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IFC Provides Partial Credit Guarantee to Buffalo City Municipality in South Africa


In Johannesburg
Elizabeth Pretorius
Phone: +(27) 11 731 31 55
E-mail: epretorius@ifc.org


Johannesburg, February 22, 2006 — The International Finance Corporation, the private sector arm of the World Bank Group, signed an agreement to provide a partial credit guarantee to Buffalo City Municipality for the equivalent of up to US$6.8 million. The guarantee will replace the existing security for a series of loans with a total outstanding amount equivalent to $47 million and will free up resources for immediate use by the city for essential infrastructure investments.

This transaction was arranged through the Municipal Fund, a joint IFC-World Bank initiative. IFC’s guarantee will replace zero-coupon bonds with a market value of approximately $7.8 million as the security for four loans by the Development Bank of Southern Africa (DBSA) to Buffalo City.  

Vincent Gouarne, head of the Municipal Fund, said, "This transaction will help improve service delivery in Buffalo City. It is innovative in that it will help move the market toward instruments that rely more on the underlying credit quality.”

The proceeds from the sale of the zero-coupon bonds will be used to support investments in water and wastewater, electricity, and roads.  The Buffalo City mayor, Sindisile Maclean, observed, “The IFC interaction with Buffalo City demonstrates for us a major show of confidence in an emerging city through innovative financing, enabling us to face the many challenges of developing municipalities.

I would like to encourage more innovative ways of helping us become one of the leading secondary cities in Africa.”

Buffalo City, a municipality of 880,000 people, is located in the Eastern Cape Province of South Africa and was established during the demarcation process of 2001 by amalgamation of several areas.

Richard Ranken, IFC’s director for Sub-Saharan Africa, said, “Following its first municipal transaction with the City of Johannesburg, IFC has demonstrated its broad commitment to the subnational sector in South Africa by also working with the next tier of municipalities and helping them increased their use of market-based resources for financing investment needs.”

Luther Mashaba, DBSA’s executive manager for South Africa operations, noted that “the DBSA’s long-standing relationship and partnership with Buffalo City is rooted in the many years of DBSA’s financial support and technical assistance to this municipality. During the difficult periods in which the municipal market was less attractive to private sector, very few financial instruments were readily available to service that market.  The DBSA is pleased that IFC has made available these guarantees to mitigate risks for local government clients and to assist them in accessing loan funding.  The DBSA is also excited by the fact that it can release these securities so that Buffalo City is able to respond to its community needs without having to take up additional loan funding for the capital program.”

 
About the Municipal Fund
The Municipal Fund is an initiative of the World Bank Group’s International Finance Corporation.  It provides subnational clients – states, municipalities, and municipally controlled institutions – with direct financing and access to capital markets, without relying on sovereign guarantees. For more information, visit http://www.ifc.org/municipalfund.

About IFC
The International Finance Corporation 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. IFC’s worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.

The IFC: celebrating 50 years in 2006 as a proud member of the World Bank Group
For more information, visit www.ifc.org