Professional Documents
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Treasury Department
Asian Development Bank
Asian Regional Public Debt Management Forum
Kuala Lumpur, Malaysia
3-5 November, 2009
Agenda
2
Overview: ADB Financial Products
3
LIBOR-based loan (LBL): Main Features for
Sovereign borrowers
••USD Other currencies
USD
••JPY in which ADB
JPY
••Euro can efficiently
Euro
intermediate Fixed
Fixedatatloan
loansigning
signing
Fixed
Fixed •• Annuity
Annuity
Rate
Rate •• Straight-line
Straight-line
SRF
SRF •• Custom-tailored
SRF
SRF Custom-tailored
by
by Currency
Currency •• Bullet
by
by Bullet
Amount
Amount Composition
Composition
Period
Period
Interest
Interestrate
rate
Conversion Amortization Linked to
Conversion Amortization
Schedule actual
Schedule disbursements
Currency
Currency Conversion
Conversion
Conversion
Conversion Options
Options
LBL
LBL
Front-end
Front-end
Fee
Fee
Waiver
Waiver
Local
Local
Currency Cap
Currency Capand
and
Conversion
Conversion Collar
Collar Commitment
Commitment
Charge Waiver
Waiver
Charge
6-month
6-monthLIBOR
LIBOR//
6-month EURIBOR/ Lending Effective
Effective
6-month EURIBOR/ Cost
CostBase
Base Lending
Floating Rate Contractual
Contractual
Floatingrate
rate Rate
Rate Rate
benchmark
benchmarkfor forother
other
Spread
Spread
currencies
currencies
Rebate
Rebateor
or Rebate
Rebateor
or
Surcharge
Surcharge Waiver*
Waiver* Surcharge
Surcharge
4 * Applicable only to sovereign LBLs that carry a lending spread of 0.60% per annum.
LIBOR-based loan (LBL): Loan terms for
Sovereign borrowers
USD, JPY, Euro, and other
LBL Negotiated
Currency currencies in which ADB can
after 1 Oct 2007
efficiently intermediate
Item Project/Program
Normally 5 - 25 years depending on
A. Interest Maturity
Loan Type
Cost Basis
Normally 3 - 5 Years depending on
(Adjusted every 6 months 6-Month Grace Period
Loan Type
on every Interest Payment LIBOR
Date)
Fixed at Loan Signing
Funding - Annuity
Rebate/Surcharge - Straight - line
Cost
(Adjusted every 6 months Amortization - Custom - tailored
Under/Over
as calculated by ADB) - Bullet
LIBOR
Effective Contractual Linked to Actual Disbursements
20
Spread (bps) - Straight - line
B. Front-End Fee (bps) 0 Interest Rate Conversion
C. Commitment Charge (bps) From floating to fixed or vice versa; or
(Applied on full amount 15 establish an interest rate cap or collar
of undisbursed balance) Conversion on floating rate.
Options
Currency Conversion
For all or part of both undisbursed
and disbursed loan amounts.
Example:
Interest period: 15 Oct 2009 ̶ 15 Apr 2010 JPY
6-month LIBOR ( as of 13 Oct 2009) 0.54%
Less: Rebate on funding cost margin -0.35%
Effective contractual spread 0.20%
Net lending rate 0.39%
Comparative Sovereign MDB Loan Charges
(USD) as of 05 August 2009
LIBOR-Based USD Loans
(basis points)
IBRD IADB AfDB EBRD ADB
Fixed Spread
10 years Greater than Greater
Variable or less 10 and up to than 14
Spread 14 years years
Interest Spread:
Contractual Spread 50 50 50 50 95 40 100 20
Risk Premium -- 10 10 15 -- -- --
Funding Cost Margin -33 30 55 75 -4 -16 -- -31
Net Spread over LIBOR (I)
17 90 115 140 91 24 100 -11
Charges:
Commitment Fee -- -- -- -- 25 -- 50 15
Spread Eqv. of
Commitment Fee(II) -- -- -- -- 9 0 17 5
Front-End Fee for IBRD Loans without a Deferred Drawdown Option:
Contractual
Front-End Fee 25 25 25 25 0 0 100 --
Spread Eqv. of
Front-End Fee (III) 3 5 3 2 0 0 10 0
Total Spread-
Equivalent over LIBOR
(I+II+III) 20 95 118 142 100 24 127 -6
7 Source: World Bank Website 05 August 2009
LBL Amortization Schedule Options
Annuity at 10% discount rate * Straight-line Custom-tailored
Installment Installment Installment
Repayment Share Share Share
Date (Expressed in %) Amount (Expressed in %) Amount (Expressed in %) Amount
15 Jun 2015 0.93 465,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Dec 2015 0.97 485,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Jun 2016 1.02 510,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Dec 2016 1.07 535,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Jun 2017 1.13 565,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Dec 2017 1.18 590,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Jun 2018 1.24 620,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Dec 2018 1.31 655,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Jun 2019 1.37 685,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Dec 2019 1.44 720,000.00 2.63 1,315,000.00 1.00 500,000.00
15 Jun 2020 1.51 755,000.00 2.63 1,315,000.00 2.00 1,000,000.00
: : : : : : :
: : : : : : :
: : : : : : :
: : : : : : :
15 Dec 2031 4.65 2,325,000.00 2.63 1,315,000.00 4.00 2,000,000.00
15 Jun 2032 4.88 2,440,000.00 2.63 1,315,000.00 4.00 2,000,000.00
15 Dec 2032 5.12 2,560,000.00 2.63 1,315,000.00 4.00 2,000,000.00
15 Jun 2033 5.38 2,690,000.00 2.63 1,315,000.00 4.00 2,000,000.00
15 Dec 2033 5.66 2,830,000.00 2.63 1,315,000.00 7.00 3,500,000.00
Subtotal 100.00 50,000,000.00 100.00 50,000,000.00 100.00 50,000,000.00
* Any discount rate may be used (before 1 Jan 2007, the discount rate is fixed at 10%).
8 ** Final installment is adjusted.
LBL Amortization Schedule
- Repayment Linked to Disbursement in Tranches
Straight-line Method
Effective Date- 15 Jun 2009- 15 Jun 2011- 15 Dec 2012- 15 Jun 2015-
Due Date % % % % % Total
14 Jun 2009 14 Dec 2009 14 Dec 2011 14 Jun 2013 14 Dec 2015
1 15-Dec-2009 Grace
2 15-Jun-2010 Grace Grace
3 15-Dec-2010 Grace Grace
4 15-Jun-2011 Grace Grace
5 15-Dec-2011 Grace Grace
6 15-Jun-2012 Grace Grace Grace Grace
7 15-Dec-2012 Grace Grace Grace Grace
8 15-Jun-2013 Grace Grace Grace Grace
9 15-Dec-2013 Grace Grace Grace Grace
10 15-Jun-2014 Grace Grace Grace Grace
11 15-Dec-2014 Grace Grace Grace Grace
12 15-Jun-2015 Grace Grace Grace Grace
13 15-Dec-2015 Grace Grace Grace Grace Grace 131,578.95
14 15-Jun-2016 1/38 131,578.95 Grace Grace Grace Grace 394,736.84
15 15-Dec-2016 1/38 131,578.95 1/38 263,157.89 Grace Grace Grace 394,736.84
16 15-Jun-2017 1/38 131,578.95 1/38 263,157.89 Grace Grace Grace 394,736.84
17 15-Dec-2017 1/38 131,578.95 1/38 263,157.89 Grace Grace Grace 394,736.84
18 15-Jun-2018 1/38 131,578.95 1/38 263,158.00 1/38 394,736.84 Grace Grace 789,473.84
: : : : : : : : : : : : :
: : : : : : : : : : : : :
46 15-Dec-2032 1/38 131,578.95 1/38 263,157.89 1/38 394,736.84 1/38 131,578.95 1/38 394,736.84 1,315,789.47
47 15-Jun-2033 1/38 131,578.95 1/38 263,157.89 1/38 394,736.84 1/38 131,578.95 1/38 394,736.84 1,315,789.47
48 15-Dec-2033 1/38 131,578.95 1/38 263,157.89 1/38 394,736.84 1/38 131,578.95 1/38 394,736.84 1,315,789.47
49 15-Jun-2034 1/38 131,578.95 1/38 263,157.89 1/38 394,736.84 1/38 131,578.95 1/38 394,736.84 1,315,789.47
50 15-Dec-2034 1/38 131,578.95 1/38 263,157.89 1/38 394,736.84 1/38 131,578.95 1/38 394,736.84 1,315,789.47
51 15-Jun-2035 1/38 1/38 263,157.07 1/38 394,736.84 1/38 131,578.95 1/38 394,736.84 1,315,789.47
52 15-Dec-2035 1/38 1/38 394,736.84 1/38 131,578.95 1/38 394,736.84 921,052.63
53 15-Jun-2036 1/38 1/38 394,736.84 1/38 131,578.95 1/38 394,736.84 921,052.63
54 15-Dec-2036 1/38 1/38 394,737.84 1/38 131,578.95 1/38 394,736.84 921,052.63
: : : : : : : : : : : : :
62 15-Dec-2040 1/38 1/38 394,736.92 394,736.92
TOTAL 38/38 5,000,000.00 38/38 10,000,000.00 38/38 15,000,000.00 38/38 5,000,000.00 38/38 15,000,000.00 50,000,000.00
9
LIBOR-based loan (LBL): Main Features for
Sovereign borrowers
••USD Other currencies
USD
••JPY in which ADB
JPY
••Euro can efficiently
Euro
intermediate Fixed
Fixedatatloan
loansigning
signing
Fixed
Fixed •• Annuity
Annuity
Rate
Rate •• Straight-line
Straight-line
SRF
SRF •• Custom-tailored
SRF
SRF Custom-tailored
by
by Currency
Currency •• Bullet
by
by Bullet
Amount
Amount Composition
Composition
Period
Period
Interest
Interestrate
rate
Conversion Amortization Linked to
Conversion Amortization
Schedule actual
Schedule disbursements
Currency
Currency Conversion
Conversion
Conversion
Conversion Options
Options
LBL
LBL
Front-end
Front-end
Fee
Fee
Waiver
Waiver
Local
Local
Currency Cap
Currency Capand
and
Conversion
Conversion Collar
Collar Commitment
Commitment
Charge Waiver
Waiver
Charge
6-month
6-monthLIBOR
LIBOR//
6-month EURIBOR/ Lending Effective
Effective
6-month EURIBOR/ Cost
CostBase
Base Lending
Floating Rate Contractual
Contractual
Floatingrate
rate Rate
Rate Rate
benchmark
benchmarkfor forother
other
Spread
Spread
currencies
currencies
Rebate
Rebateor
or Rebate
Rebateor
or
Surcharge
Surcharge Waiver*
Waiver* Surcharge
Surcharge
10 * Applicable only to sovereign LBLs that carry a lending spread of 0.60% per annum.
Risk Management
11
Risk
Management
LBL Risk Management Features
12
Risk
Management
ADB’s Advantages
By using the interest rate and currency conversion and
options embedded in LBL, borrowers enjoy the following
main advantages:
¾ ADB’s AAA Credit Rating ensures that the borrower get favorable
pricing and terms with no additional credit spread/premium
charges.
¾ Since such derivatives features are embedded in the LBL product,
they are considered an integral part of the loan, therefore, no
additional credit approval is required for such request.
¾ ADB’s transparent cost-pass through treatment ensures that the
borrower achieve satisfactory terms and pricing and take full
advantages of ADB’s extensive and sound banking networks.
¾ ADB is not profit-driven but aims to help the borrowers to achieve
their debt management goals using available risk management
features under LBL.
Risk
Management Interest Rate Conversions
With LBL,
Borrowers may change the interest rate basis of their loan at
any time following disbursement
Example:
Interest period: 15 Oct 2009 ̶ 15 Apr 2010 USD
“Fixed” interest Rate based on loan amortization ( as of 3.63%
13 Oct, 2009)
Less: Rebate on funding cost margin -0.31%
Effective contractual spread 0.20%
Net lending rate 3.52%
Risk
Management Currency Conversions
With LBL,
¾ Borrowers may change the denomination of their
original loan to Euro, JPY, USD, GBP, AUD, NZD or any
currency that ADB can successfully intermediate.
¾ Available for:
Un-disbursed and/or disbursed balances
Full or partial maturity
¾ Borrower may also choose to convert the original loan
currency to its local currency provided:
Loan is fully disbursed and outstanding
Currency Swap is available in such local market
Considerations during loan conversion
decision making process
¾ Asset-Liability Management
¾ Target / Benchmark portfolio
¾ Currency and Interest rate composition
¾ Capacity and management of internal
operations (ex: process and procedures, accounting, valuation,
accountability, system, staff)
17
Conversions and local currency financing to date
USD Equivalent
Country CCY # of Trans. (mln) Loan / Project
19
Availability of the LCL Product
• Both public and private sector borrowers are
eligible for the LCL product
• The LCL product is now becoming available
in a number of member countries
2004
• India
2005
• China, People’s Republic of
• Philippines
2006
• Indonesia
2007
• Kazakhstan
Rationale for Introducing the LCL
• ADB will work with the market, the borrower and the
Government to determine the most cost-efficient
funding option
Pricing: Sovereign-guaranteed Loans
* Before rebates/surcharges.
Pricing: Non-Sovereign
guaranteed Loans
25
What product is offered?
26
Benefits for the DMCs
Bypass the minimum credit rating requirement for the
comprehensive access of the debt management products.
Sovereign Credit Ratings Table (as of 9 October 2009 )
Country Long-Term Foreign Country Long-Term Foreign
Currency Rating Currency Rating
P.R. China A+ Viet Nam BB
Malaysia A- Cook Islands BB
Papua New Guinea B+ Indonesia BB-
Fiji B- Philippines BB-
Mongolia BB- Kazakhstan BBB-
Pakistan B- India BBB-
Sri Lanka B Thailand BBB+
Turkmenistan1 B2 Georgia B
Armenia1 Ba2 Azerbaijan1 Ba1
Source: Bloomberg; All ratings by S&P, except where indicated 1by Moody’s:
When to Use ADB Debt Products?
28
Required Actions for using debt
management products
29
Summary
30
Thank You.
31
Appendix
32
LBL Conversion Transaction fees
Currency Conversions
¾ Un-disbursed loan amounts 0.0625%
¾ Disbursed loan amount 0.125%
¾ Local Currency conversion 0.02% p.a.
33
ADB’s Pricing on Debt Management Products
For debt management products on third-party
liabilities, ADB charges:
34
ADB’s Pricing on Debt Management Products
An Example for third-party interest rate swap:
36
USD 7 year Swap FIX Rate :1997-2009
37
Historical Yield Spread : USD 7 year Swap FIX rate
vs USD 6 month LIBOR
38
USD Swap yield curves
39
USD Bond Yield Forecast from Bloomberg
40