MOSCOW/CHEBOXARY, June 07, 2006
– Yesterday, the Chuvash Republic issued a five year RUR 1.0 billion bond
in the Russian capital market with a partial credit guarantee provided
by the International Finance Corporation (IFC) through its Municipal Fund
Department. The Chuvash Republic will use the proceeds of the bond to finance
capital expenditure program for 2006, in particular, investments in water
supply and road construction.
Edward Nassim, IFC’s director for Central & Eastern Europe, said,
“IFC is pleased to support the Chuvash Republic’s effort to improve its
ability to tap the local capital markets for long-term funding needed for
basic infrastructure improvement, essential to making the Republic more
attractive to private investors, developing industry, and improving the
living standards of the population.”
The Chuvash bond is the first sub-national bond in Russia issued with a
guarantee from a third party. The amount of IFC’s guarantee is equivalent
to 23% of the outstanding principal of the bond (RUR230 million) and is
payable to the bondholders in the event that the Chuvash Republic is unable
to pay either interest or principal. As a AAA-rated institution, IFC’s
credit enhancement increased the investment rating of the Chuvash bond
one notch to Ba2 on an international scale by Moody’s and Aa2.ru by Moody’s
Interfax. The coupon on the bond was 7.85%.
Mr. Nicolai Smirnov, Finance Minister of the Chuvash Republic, said “The
Chuvash Republic sees this latest bond issue enhanced by IFC’s partial
credit guarantee as one more example of the region’s innovative solutions
that help ensure the Republic’s continued economic development. The
World Bank Group’s involvement has been instrumental in developing this
This project displays the continued effort of the World Bank Group to provide
assistance to the Russian Federation in supporting the process of decentralization
of fiscal responsibility to regional and local governments. Kristalina
Georgieva, Country Director for the World Bank in the Russian Federation,
said “The Chuvash Republic has an exemplary history of involvement with
the World Bank and we are pleased to be a part of this project.”
The Chuvash Republic, located approximately 650km east of Moscow, has a
population of 1.3 million people and a Gross Regional Product of RUR60.75
billion (US$2.1 billion). Although per capita income is about half
of the Russian average, the Chuvash Republic is regarded as one of the
more progressive and better performing regional governments, having been
one of the first regions to receive funding in 2002 from the World Bank’s
Fiscal Federalism and Regional Fiscal Reform Loan.
Since 2001 the Russian Federation has implemented a series of intergovernmental
fiscal reforms, which resulted in new laws that better defined the distribution
of responsibilities among the Federal, regional and local levels of government.
These reforms have led to the adoption of more uniform rules for
revenue sharing and expenditure responsibilities for the regions and have
created more certainty in budget revenues and expenditures that have contributed
to the growth of a sub-national government bond market in Russia.
International Finance Corporation (www.ifc.org)
is the private sector arm of the World Bank Group and is headquartered
in Washington, D.C. IFC coordinates its activities with the other
institutions of the World Bank Group but is legally and financially independent.
Its 178 member countries provide its share capital and collectively
determine its policies.
The mission of IFC is to promote sustainable private sector investment
in developing and transition countries, helping to reduce poverty and improve
people’s lives. IFC finances private sector investments in the developing
world, mobilizes capital in the international financial markets, helps
clients improve social and environmental sustainability, and provides technical
assistance and advice to governments and businesses. From its founding
in 1956 through FY05, IFC has committed more than $49 billion of its own
funds and arranged $24 billion in syndications for 3,319 companies in 140
developing countries. For more information, visit www.ifc.org.
About the Municipal Fund
In 2003, IFC established a new department, the Municipal Fund, which provides
financing to well-run sub-national entities (local and provincial governments
and public utilities) without requiring sovereign guarantees. This
initiative, carried out in close cooperation with the World Bank, responds
to a growing market demand as many countries have decentralized the provision
of essential infrastructure. For more information, visit www.ifc.org/municipalfund.