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IFC Enters Municipal Finance Market in Mexico with Partial Credit Guarantee


Corrie Shanahan
Phone:  (202) 473-258

Fax:        (202) 974-4384

E-mail:  
cshanahan@ifc.org

Adriana Gomez

Phone  (202) 458-5204

Fax:       (202) 974-4384

E-mail:  
agomez@ifc.org


Washington, D.C., February 21, 2003—The International Finance Corporation, the private sector lending arm of the World Bank Group, announced on Thursday that it will enter the municipal finance market for the first time by offering a peso-denominated partial credit guarantee of up to $3 million equivalent to a water conservation project in Tlalnepantla, Mexico.

The partial credit guarantee will be to a private Mexican trust that will issue up to $8.8 million in bonds in the local capital market. The proceeds of the bonds will be used to provide a loan to finance Tlalnepantla Municipal Water Company and the City of Tlalnepantla for the design and construction of a wastewater treatment plant and the implementation of a leak reduction program for the existing water supply network.


“This project is pioneering in several ways,” said Peter Woicke, Executive Vice President of IFC. “Not only is this IFC’s first direct municipal finance deal, but it is helping to create a new asset class in a local currency so that long-term infrastructure projects can be financed by local institutional investors.”


Noting that the partial credit guarantee will allow the project to enhance the bond credit rating from Mx.AA to Mx.AAA without a sovereign guarantee, Woicke said, “This is introducing what we hope will be a promising new model of finance whereby municipalities secure financing entirely through their own revenues rather than being dependent on the federal government, and they can do so in a way that allows mitigation of their foreign exchange risk.”


This will be the first municipal bond offering in Mexico, which is dependent on the full faith and credit of the local municipality; there is no federal guarantee or assignment of federal transfers. The transaction is a pioneering introduction of a new local asset class for the Mexican capital markets and is the World Bank Group’s first direct financing of a municipality. Municipal governments provide the vast majority of infrastructure services, including water, in developing countries, but they have traditionally lacked access to capital markets.


The wastewater treatment plant – the first in Tlalnepantla –  will recycle untreated residential and industrial wastewater for industrial reuse. It will be operated by Organismo Público Descentralizado de Carácter Municipal para la Prestación de Servicios de Agua Potable, Alcantarillado y Saneamiento del Municipio de Tlalnepantla de Baz. Currently, the sewage from residential and industrial sources flows into a drainage canal of the Rio San Javier. The use of the recycled water will also free up potable water to meet the growing drinking water demands for residential and commercial customers. The project will be required to meet IFC’s environmental and social standards.


The Tlalnepantla municipal water supply system relies primarily on Mexico Valley groundwater aquifers, whose levels have been sinking in recent years because of overexploitation.


Dexia Credit Local Agency New York, a subsidiary of Dexia Credit Local, France, will be a co-enhancer of the investment with IFC, providing a letter of credit capped at $5 million equivalent.


The Municipality of Tlalnepantla de Baz, located in the State of Mexico, accounts for 23 percent of the gross domestic product of the state and 2.9 percent of national GDP. It is the most industrialized municipality in Mexico, with manufacturing production exceeding $3.5 billion per year.  It has been a leader in tax collection, financial and fiscal management, achievement of ISO 9001 quality certification, and improvements in the municipal water utility.


The mission of IFC is to promote sustainable private sector investment in developing 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. Since its founding in 1956 through FY02, IFC has committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY02 was $15.1 billion for its own account and $6.5 billion held for participants in loan syndications.