What happens when a project doesn’t progress according to its business plan? OPIC thoroughly vets projects and management teams before committing financing, but the challenges of doing business in the developing world can mean that unforeseen events arise.
OPIC’s consistent ability to make a positive developmental impact and earn a net profit in spite of these challenges – read more about OPIC’s record-setting year here – is a testament in large part to the agency’s Portfolio Monitoring Division (PMD). PMD provides close oversight to projects after a loan is disbursed, and works to keep projects viable through political or economic turmoil.
Here, Ryan Bequai, who heads OPIC’s Portfolio Managing Division, talks about the work of keeping OPIC projects on track.
PMD’s role is to maximize the opportunity for a project to be realized financially and developmentally. Projects that have multiyear tenors may be slow to ramp up and economic, political and financial challenges in the host countries may arise over the life of the project. PMD works with project sponsors to help minimize these disruptions through project restructurings and adaptive scopes of work. We consider revised loan disbursements or amortization schedules, and change in collateral requirements as necessary when we believe OPIC’s ability to be repaid by the project would benefit.
It is important to keep in mind that OPIC does not extend grants. We are providing loans and we seek to support projects that will be able to repay the money borrowed.
What are the unique challenges related to the projects that OPIC supports?
Emerging markets are often characterized by changing political or legal parameters, which can create difficulties. OPIC also provides an early entry for private sector development in post-conflict countries, where it can be challenging to do business.
How might a political event affect a project?
One of the biggest disruptions any OPIC-supported project has experienced was the Venezuelan nationalization of the oil services sector and a wave of expropriations in 2009. At the time, OPIC was financing a project of a large U.S.-owned oil services contractor to repressurize oil fields in eastern Venezuela to enhance recovery. Many oil and gas service providers were unable to recover their investments. However, OPIC persisted over three years of tough negotiations that ultimately enabled Williams to secure a negotiated settlement. OPIC received full payments of all outstanding obligations plus accrued interest and legal fees. The deal highlighted the efficacy of OPIC’s advocacy and diplomacy, not only on our own behalf but on behalf of OPIC clients.
What are some of the other hurdles that projects encounter?
In 2010, OPIC committed to provide financing to a startup mortgage company in Ghana to support home loans to middle-income families. Although there was broad local interest in obtaining mortgages, processing of individual loans took as much as two years longer than expected. Local property registration rules were extremely cumbersome and time consuming. PMD advocated on behalf of the project sponsor, Ghana Home Loans and our efforts ultimately contributed to the creation of a new law that established a collateral registry where mortgages and all collateral can be registered within 24 hours. As a result Ghana Home Loans, is able to more effectively provide mortgage financing, complete with necessary collateral registered.
Talk a bit about your team and some of the lessons you’ve all learned.
I’ve been at OPIC for 15 years and my banking experience prior to OPIC includes both international and domestic corporate and consumer banking. The majority of officers on my staff are seasoned bankers or corporate financiers with similar private sector experience.
We can attest that the recipe for a successful project anywhere in the world is essentially the same: excellent management and sufficient liquidity. By seeking these qualities in clients from the start, we are better prepared for any challenges that may arise over the course of a project.