IFC Financials, Projects, and Portfolio 2010
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IFC Financials, Projects, and Portfolio 2010 TABLE OF CONTENTS 2 Management’s Discussion and Analysis 2 Overview 3 Financial Summary 6 Client Services 12 Treasury Services 15 Enterprise Risk Management 22 Critical Accounting Policies 24 Results of Operations 31 Governance 33 Consolidated Financial Statements and Internal Control Reports 33 Management’s report regarding effectiveness of internal control over external fi nancial reporting 35 Independent Auditors’ report on management’s assertion regarding effectiveness of internal control over external fi nancial reporting 37 Consolidated balance sheets 38 Consolidated income statements 39 Consolidated statements of comprehensive income 40 Consolidated statements of changes in capital 41 Consolidated statements of cash fl ows 43 Consolidated statement of capital stock and voting power 44 Notes to consolidated fi nancial statements 88 Independent Auditors’ Report 89 Project Commitments 90 Europe & Central Asia 94 East Asia and the Pacifi c 96 Latin America and the Caribbean 102 Middle East and North Africa 104 South Asia 106 Sub-Saharan Africa 112 Global 114 Investment Portfolio 114 Statement of Cumulative Gross Commitments 118 Company Listing also plays a catalytic role in mobilizing additional funding from other investors and lenders, either through cofi nancing or through Management’s loan participations, underwritings, and guarantees. In addition to project fi nance, corporate lending and resource mobilization, IFC offers an array of fi nancial products and advisory services to pri- Discussion vate businesses in the developing world with a view to fulfi lling its developmental mission. It also advises member governments on how to create an environment hospitable to the growth of private enterprise and foreign investment. Unlike most other multilateral and Analysis institutions, IFC does not accept host government guarantees of its exposures. IFC raises virtually all of the funds for its lending activities through the issuance of debt obligations in the inter- national capital markets, while maintaining a small borrowing window with IBRD. Equity investments are funded from net worth. During the year ended June 30, 2010 (FY10), IFC had an authorized borrowing program of up to $9.5 billion, and up to $2.0 billion to I. Overview allow for possible prefunding during FY10 of the funding program for the year ending June 30, 2011 (FY11). IFC’s capital base and its assets and liabilities, other than its International Finance Corporation (IFC or the Corporation) is equity investments, are primarily denominated in US dollars. IFC an international organization, established in 1956, to further seeks to minimize foreign exchange and interest rate risks by economic growth in its developing member countries by pro- closely matching the currency and rate bases of its liabilities in moting private sector development. IFC is a member of the various currencies with assets having the same characteristics. World Bank Group, which also comprises the International Bank IFC manages any non-equity investment related residual currency for Reconstruction and Development (IBRD), the International and interest rate risks by utilizing currency and interest rate swaps Development Association (IDA), the Multilateral Investment and other derivative instruments. Guarantee Agency (MIGA), and the International Centre for The Management Discussion and Analysis contains forward Settlement of Investment Disputes (ICSID). It is a legal entity looking statements which may be identifi ed by such terms as separate and distinct from IBRD, IDA, MIGA, and ICSID, with its “anticipates,” “believes,” “expects,” “intends,” “plans” or words own Articles of Agreement, share capital, fi nancial structure, man- of similar meaning. Such statements involve a number of assump- agement, and staff. Membership in IFC is open only to member tions and estimates that are based on current expectations, countries of IBRD. As of June 30, 2010, IFC’s entire share capital which are subject to risks and uncertainties beyond IFC’s control. was held by 182 member countries. Consequently, actual future results could differ materially from IFC’s principal investment products are loans and equity invest- those currently anticipated. ments, with smaller debt securities and guarantee portfolios. IFC p2 MANAGEMENT’S DISCUSSION AND ANALYSIS A significant part of IFC’s liquid assets trading portfolio is II. Financial Summary invested in fi xed income securities, including asset-backed securi- ties (ABS) and mortgage-backed securities (MBS) which are also subject to external market factors that signifi cantly affect the value of such securities, adding variability to income. BASIS OF PREPARATION OF IFC’S Net income also includes net gains and losses on non-trading CONSOLIDATED FINANCIAL STATEMENTS fi nancial instruments accounted for at fair value and grants to IDA. IFC reported income before net losses on non-trading fi nan- The accounting and reporting policies of IFC conform to account- cial instruments and grants to IDA of $2,285 million in FY10, as ing principles generally accepted in the United States (US GAAP). compared to a loss of $153 million in the year ended June 30, Up to and including the year ended June 30, 1999, IFC prepared 2009 (FY09) and income of $1,938 million in the year ended one set of fi nancial statements and footnotes, complying with June 30, 2008 (FY08). both US GAAP and International Financial Reporting Standards The signifi cant improvement in income before net losses on (IFRS). However, principally due to material differences between other non-trading fi nancial instruments and grants to IDA in FY10 US Financial Accounting Standards Board’s (FASB) Accounting when compared to FY09 was principally as a result of a generally Standards Codifi cation (ASC) Topic 815,Derivatives and Hedg- improved operating environment for IFC’s investment and liquid ing (Topic 815) (formerly FASB Statement of Financial Accounting asset portfolios in FY10 as compared with that experienced in Standards No. 133, Accounting for Derivative Instruments and FY09. This improved fi nancial performance in FY10 when com- Hedging Activities), and its counterpart in IFRS, IAS No. 39, pared to FY09 resulted from: (i) lower impairment write-downs on Financial Instruments Recognition and Measurement, it has not equity investments; (ii) higher realized capital gains on equity sales been possible for IFC to satisfy the requirements of both US GAAP and unrealized gains on equity investments accounted for at fair and IFRS via one set of fi nancial statements since the year ended value in net income; (iii) lower provisions for losses on loans and June 30, 2000. guarantees; (iv) higher income from liquid asset trading activities; IFC is actively monitoring developments related to accounting and (v) lower charges on borrowings. standards and the primary basis for preparation of its consoli- IFC reported net losses on non-trading fi nancial instruments of dated fi nancial statements, all with a view to the necessary systems $339 million in FY10 as compared with a net gain of $452 million and controls to manage its various lines of business. IFC will pres- in FY09 and a net gain of $109 million in FY08, resulting in income ent its consolidated fi nancial statements for FY10 in accordance before grants to IDA of $1,946 million in FY10, as compared to with US GAAP. IFC continues to plan to transition from US GAAP to $299 million in FY09 and $2,047 million in FY08. IFRS and will continue to re-evaluate the timetable for this transi- Grants to IDA totaled $200 million in FY10, as compared to tion during FY11. During FY10, IFC has continued to use account- $450 million in FY09 and $500 million in FY08. Accordingly, net ing pronouncements that expand the use of fair values in its FY10 income (in accordance with US GAAP) totaled $1,746 million in consolidated financial statements, broadly consistent with its FY10, as compared with a net loss of $151 million in FY09, and net planned overall approach to the transition to IFRS. These account- income of $1,547 million in FY08. ing policies are discussed in more detail in Note A to IFC’s FY10 IFC’s net income (loss) for the past five fiscal years ended consolidated fi nancial statements. June 30, is presented below (US$ millions): 2006* FINANCIAL PERFORMANCE SUMMARY 2007* From year to year, IFC’s net income is affected by a number of 2008 factors, principally income generated from its equity investment portfolio (principally dividends, realized capital gains on equity 2009 sales and unrealized gains and losses on equity investments); the 2010 magnitude of provisions for losses against its loans and guaran- –500 0 500 1,000 1,500 2,000 2,500 3,000 tees; impairment of equity investments; loans in nonaccrual status; recoveries of interest on loans formerly in nonaccrual status; and *As restated. income from liquid assets. p3 MANAGEMENT’S DISCUSSION AND ANALYSIS II. Financial Summary The table below presents selected fi nancial data for the last fi ve fi scal years (in millions of US dollars, except where otherwise stated): AS OF AND FOR THE YEARS ENDED JUNE 30 2010 2009 2008 2007 2006 Net income highlights: Income from loans and guarantees $ 801 $ 871 $ 1,065 $ 1,062 $ 804 (Provision) release of provision for losses on loans & guarantees (155) (438) (38) 43 (15) Income (loss) from equity investments 1,638 (42) 1,688 2,292 1,224 Of which: Realized capital gains on equity sales 1,290 990 1,219 1,941 928 Dividends and profi t participations