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GuarantCo's New Facility

Unique Public - Private partnership model combines equity from four European Governments, private sector management, and credit enhancement from Barclays Bank Plc and KfW

GuarantCo today announced it signed a facility with Barclays and KfW to expand its support for infrastructure finance in low income countries. The immediate effect will be a doubling of GuarantCo’s capacity to just under $150 million with the prospect of a further increase to US$ 200 million as GuarantCo’s equity is increased later this year. The facility also contains a framework to increase the capacity to US$ 400m by mutual agreement.

GuarantCo is a specialist provider of guarantees for infrastructure projects in least developed, low income and lower middle income countries*. It operates by partnering with local banks and financial institutions to jointly evaluate projects and to share financing risk. Uniquely, GuarantCo operates only in local currencies, thereby helping recycle savings productively in its target countries. It is often overlooked that many poor countries have high savings rates relative to developed countries. These indigenous resources can be used to finance infrastructure, thereby avoiding hard currency debt (which can prove crippling for projects and countries to pay back if their home currencies devalue). A focus on local markets also helps “Crowd in” indigenous financial institutions thereby developing experience and skills which can be used for future projects. This provides benefits in the long run by reducing reliance on international banks and development agencies.

The Chairman of GuarantCo, Irving Kuczynski said “This new facility is a major step forward for GuarantCo and substantially increases the support it can provide for infrastructure in low income countries at a time of contraction in credit markets. We are grateful to Barclays and KfW for demonstrating their support for our operations”

Initial funding for GuarantCo was provided by the governments of the Netherlands – through the Dutch development bank FMO, Sweden, through SIDA, Switzerland, through SECO and the UK, through DFID. This funding provides the core equity and the resources from which to pay any guarantee claims. Following a public tender, Barclays and KfW were selected to provide additional support on commercial terms through a counter-guarantee facility which gives GuarantCo the capacity to guarantee loans and bonds up to four times its equity base. In this way, the original funds provided by the European governments can work four times harder than if GuarantCo had been limited to relying on aid flows alone.

GuarantCo’s focus on infrastructure reflects a widely held belief that lack of infrastructure is a key obstacle to eradicating poverty in poor countries. Not only does deficient infrastructure reduce economic efficiency, at a human level it also affects poor people more directly than the affluent. Where there is inadequate infrastructure the more affluent may be able to pay for their own facilities such as bore holes for clean water or portable generators for electricity but this is not usually an option for the poor. As a result, the children of poor families are trapped in a cycle of disadvantage affecting health, education and employment prospects.

The facility was structured on behalf of GuarantCo by Frontier Markets Fund Managers (FMFM) who commenced providing management services to GuarantCo in December 2006. GuarantCo became fully operational one year later and demand for its services has been increasing steadily. While the major focus remains on Africa, there have also been recent successes providing guarantees outside Africa such as in India and the Palestinian West Bank. Chris Vermont, Head of Debt Capital Markets at FMFM said “This unique facility is a crucial milestone in GuarantCo’s development - essentially allowing us to borrow the strong credit ratings of Barclays and KfW while we build the portfolio ahead of an independent rating in a few years time.”

Usman Ahmed, Head of Barclays Commercial Banking, Emerging Markets commented “Barclays has a strong presence in many of the countries which GuarantCo targets and we are very pleased to have signed this agreement. With Barclays long track record and commitment to our Emerging Markets activities, we look forward to continuing our support of GuarantCo’s activities, directly through this facility and indirectly through providing ancillary business support to projects within our Emerging Market coverage”

Dr. Claudia Radeke, First Vice President of KfW, stated “We are delighted to have concluded this ground-breaking facility which is a very innovative example of public-private partnership. It makes local currency funding available for vital infrastructure investments even in fragile and risky countries; thereby contributing to international development objectives such as poverty reduction and good governance.”

GuarantCo’s existing guarantee portfolio is currently being transferred to the facility which is expected to be operational for new guarantees shortly. GuarantCo was represented during documentation of the facility by Norton Rose and Uteem Chambers while KfW and Barclays were represented by Clifford Chance and Benoit Chambers. The interests of the four European governments were represented by CA Legal.

* “Least developed”, “other low income” and “lower middle income” countries are OECD designations based on per capita income. GuarantCo’s primary focus is on least developed and other low income countries where annual per capita income was less than US$ 825 in 2004.

For further information, please contact:
Chris Vermont, Head of Debt Capital Markets, FMFM
Tel: + 44 207 815 2950
Email: chris.vermont@frontiermarketsfm.com

About GuarantCo

GuarantCo guarantees local currency loans and bonds for the private, municipal and parastatal infrastructure sectors in low income countries. It operates under the Private Infrastructure Development Group, a coalition of donors mobilising private sector investment to assist developing countries to provide infrastructure vital to boost their economic development and combat poverty. (see www.pidg.org).
Recent projects supported include Wataniya Palestine, a new mobile phone operator on the West Bank of Palestine which signed financing agreements in January 2009. GuarantCo’s role was to partially guarantee US$ 25m in loans by two local Palestinian Banks. The arrival of Wataniya will provide state of the art voice and data communications, greatly improving the lives and economic prospects of Palestinians. Another project being supported by GuarantCo is Calcom Cement in Assam, North East India, which laid its foundation stone in February 2009 at a ceremony attended by 20,000 people. Calcom Cement represents the largest single private sector investment in North East India and will help meet growing demand for roads, hydro power and other much needed infrastructure projects.
Please visit www.GuarantCo.com

About FMFM

Frontier Markets Fund Managers (“FMFM”) is a division of Standard Bank that specialises in project evaluation and other management services for infrastructure funds in frontier markets. Its operations are ring-fenced from the main banking activities of Standard Bank. FMFM currently provides services to two funds belonging to the Private Infrastructure Development Group, GuarantCo and Emerging Africa Infrastructure Fund (“EAIF”). EAIF is a US$ 509 million fund lending to projects in sub Saharan Africa and has been operating since 2002.

About Barclays Bank PLC

Barclays is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the USA, Africa and Asia.
With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 155,000 people.
Barclays moves, lends, invests and protects money for over 48 million customers and clients worldwide.
For further information about Barclays, please visit http://www.barclays.com.

About KfW

As a promotional bank under the ownership of the Federal Republic of Germany and the German Länder (federal states) and with its ratings of AAA/Aaa by the rating agencies Moody’s, Standard & Poor’s and Fitch Ratings, it offers support to encourage sustainable improvement in economic, social, ecological living and business conditions, among others in the areas of small and medium-sized enterprise, entrepreneurship, environmental protection, housing, infrastructure, education finance, project and export finance, and development cooperation.
As part of German development cooperation, KfW Entwicklungsbank finances investments and accompanying consulting services in developing countries. It carries out its work on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). KfW Entwicklungsbank is committed to the primary goal of German development cooperation, namely to sustainably improve the economic and social conditions of the people in developing countries. Through its Financial Cooperation it contributes to reducing poverty, protecting natural resources and securing peace worldwide.
For further information about KfW and KfW Entwicklungsbank, please visit http://www.kfw.de.

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