Ifc 2009 Financials, Projects, and Portfolio Creating Opportunity Where It’S Needed Most™
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ifc 2009 financials, projects, and portfolio creating opportunity where it’s needed most™ www.ifc.org table of contents 2 Management’s Discussion and Analysis 2 I. Overview 3 II. Financial Summary 5 III. Client Services 9 IV. Treasury Services 12 V. Enterprise Risk Management 18 VI. Critical Accounting Policies 20 VII. Results of Operations 27 VIII. Governance 29 Responsibility for External Financial Reporting 31 Independent Auditor’s Report 32 Financial Statements 73 Project Commitments 74 Sub-Saharan Africa 78 East Asia and the Pacifi c 82 South Asia 84 Europe and Central Asia 92 Latin America and the Caribbean 98 Middle East and North Africa 100 Global 102 Investment Portfolio 102 Statement of Cumulative Gross Commitments 106 Company Listing INTERNATIONAL FINANCE CORPORATION I – OVERVIEW management’s discussion and analysis I. OVERVIEW institutions, IFC does not accept host government guarantees of its expo- sures. IFC raises virtually all of the funds for its lending activities through International Finance Corporation (IFC) is an international organization, the issuance of debt obligations in the international capital markets, established in 1956, to further economic growth in its developing mem- while maintaining a small borrowing window with IBRD. Equity invest- ber countries by promoting private sector development. IFC is a member ments are funded from net worth. During the year ended June 30, 2009 of the World Bank Group, which also comprises the International Bank for (FY09), IFC had an authorized borrowing program of up to $8.0 billion, Reconstruction and Development (IBRD), the International Development and up to $1.5 billion to allow for possible prefunding during FY09 of the Association (IDA), the Multilateral Investment Guarantee Agency (MIGA), funding program for the year ending June 30, 2010 (FY10). and the International Centre for Settlement of Investment Disputes IFC’s capital base and its assets and liabilities, other than its equity (ICSID). It is a legal entity separate and distinct from IBRD, IDA, MIGA, investments, are primarily denominated in US dollars. IFC seeks to and ICSID, with its own Articles of Agreement, share capital, fi nancial minimize foreign exchange and interest rate risks by closely matching the structure, management, and staff. Membership in IFC is open only to currency and rate bases of its liabilities in various currencies with assets member countries of IBRD. As of June 30, 2009, IFC’s entire share capital having the same characteristics. IFC manages any non-equity investment was held by 182 member countries. related residual currency and interest rate risks by utilizing currency and IFC’s principal investment products are loans and equity investments, interest rate swaps and other derivative instruments. with smaller debt securities and guarantee portfolios. IFC also plays a The Management Discussion and Analysis contains forward look- catalytic role in mobilizing additional funding from other investors and ing statements which may be identifi ed by such terms as “anticipates,” lenders, either through cofinancing or through loan participations, “believes,” “expects,” “intends,” “plans” or words of similar meaning. underwritings, and guarantees. In addition to project fi nance, corporate Such statements involve a number of assumptions and estimates that are lending and resource mobilization, IFC offers an array of fi nancial prod- based on current expectations, which are subject to risks and uncertain- ucts and advisory services to private businesses in the developing world to ties beyond IFC’s control. Consequently, actual future results could differ increase their chances of success. It also advises governments on how materially from those currently anticipated. to create an environment hospitable to the growth of private enter- prise and foreign investment. Unlike most multilateral development 2 II – FINANCIAL SUMMARY II. FINANCIAL SUMMARY of provisions for losses against its loans and guarantees; impairment of equity investments; loans in nonaccrual status; and recoveries of interest BASIS OF PREPARATION OF IFC S ’ on loans formerly in nonaccrual status. A signifi cant part of IFC’s liquid CONSOLIDATED FINANCIAL STATEMENTS assets trading portfolio is invested in fi xed income securities, includ- The accounting and reporting policies of IFC conform to accounting prin- ing asset-backed securities, which are also subject to external market ciples generally accepted in the United States (US GAAP). factors that signifi cantly affect the value of such securities, adding variabil- Up to and including the year ended June 30, 1999, IFC prepared one ity to income. Net income also includes net gains and losses on non-trading set of fi nancial statements and footnotes, complying with both US GAAP fi nancial instruments accounted for at fair value and grants to IDA. and International Financial Reporting Standards (IFRS). However, prin- IFC reported a loss before net gains on non-trading fi nancial instru- cipally due to material differences between US Statement of Financial ments and grants to IDA of $153 million in FY09, as compared to income Accounting Standards (SFAS) No. 133, Accounting for Derivative of $1,938 million in FY08 and income of $2,739 million in the year ended Instruments and Hedging Activities, as amended (collectively SFAS June 30, 2007 (FY07), principally as a result of signifi cantly higher impair- No. 133), and its counterpart in IFRS, IAS No. 39, Financial Instruments ment write-downs on equity investments, lower realized capital gains Recognition and Measurement, it has not been possible for IFC to satisfy on equity sales, lower dividends, and signifi cantly higher provisions for the requirements of both US GAAP and IFRS via one set of fi nancial state- losses on loans and guarantees. ments since the year ended June 30, 2000. IFC reported net gains on non-trading financial instruments of IFC is actively monitoring developments related to accounting stan- $452 million in FY09, largely attributable to the impact of fair value dards and the primary basis for preparation of its consolidated fi nancial accounting on IFC’s market borrowings, as compared with $109 million statements, all with a view to the necessary systems and controls to man- in FY08 and a net loss of $99 million in FY07, resulting in income before age its various lines of business. IFC will present its consolidated fi nancial grants to IDA of $299 million in FY09, as compared to $2,047 million in statements for FY10 in accordance with US GAAP. IFC continues to plan FY08 and $2,640 million in FY07, and an overall net loss (in accordance to transition from US GAAP to IFRS and will continue to re-evaluate the with US GAAP) of $151 million in FY09, as compared with net income of timetable for this transition during FY10. During FY09, IFC has continued $1,547 million in FY08, and net income of $2,490 million in FY07. to use accounting pronouncements that expand the use of fair values IFC’s net income (loss) for the past fi ve fi scal years ended June 30, is in its FY09 consolidated fi nancial statements, broadly consistent with presented below: its planned overall approach to the transition to IFRS. These accounting policies are discussed in more detail in Note A to IFC’s FY09 consolidated NET INCOME (LOSS) fi nancial statements. (US$ MILLIONS) FINANCIAL PERFORMANCE SUMMARY 2005* As disclosed more fully in Note Y to IFC’s year ended June 30, 2008 (FY08) consolidated fi nancial statements and in Section VII, Results of 2006* Operations, IFC has restated previously reported results. Where appli- 2007* cable in the Management’s Discussion and Analysis, references to prior period information have also been restated. 2008 From year to year, IFC’s net income is affected by a number of factors, 2009 principally income generated from its equity investment portfolio (prin- –500 0 500 1,000 1,500 2,000 2,500 3,000 cipally dividends, realized capital gains on equity sales and, beginning in FY08, unrealized gains and losses on equity investments); the magnitude *As restated 3 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 2009 2008 2007 2006 2005 Net income highlights: Income from loans and guarantees 871 1,065 1,062 804 660 (Provision) release of provision for losses on loans & guarantees (438) (38) 43 (15) 261 (Loss) income from equity investments (42) 1,688 2,292 1,224 1,365 Of which: Realized capital gains on equity sales 1,004 1,396 1,941 928 723 Dividends and profi t participations 311 428 385 323 258 Unrealized (losses) gains on equity investments (299) 12 – – – Equity investment impairment write-downs (1,058) (140) (40) (57) (62) Other, net – (8) 6 30 255 Income from debt securities 71 163 27 7 – Income from liquid asset trading activities 474 473 618 444 358 Charges on borrowings (488) (782) (801) (603) (309) Other income 153 113 99 109 86 Other expenses (629) (555) (500) (477) (423) Foreign currency transaction (losses) gains on non-trading activities 10 (39) (5) 6 (7) Expenditures for advisory services (129) (123) (96) (55) (38) Expenditures for PBG and IFC SME Ventures for IDA countries (6) (27) – (35) – (Loss) income before net gains (losses) on other non-trading fi nancial instruments accounted for at fair value and grants to IDA (153) 1,938 2,739 1,409 1,953 Net gains (losses) on other non-trading fi nancial instruments 452 109 (99) (145) 61 Income before grants to