After signing their first syndicated loan agreement for $30m, FIMBank have achieved another important milestone in the local banking sector through the signing of a subordinated convertible loan agreement with International Finance Corporation (IFC), a member organisation of the World Bank Group headquartered in Washington.
In a company announcement, the bank said that in terms of the mandate letter signed between both parties on 7 April, IFC was authorised to perform services for the appraisal of a proposed project. This consists of an IFC investment in the company by way of a subordinated long-term convertible loan of up to $10m and participation by the company in IFC's global trade finance facility for up to $5m.
The IFC investment was contingent on several conditions including the necessity of Malta becoming a member of IFC, a strict compliance process and financial plan that would meet IFC's financial criteria and other negotiation procedures. All these criteria have now been met and the necessary regulatory approvals from the competent authority in terms of Maltese law have also been received.
Speaking to The Malta Business Weekly, FIMBank executive vice-president and chief financial officer, Marcel Cassar, said the IFC investment consists of a subordinated convertible loan of $10m which, in terms of the relevant Banking Directives and regulations, qualifies as Tier II Capital for FIMBank.
‘This loan will be utilised to finance the expansion of the Group's operations through the establishment of specialised trade finance institutions in IFC member countries. These include China, Argentina, Brazil, Russia and the UAE.
‘The World Bank Group is not new to FIMBank and its management. Both FIMBank and IFC are shareholders in Global Trade Finance Private Limited, the Mumbai-based financial institution in which FIMBank took a 38.5 per cent stake in December 2004, and are joint-venture partners in a factoring project taking shape in Egypt with local partner Commercial International Bank,’ added Mr Cassar.
With regards to the possibility of an increase in IFC investments in future and what the criteria for such investment would be, Mr Cassar said that last week's announcement also made reference to another financing facility which IFC and FIMBank were working on, namely the bank's participation in IFC's global trade finance programme for an amount of $5m.
‘This facility consists of IFC guaranteeing the payment risk of letters of credit issued by smaller local banks to their client companies, which letters of credit are then confirmed by FIMBank. This programme brings together networks of local issuing banks in emerging markets with confirming banks in the developed world, such as FIMBank,’ said Mr Cassar.
With the latest high profile agreement another ‘first’ for Malta, how does the bank expect to be viewed in the international trade finance scene?
‘An investment by IFC clearly adds reputation and visibility to FIMBank, not least if one were to consider that FIMBank has passed the investment tests and due diligence criteria of the World Bank Group. This is an investment for the longer term, as suggested by the programmed network of joint-venture companies and the fact that the loan is also convertible into equity,’ explained Mr Cassar.
There are benefits for Malta too.
Quoting from the IFC's announcement: ‘Malta provides a link between Europe and the emerging markets on or near the Mediterranean. Maltese companies are particularly helping catalyse private sector development in the Middle East and North Africa. IFC is an active player in this region with commitments of $236m. This makes the corporation a natural cooperation partner for Malta's foreign direct investors, especially in the financial and tourism sectors. Maltese institutions can also benefit from IFC's newly established Global Trade Finance Programme, which supports trade with emerging markets worldwide.’
As to the expected timeframes for a network of specialised trade finance institutions to be set up in various countries, Mr Cassar said the setting of an exact time-table for developing the network of trade finance institutions depended on a number of factors, not least the identification of, and agreement with, suitable local partners, taking note of their own agenda and of course market conditions.
‘Management's short-term focus is presently on Egypt, Argentina and Dubai, with the others following in the next two to three years.’