IFC scales back ‘Crisis Facility’

A year after it unveiled a $10 billion funding source to help developing markets keep their infrastructure projects survive the financial crisis, the International Finance Corporation has scaled back its ambitions for the fund, citing the recovery of the financial markets as a key driver behind the decision.

“The headline numbers we were trying to put together aren’t going to be necessary,” Bernard Sheahan, the head of the International Finance Corporation’s (IFC) Infrastructure Department, said in an interview.

Bernard Sheahan

The facility was designed in the wake of the collapse of investment bank Lehman Brothers in September 2008. The IFC and its member states noticed that projects were stalling or being abandoned because of the lack of financing, so they decided to step up and create a funding source to keep those projects going.

Today, though, things are much different. “If you look at the number of cancellations and delays of projects that were beginning to get very alarming 12 to 18 months ago, those numbers have come down quite a bit,” Sheahan said.

“Things haven’t fallen off a cliff,” he added.

Things haven't fallen off a cliff Bernard Sheahan

As a result, he predicts far less of the facility will actually need to be used than its original $10 billion target. “I think you’ll probably wind up with one to two billion of total utilization [of the facility],“ he said.

The facility was launched in April 2009 with $2 billion in commitments. Its debt portion became operational in December 2009 after it secured financial commitments from German-owned bank KfW and pledges from German development finance institution DEG, French development finance agency Proparco and the European Investment Bank. Cordiant Capital, a Canadian private equity and debt manager, was put in charge of managing the facility’s debt trust after a competitive selection process.

In total, over $4 billion has been raised for the facility, according to the IFC. All of that was for the debt portion.

From December 2009 through March 2010, the crisis facility made four commitments to projects totalling $100 million in four different countries. These included a container terminal in Vietnam, a gas distribution project in Peru, a power generation project in Ghana, and an airport in Colombia. Additionally, there is a $600 million pipeline of possible financings, which includes a telecom in Iraq and a hydro project in Uganda, according to a statement from the IFC.

The IFC cautioned that the “recovery is uneven” and “risk aversion remains significantly higher than before the crisis”, so the facility will continue to make commitments to projects to reduce disruptions to private investment in infrastructure brought on by the crisis.

“The markets are moving into recovery, which is the main thing that we wanted,” Sheahan said.