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IFC EMPLOYS SINGLE-ASSET SECURITIZATION MECHANISM FOR FIRST TIME IN ARGENTINA: Supports expansion of privatized natural gas transportation system


Michael Stopford
Phone: (202) 458-4698
Fax: (202) 676-0365
E-mail: MStopford@Worldbank.org


Washington, D.C., August 20 1996 -- The International Finance Corporation (IFC) signed a US$255 million financing agreement with Transportadora de Gas del Norte S.A. (TGN) of Argentina on August 1, 1996, to help finance the improvement and expansion of TGN's natural gas transportation network.

The project will increase the use of low-cost, clean fuel in Argentina by improving the efficiency and capacity of the natural gas network. This will lead to economic and environmental benefits for Argentina because natural gas can satisfy unmet demand, or replace more polluting energy sources.


The financing agreement features a unique mechanism developed by IFC to bring new sources of long-term investment capital -- such as insurance companies -- to emerging market companies. It is the first time an IFC co-financing arrangement for a single company in Argentina has received an investment grade rating from major credit rating agencies.


"Top emerging market companies may achieve an investment grade rating for local currency obligations and yet not achieve as good a rating for foreign currency obligations due to perceived sovereign risk. IFC played a vital role by structuring this transaction to bridge the sovereign risk "gap" and was able to introduce a wider group of investors to long-term lending in Argentina," said Assaad Jabre, Director of IFC's Infrastructure Department. "Further development of natural gas resources is critical to Argentina as natural gas provides an environmentally clean and relatively low-cost source of energy for industry, power generators and consumers."


This funding package has raised US$215 million with a 12-year maturity through a securitization of notes issued by TGN. Such notes are to be sold to special purpose trusts which will finance the purchase through the issue of trust certificates primarily to US insurance companies and other financial institutions. These trust certificates have been rated by Standard and Poor's and Duff and Phelps at BBB- and BBB, respectively. ING Baring (U.S.) Securities Inc. and J.P. Morgan Securities Inc. acted as placement agents for the trust certificates. IFC has committed an additional US$40 million to the funding package, purchasing for its own account both senior and subordinated convertible, 13-year, notes issued directly by TGN.


TGN is one of two natural gas transportation systems created in the 1992 privatization of Gas del Estado, Argentina's former state-owned natural gas transportation and distribution monopoly. TGN's investment program, which has an estimated cost of $402 million, will be completed by the end of 1997. It will expand TGN's capacity by more than a third, from 27.3 million cubic meters per day to 37.3 million cubic meters per day.


IFC is a member of the World Bank Group and is the largest multilateral source of equity and loan financing for private sector projects in developing countries.