The Asian Development Bank (ADB) is a development finance institution which primaril lends funds and provides technical assistance to developing member countries. Over 95% of ADB's activities are large public sector loans made to government agencies in the developing member countries for large ($60 million average) infrastructure and social projects. Lending for private projects constituted about 4% of ADB's portfolio in 1998. NIS members are Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan. ADB financing includes loans, equity investments, and guarantees. Since the United States is a shareholder and contributor to the Bank, U.S. companies are eligible to take part with NIS partners in ADB-funded projects.

Updated March 1999

INTRODUCTION
ADB-supported private-sector projects must be economically viable, create jobs, and positively affect the borrowing country's economy. Preference is given to projects that assist in removing economic bottlenecks and which transfer technology.

Eligible enterprises should be in the private sector of an ADB developing member country and may be locally or foreign-owned. An enterprise owned jointly by private interests and the government may also be eligible, provided that it satisfies the criteria of operational autonomy and managerial freedom and is run on a commercial basis.

The ADB normally requires sovereign guarantees. However, the ADB will make direct loans to private companies without sovereign guarantees if the project produces essential items or provides vital services.

As a general rule, the ADB does not provide majority funds for private sector projects, and avoids responsibilities associated with ownership except if this becomes necessary to safeguard the Bank's investment. The Bank will try to sell its equity in a company at a fair price as soon as possible, but will consult with major investment partners and give due consideration to their views. The total amount of ADB assistance to a project will not normally exceed 25 percent of the total cost of the project, or $50 million, whichever is lower.

ADB Facilities
Direct financial assistance to private enterprises consists mainly of loans without a government guarantee and underwriting and investment in equity securities. Direct assistance is also provided to privately-owned financial institutions. The ADB has underwritten the initial offerings of several mutual funds. Financial institutions and sponsors of projects involving venture capital, leasing, factoring, investment management, and commercial finance, among others, are eligible for the Bank's direct assistance. In addition to assisting financial intermediaries, the ADB's private sector operations focus on infrastructure projects and industrial, agribusiness, and other projects which have significant demonstrational or economic merit.

Loans
Loans without government guarantees have been made available by the ADB since 1985. Direct financing is largely allocated to capital-intensive infrastructure projects. Credit lines established with financial institutions by the ADB for on-lending are intended mainly for small and medium-sized new ventures as well as for balancing, modernization, replacement, or expansion of existing ventures. The bank has several different loan products, with maturities generally ranging from 8 to 15 years, including a suitable grace period.

* Market Based Lending (MBL): These loans may be more appropriate for borrowers that can pass on the foreign exchange risk to others, such as financial intermediaries. MBL loans allow both financial intermediaries and their sub-borrowers to match the currencies of their cash inflows and outflows. In addition, the market-based lending rate may suit the needs of financial intermediaries that usually use LIBOR (London Interbank Overnight Rate) as the base rate for their foreign currency lending.

* U.S. Dollar Loans: U.S. dollar loans are appropriate for borrowers that earn revenues in U.S. dollars, or in currencies that tend to move with U.S. dollar rates and do not require close linkage to current market interest rates. The variable interest rate of U.S. dollar loans is based on the cost of the Bank's outstanding U.S. dollar borrowings and is relatively stable.

* Multi-currency Loans: Multi-currency loans present borrowers with a significant exchange risk and are difficult to manage because of the nature of the currency composition. Consequently, these loans are appropriate only for borrowers that have the capacity to manage such currency risks. The variable lending rate of these loans is not linked to current market interest rates, but rather is based on the average cost of the Bank's outstanding borrowings undertaken to fund these loans.

Equity Investments
ADB equity investment operations are intended to complement domestic resources, and cofinancing is encouraged. The Bank's equity operations may take the form of investment in the equity of productive enterprises for financing specific projects, or investment in the equity of development finance institutions and other institutions set up to promote industry, mining, agri-business, or allied activities.

Guarantees
ADB guarantees can offer limited support designed to reduce private sector exposure to risk unique to developing countries that the private sector cannot absorb or manage on its own. Guarantees are most appropriate in supporting private funding of infrastructure projects. These projects require considerable funds with extended maturities to match their long payback periods.

The Bank's guarantees can be offered in any currency for commercial debt financing to private entities in ADB developing member countries. The types of guarantee operation are:

* Partial-credit Guarantee: Intended for private sector borrowers with a government counter-guarantee, these are designed to cover the portion of financing that falls due beyond the normal tenure of loans provided by private financiers. This mode is generally used for private sector projects that need long-term funds to be financially viable. A partial credit guarantee typically extends maturities of loans and covers all events of nonpayment for a designated part of the debt service. In that sense, it is an all-inclusive guarantee either of principal or principal and base interest, for those maturities that cannot be obtained from commercial lenders without credit enhancement. This facility will be particularly useful in ADB developing member countries with partially restricted access to international capital markets, but which are considered fundamentally creditworthy and sound by the ADB, for obtaining longer maturities of credit needed to improve project viability.

* Partial-risk Guarantees: Partial-risk guarantees are provided to cover specific risks arising from nonperformance of government contractual obligations that are critical to the viability of projects. Partial risk guarantees can mitigate specific risks that private financiers generally find difficult to absorb or manage. Such guarantees typically cover risks arising from government actions: non-delivery of inputs and/or nonpayment for output by state-owned entities; changes in the agreed upon regulatory framework; and political force majeure. Foreign exchange convertibility risk in projects that do not generate foreign exchange earnings may also be covered. A government counter-guarantee may also be provided to reaffirm the government's acceptance of the obligations backed by the ADB.

ADB Programs in the NIS
Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan are developing member countries of the Asian Development Bank and eligible for ADB programs. Tajikistan became a member in 1998.

To enable the ADB to promptly assess a project for Bank assistance, the sponsor should submit a brief outline which includes a description of the project, financial and managerial background of the sponsors, project cost estimates and foreign exchange requirements, financing plan including amount of ADB financing requested, market prospects and marketing arrangements, and a plan for implementing the project, including the status of government approvals.

CONTACTS
Manager, Private Sector Group
Asian Development Bank
P.O. Box 789
0980 Manila, Philippines
Tel.: 011 63 (2) 632-4444
Fax: 011 63 (2) 636-2346

Sponsors of medium-sized projects and transactions and those seeking underwriting, syndication, and other merchant banking services should contact the ADB-established Asian Finance and Investment Corporation:

Asian Finance & Investment Corporation, Ltd.
31/F Citibank Tower, Citibank Plaza
8741 Paseo de Roxas
1226 Makati City
Metro Manila, Philippines
Tel.: 011 63 (2) 817-3806
Fax: 011 63 (2) 816-3209

For further information about the ADB, contact:

Denny Barnes, Senior Commercial Officer
Commercial Liaison to the ADB
U.S. and Foreign Commercial Service
U.S. Embassy, Manila
APO AP 96440
Tel.: 63 (2) 890-9364 or 895-3020
Fax: 63 (2) 890-9713
E-mail: dbarnes@doc.gov
Home page: http//www.adb.org

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)