last year OPIC raised the cap on project commitments to $200,000,000, and several financings approved by OPIC's Board of Directors over the last year are in the $100,000,000 to $200,000,000 range.
OPIC's finance program also provides financing for a family of privately managed direct equity investment funds in a number of regions and industrial sectors, in order to create additional sources of private equity capital to new or expanding businesses in those regions and sectors. These include to date two African regional funds, an Asia-Pacific regional fund, a global environmental fund, and country funds in Russia, Poland and Israel. Additional funds are in the works for Russia, Eastern Europe, Latin America and India, among others.
Political Risk Insurance
OPIC also insures against political risks associated with foreign investments by U.S. businesses, covering: (i) losses due to expropriation, nationalization, or confiscation by a foreign government; (ii) losses due to war, revolution, insurrection, or civil strife; and (iii) losses arising from a deterioration in the ability to convert profits, debt service, or other investment remittances from local currency into U.S. dollars.
Equity, parent company and third party debt, loan guaranties, technical assistance agreements, cross-border leases, and most other forms of long-term investment exposure can be insured. Coverage is also available for contractor and exporter risks, such as wrongful calling of bid, performance, or advance payment guaranties or customs bonds, loss of physical assets due to confiscation or political violence, inconvertibility of proceeds from the sale of equipment used on-site, and losses due to unresolved contractual disputes with foreign buyers. The project commitment cap in this program area has also been raised in the last year to $200,000,000, and OPIC's Board of Directors has already approved issuance of insurance for a number of projects at that level.
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Pre-Investment Services
Investor services programs provided by OPIC fill out the picture. Investment missions bring groups of selected U.S. business executives to target countries to meet host government officials, local business leaders, and potential joint venture partners who can play key roles in proposed investment projects. Reverse missions conversely bring groups of foreign government officials and business leaders to the U.S. to meet with their counterparts here.
The missions program is supplemented by seminars and conferences organized by OPIC throughout the U.S. to inform the U.S. business community of investment opportunities in target countries in the developing world.
Around the world, OPIC's finance and insurance product marketing goals are driven by both business development and foreign policy considerations. OPIC's mission is to focus its efforts on countries and regions, and business sectors, that will further the U.S. Government's foreign policy and domestic economic objectives. Our programs are currently available in over 140 countries around the world, including most of the developing countries in Africa, the Middle East, Asia (with the exception of the Peoples' Republic of China and Vietnam), Latin America (though we are still working on Mexico), Central Europe, and the New Independent States of the former Soviet Union. The list of OPIC countries is included in the OPIC Program Manual included as Appendix A, but because the status of particular countries may change from time to time due to legislative or policy reasons, and because not all programs may be available in every country, it is important to check with OPIC for up-to-date information.
OPIC has extensive experience in supporting natural resources projects around the world — we have insured or financed mining projects from Bolivia to Zambia to Papua New Guinea to Russia and Kazakhstan, involving many different minerals (bauxite, copper, gold, silver, lithium carbonate, rutile and others), and we have insured or financed oil and gas projects in Latin America, Africa, Asia and the NIS.
A more complete description of OPIC's programs is included in the OPIC Program Handbook which is attached as Appendix A to this paper.
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OPIC's Approach to Project Finance
OPIC's approach to project finance is similar to many of our counterpart agencies that also finance projects in developing countries around the world — the IFC, the Interamerican Development Bank's IIC, the European Bank for Reconstruction and Development, and the Asian Development Bank, to name just a few, for united credits, and U.S. Export Import Bank and the other national export credit agencies that are now also providing export credits in the form of project finance and are contemplating a growing role in this area.
Like its counterparts, OPIC offers limited recourse project finance. Generally this means that the project sponsor is not required to pledge its general credit, once the project has achieved completion, because OPIC is prepared to rely on the economic, technical, marketing and financial soundness of the project itself, once it achieves a negotiated level of performance following construction. Naturally this entails a detailed analysis of each of those aspects of the project before OPIC will provide financing.
OPIC normally secures its credits by taking a security interest in the project assets, including the underlying project agreements as well as tangible project assets of all kinds. In the case of natural resources projects, where possible this includes an assignment of rights under the concession agreement, although alternative arrangements (such as a pledge of the shares of the company holding the concession) are sometimes necessary because of limitations on the assignability of such agreements themselves. OPIC will consider alternatives to traditional project finance structures where appropriate, including more standard corporate finance structures, where the sponsor is willing to pledge its general credit, and where OPIC is satisfied with the sponsor's credit-worthiness.
OPIC approaches its credit decisions with the same fundamental motivations and attitudes as commercial lenders, except that OPIC is in the business of taking project risks in places and for periods of time that many commercial lenders will not consider. OPIC's finance officers typically come to OPIC from a private sector banking background, and they apply the same types and extent of credit analysis as are commonly used by commercial banks in making credit decisions on a project finance basis.
OPIC can finance up to one half of total project costs for a greenfield project, or up to 75 percent for an expansion project. Loans are generally for terms of 7 to 12...
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