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SERIES PROSPECTUS
Dated March 7, 2014
International Finance Corporation
CNY1,000,000,000 2.00% Notes due 2017
Issue Price 100 per cent.
The CNY1,000,000,000 2.00% Notes due 2017 (the “CNY Notes”) of International Finance
Corporation (the “Corporation”) bear interest at the rate of 2.00% per year, accruing from March 11,
2014. Interest on the CNY Notes is payable on January 18 and July 18 of each year, beginning on July
18, 2014. The CNY Notes will mature on January 18, 2017.
The CNY Notes are issued as a series under the Corporation’s Global Medium-Term Note
Program (the “Program”) described in this Series Prospectus. The CNY Notes are expected to be rated
AAA by Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc. and Aaa
by Moody’s Investors Service, Inc. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to suspension, reduction or withdrawal at any time by the assigning
rating agency. The CNY Notes will constitute direct, unconditional, general and unsecured obligations
of the Corporation ranking pari passu and without any preference among themselves and pari passu
with all other outstanding unsecured and unsubordinated obligations for borrowed money of the
Corporation.
THE CNY NOTES WILL NOT BE OBLIGATIONS OF THE INTERNATIONAL BANK
FOR RECONSTRUCTION AND DEVELOPMENT OR OF ANY GOVERNMENT.
This series prospectus (“Series Prospectus”) comprises neither a prospectus for the purposes of
Part VI of the Financial Services and Markets Act 2000 (as amended) (the “FSMA”), a base prospectus
for the purposes of Article 5.4 of Directive 2003/71/EC, as amended (the “Prospectus Directive”), nor
listing particulars given in compliance with the listing rules made under Part VI of the FSMA by the
United Kingdom Financial Conduct Authority in its capacity as competent authority under the FSMA
(the “FCA”). Application will be made to the FCA for the CNY Notes to be admitted to the official
list of the FCA (the “Official List”) and to the London Stock Exchange plc (the “London Stock
Exchange”) for the CNY Notes to be admitted to trading on the London Stock Exchange’s Regulated
Market in accordance with its rules.
The CNY Notes will initially be represented by a single Global Certificate in registered form
deposited on the issue date with Citibank, N.A., London Branch as custodian for, and registered in the
name of a nominee, for a common depositary for Euroclear Bank S.A./N.V. (“Euroclear”) and
Clearstream Banking, société anonyme (“Clearstream, Luxembourg”).
Prospective investors should have regard to the factors described under the section headed “Risk
Factors” in this Series Prospectus.
Lead Managers
HSBC
ICBC (Asia)
J.P. Morgan
The Corporation accepts responsibility for the information contained in this Series Prospectus. To
the best of the knowledge of the Corporation (having taken all reasonable care to ensure that such is
the case) the information contained in this Series Prospectus is in accordance with the facts and does
not omit anything likely to affect the import of such information.
This Series Prospectus is to be read in conjunction with all documents which are deemed to be
incorporated herein by reference (see “Availability of Information and Incorporation by Reference”
below).
Under the Program, the Corporation, subject to compliance with all relevant laws, regulations and
directives, may from time to time issue notes with maturities of three months or longer from the date of
the original issue (the “Notes”, which term, for the purposes of this Series Prospectus and where the
context so allows, includes the CNY Notes) in an unlimited aggregate nominal amount. Notes will be
sold through one or more Dealers (as defined in “Plan of Distribution”) appointed by the Corporation,
or directly by the Corporation itself as specified in the applicable Final Terms (as defined in “Final
Terms”).
Under the Program, application may be made for Notes which are agreed at the time of issue to be
so listed to be admitted to the official list of the Luxembourg Stock Exchange and to trading on the
regulated market of the Luxembourg Stock Exchange. Under the Program, application may be made for
permission to deal in, and for quotation of, any Notes which are agreed at the time of issue to be so
listed on the Stock Exchange of Singapore Limited. The Program also provides that Notes may be
listed on such other or further stock exchange(s) as may be agreed between the Corporation and the
relevant Dealer(s) in relation to each issue. Unlisted Notes may also be issued pursuant to the Program.
The applicable Final Terms in respect of the issue of any Notes will specify whether and on which
exchange such Notes will be listed or whether such Notes will be unlisted. References in this
Prospectus to Notes being “listed” (and all related references) shall mean that such Notes have been
admitted to the official list (or equivalent) of the relevant stock exchange and admitted to trading on the
relevant stock exchange’s regulated market.
Notes of any particular series will be in bookentry form, or bearer form (“Bearer Notes”) or
registered form (“Registered Notes”), as specified in the applicable Final Terms. Bearer Notes may not
be offered, sold or delivered within the United States or to U.S. persons as part of their primary
distribution. Notes will be issued in the denominations specified in the applicable Final Terms.
Unless an issue of Notes is intended to qualify as a targeted bearer issuance (as defined in
“Overview of the Program”), each Series (as defined herein) of Bearer Notes with a maturity at issue of
more than one year will be represented on issue by a temporary global note in bearer form (each a
“Temporary Global Note”) exchangeable for a permanent global note in bearer form (each a
“Permanent Global Note”, and collectively with Temporary Global Notes, “Global Notes”) or, if and to
the extent specified in the applicable Final Terms, for Bearer Notes in definitive bearer form
(“Definitive Bearer Notes”), upon certification of non-U.S. beneficial ownership. Each Series of Bearer
Notes that is issued as part of a targeted bearer issuance will be represented on issue by a Permanent
Global Note or, if specified in the applicable Final Terms, Definitive Bearer Notes. Notes denominated
and payable in U.S. dollars which will be cleared and settled through the Federal Reserve Bank of New
York (“Fed Bookentry Notes”) will be issued in uncertificated bookentry form. Registered Notes will
be represented by registered certificates (each a “Certificate”), one Certificate being issued in respect of
each Noteholder’s entire interest in Registered Notes of one Series. Global Certificates (“Global
Certificates”) may be issued representing all or a portion of a Series of Registered Notes, if specified in
the applicable Final Terms.
Depending on their form and Specified Currency (as defined herein), it is expected that Notes will
be accepted for clearance through one or more clearing systems, as specified in the applicable Final
Terms. These systems will include, in the United States, the system operated by The Depository Trust
Company (“DTC”) and, for Fed Bookentry Notes, the Federal Reserve Banks and, outside the United
States, those operated by Euroclear and Clearstream, Luxembourg. Global Notes may be issued in new
global note form if they are intended to be eligible collateral for Eurosystem monetary policy or in
classic global note form.
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THE NOTES ARE NOT REQUIRED TO BE REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED. ACCORDINGLY, NO REGISTRATION
STATEMENT HAS BEEN FILED WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION (THE “COMMISSION”). THE NOTES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS SERIES PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE IN THE UNITED
STATES.
No person has been authorized to give any information or to make any representation other than
those contained in this Series Prospectus and the applicable Final Terms in connection with the offering
or sale of the Notes and, if given or made, such information or representation must not be relied upon
as having been authorized by the Corporation or any Dealer or the Arranger (as defined in “Summary
and Overview of the Program”). Neither the delivery of this Series Prospectus or any applicable Final
Terms nor any offering or sale made in connection herewith or therewith shall, under any
circumstances, create any implication that there has been no change in the financial condition or affairs
of the Corporation since the date hereof or the date upon which this Series Prospectus has been most
recently amended or supplemented or that there has been no adverse change in the financial condition
or affairs of the Corporation since the date hereof or the date upon which this Series Prospectus has
been most recently amended or supplemented or that any other information supplied in connection with
the Program is correct as of any time subsequent to the date on which it is supplied or, if different, the
date indicated in the document containing the same.
The distribution of this Series Prospectus or any Final Terms and the offering or sale of the Notes
in certain jurisdictions may be restricted by law. Persons into whose possession this Series Prospectus
or any Final Terms comes are required by the Corporation, any Dealer and the Arranger to inform
themselves about and to observe any such restriction. For a description of certain restrictions on offers
and sales of the Notes and on the distribution of this Series Prospectus or any Final Terms, see “Plan of
Distribution”.
Neither this Series Prospectus nor any Final Terms constitutes an offer of, or an invitation by or
on behalf of the Corporation or any Dealer to subscribe for, or purchase, any Notes. Neither this Series
Prospectus nor any other information supplied in connection with the Program should be considered as
a recommendation by the Corporation or any of the Dealers that any potential investor should purchase
any Notes. Each investor contemplating purchasing any Notes should make its own independent
investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the
Corporation.
THE NOTES ARE NOT OBLIGATIONS OF THE INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT OR OF ANY GOVERNMENT.
In connection with the issue of any Tranche (as defined herein) of Notes, the Dealer or Dealers (if
any) named as the stabilizing manager(s) (the “Stabilizing Manager(s)”) (or persons acting on behalf of
any Stabilizing Manager(s)) in the applicable Final Terms may over-allot Notes or effect transactions
with a view to supporting the market price of the Notes at a level higher than that which might
otherwise prevail. However, there is no assurance that the Stabilizing Manager(s) (or persons acting on
behalf of a Stabilizing Manager) will undertake stabilization action. Any stabilization action may begin
on or after the date on which adequate public disclosure of the terms of the offer of the relevant
Tranche is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30
days after the issue date of the relevant Tranche and 60 days after the date of the allotment of the
relevant Tranche. Any stabilization action or over-allotment must be conducted by the relevant
Stabilizing Manager(s) (or persons acting on behalf of any Stabilizing Manager(s)) in accordance with
all applicable laws and rules.
In this Series Prospectus, unless otherwise specified or the context otherwise requires, references
to “€”, “EUR” and “euro” are to the currency introduced on 1 January 1999 pursuant to the Treaty
establishing the European Community as amended by the Treaty on European Union, references to
“pounds”, “sterling”, “£” and “GBP” are to the lawful currency of the United Kingdom, references to
“yen” are to the lawful currency of Japan, references to “yuan”, “Renminbi” and “CNY” are to the
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lawful currency of the People’s Republic of China and references to “U.S. dollars”, “$” and “U.S.$” are
to United States dollars.
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TABLE OF CONTENTS
Page
Availability of Information and Incorporation by Reference ....................................................................
Series Prospectus Supplement ..................................................................................................................
Final Terms ...............................................................................................................................................
Use of Proceeds.........................................................................................................................................
Summary and Overview of the Program ...................................................................................................
Risk Factors ..............................................................................................................................................
Terms and Conditions of the Notes...........................................................................................................
Form of Notes and Provisions Relating to the Notes while in Global Form .............................................
Clearance and Settlement ..........................................................................................................................
Tax Matters ..............................................................................................................................................
Currency Conversions ..............................................................................................................................
Plan of Distribution ..................................................................................................................................
Validity of the Notes ................................................................................................................................
General Information .................................................................................................................................
Appendix A – CNY Notes Final Terms ...................................................................................................
Appendix B – IFC Information Statement ................................................................................................
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AVAILABILITY OF INFORMATION AND INCORPORATION BY REFERENCE
Availability of Information
The Corporation prepares:
(a) unaudited quarterly financial statements and audited annual financial statements;
(b) an annual information statement (the “Information Statement”) which describes the
Corporation, including its capital, operations and administration, the Articles of Agreement
of the Corporation (the “Articles of Agreement”), the Corporation’s legal status, and its
principal financial policies, and contains the Corporation’s most recent audited financial
statements; and
(c) an annual report, which contains the Corporation’s most recent audited financial statements.
The Corporation is subject to certain information requirements of Regulation IFC, promulgated by
the Commission under the United States International Finance Corporation Act of 1955, as amended,
and in accordance therewith files with the Commission its unaudited quarterly and audited annual
financial statements and its most recent Information Statement and annual report (collectively the “IFC
Information”).
In addition, the IFC Information will be filed with the Commission and the Luxembourg Stock
Exchange and any other stock exchange on which Notes are listed from time to time and which requires
such a filing. The IFC Information may be inspected and copies may be obtained (without charge other
than for the IFC Information obtainable from the Commission, which must be paid for at prescribed
rates) at the following addresses, and at any other address specified in the applicable Final Terms:
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Banque Internationale à Luxembourg S.A.
69, route d’Esch
L-1470 Luxembourg
Luxembourg
Citibank, N.A., London Branch
21st Floor, Citigroup Centre
Canada Square, Canary Wharf
London E14 5LB
Citibank, N.A., Singapore Branch
5, Shenton Way, #06-00
UIC Building
Singapore 068808
In addition, copies of the Articles of Agreement, the Fiscal Agency Agreement, the Global
Agency Agreement and the Deed of Covenant (each as defined under “Terms and Conditions of the
Notes”) may be inspected at the above offices of Citibank, N.A., London Branch (the “Global Agent”).
Copies of such documents and the IFC Information also will be available without charge from the
office of the Corporation set out at the end of this Series Prospectus.
Incorporation by Reference
The Corporation’s latest Information Statement (attached hereto as Appendix B), and any
unaudited quarterly or annual financial statements filed with the Commission prior to the date of this
Series Prospectus shall be deemed to be incorporated in, and to form part of, this Series Prospectus, and
references to “this Series Prospectus” shall mean this document and any documents incorporated by
reference in, and forming part of, this document, except, and to the extent, any such document is
superseded or modified by any subsequent document incorporated by reference in, and forming part of,
this Series Prospectus. Documents incorporated by reference in, and forming part of, this document
may not have been submitted to the same review and clearance procedures to which this Series
Prospectus has been submitted as of the date hereof by any stock exchange or regulatory authority
referred to herein.
Any statement contained in a document which is incorporated by reference herein shall be deemed
to be modified or superseded for the purpose of this Series Prospectus to the extent that a statement
contained herein modifies or supersedes such earlier statement (whether expressly, by implication or
otherwise). Any statement so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Series Prospectus.
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Copies of documents incorporated by reference in this Series Prospectus may be obtained (without
charge) from the office of the Corporation set out at the end of this Series Prospectus and the website of
the Corporation (www.ifc.org).
SERIES PROSPECTUS SUPPLEMENT
The Corporation has undertaken to the Dealers that if during any time this Series Prospectus is
being used in connection with the offer and sale of the CNY Notes, any event shall occur as a result of
which, in the judgment of the Corporation, this Series Prospectus would include any untrue statement
of a material fact or omit to state any material fact necessary to make the statements herein, in light of
the circumstances under which they were made, not misleading, the Corporation shall prepare an
amendment or supplement to this Series Prospectus for use in connection with such offering of the
CNY Notes and shall supply to each Dealer such number of copies of such amendment or supplement
hereto as such Dealer may reasonably request.
FINAL TERMS
The Corporation will prepare in respect of each particular issue of Notes a final terms (each, a
“Final Terms”) which will contain the terms of, pricing details for, and settlement and clearance
procedures relating to, such issue of Notes and such other information or disclosure as the Corporation
considers appropriate.
In respect of the CNY Notes, the Corporation has prepared a Final Terms (the “CNY Notes Final
Terms”) (attached hereto as Appendix A), which contains the terms of, pricing details for, and
settlement and clearance procedures relating to, the CNY Notes. For the purposes of this Series
Prospectus references to “Final Terms” shall be deemed to mean the CNY Notes Final Terms, which
shall apply only in respect of the CNY Notes.
USE OF PROCEEDS
The net proceeds of the sale of the Notes will be used for the general operations of the
Corporation in accordance with its Articles of Agreement.
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SUMMARY AND OVERVIEW OF THE PROGRAM
This summary must be read as an introduction to this Series Prospectus. Any decision to invest in
any Notes should be based on a consideration of this Series Prospectus as a whole, including the
documents incorporated by reference, by any investor. Words and expressions defined or used in
“Terms and Conditions of the Notes” shall have the same meaning in this Summary.
The Corporation
International Finance Corporation is an international organization, established in 1956 to further
economic growth in its developing member countries by promoting private sector development. The
Corporation is a member of the World Bank Group, which also comprises the International Bank for
Reconstruction and Development (the “IBRD”), the International Development Association (“IDA”),
the Multilateral Investment Guarantee Agency (“MIGA”) and the International Centre for Settlement of
Investment Disputes (“ICSID”). It is a legal entity separate and distinct from IBRD, IDA, MIGA and
ICSID with its own Articles of Agreement, share capital, financial structure, management, and staff.
Membership in the Corporation is open only to member countries of IBRD. The obligations of the
Corporation are not obligations of, or guaranteed by, IBRD or any government.
The Corporation’s principal office is located at 2121 Pennsylvania Avenue, N.W., Washington,
D.C. 20433, United States of America. Its telephone number is +1 202 458 9230.
The Corporation is an experienced supranational organization providing financing and financial
services primarily to the private sector in developing countries that are members of the Corporation. It
combines the characteristics of a multilateral development bank with those of a private financial
institution. As of June 30, 2013, the Corporation's entire share capital was held by 184 member
countries. As of June 30, 2013, member countries of the Organization for Economic Cooperation and
Development (“OECD”) held 68.36 per cent. of the voting power of the Corporation. The five largest
of the Corporation’s 184 shareholders are the United States (22.41 per cent. of the total voting power),
Japan (5.58 per cent.), Germany (5.1 per cent.), United Kingdom (4.79 per cent.) and France (4.79 per
cent.). The Corporation’s share capital is provided by its member countries. It raises most of the funds
for its investment activities through the issuance of notes, bonds and other debt securities in the
international capital markets. Unlike most other multilateral institutions, the Corporation does not
accept host government guarantees of its loans. Generally, the Corporation charges market based rates
for its loans and seeks market returns on its debt security and equity investments. The financial strength
of the Corporation is based principally on the quality of its investment portfolio, its substantial paid-in
capital and retained earnings, low debt to equity ratio, the size of its liquid assets portfolio, its
diversified earnings base and its consistent profitability.
In partnership with private investors, the Corporation assists in financing the establishment,
improvement, and expansion of private sector enterprises by making investments where sufficient
private capital is not otherwise available on reasonable terms. The Corporation seeks to bring together
domestic and foreign private capital and experienced management and thereby create conditions
conducive to the flow of private capital (domestic and foreign) into productive investments in its
developing member countries. In this way, the Corporation plays a catalytic role in mobilizing
additional funding from other investors and lenders, through parallel loans, loan participations, partial
credit guarantees, securitizations and risk sharing facilities (“resource mobilization”). In addition to
project finance, corporate lending and resource mobilization, the Corporation offers an array of
financial products and technical advisory services to private businesses in the developing world with a
view to fulfilling its developmental mission. It also advises member governments on how to create an
environment hospitable to the growth of private enterprise and foreign investment.
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Overview of the Program
The following overview is qualified in its entirety by the remainder of this Series Prospectus.
Issuer:
International Finance Corporation
Description:
Global Medium-Term Note Program
Arranger:
Morgan Stanley & Co. International plc
Dealers:
The Dealers will consist of any of one or more dealers
appointed as dealers (as described in “Plan of Distribution”)
from time to time for a specific issue of Notes.
Global Agent:
Citibank, N.A., London Branch
Fiscal Agent:
Federal Reserve Bank of New York
Paying Agents:
Banque Internationale à Luxembourg S.A., and, for Notes
cleared through The Central Depositary (Pte) Limited
(“CDP”) Citibank, N.A., Singapore Branch, and such other
Paying Agents as may be appointed in the applicable Final
Terms.
Specified Currencies:
Subject to compliance with all relevant laws, regulations and
directives, Notes may be issued in any currency agreed
between the Corporation and the relevant Dealers.
Redenomination:
Notes denominated in the currency of a country that
subsequently participates in the third stage of European
Economic and Monetary Union may be subject to
redenomination, renominalization and/or consolidation with
other Notes then denominated in euro. The provisions
applicable to any such redenomination, renominalization
and/or consolidation will be as specified in the applicable
Final Terms.
Maturities:
Subject to compliance with all relevant laws, regulations and
directives, Notes may be issued with any maturity of three
months or longer from the date of the original issue.
Specified Denomination:
Definitive Notes will be in such denominations as may be
specified in the applicable Final Terms.
Method of Issue:
The Notes will be issued through Dealers acting as principal
on a syndicated or non-syndicated basis, or on an agency
basis. The Corporation may also directly offer and sell Notes
to investors, to the extent permitted by applicable law. The
Notes will be issued in series (each a “Series”) having one or
more dates of issue and on terms otherwise identical (or
identical other than in respect of the first payment of interest),
the Notes of each Series being intended to be interchangeable
with all other Notes of that Series. Each Series may be issued
in tranches (each a “Tranche”) on the same or different dates
of issue. The specific terms of each Tranche will be set out in
the applicable Final Terms.
Issue Price:
Notes may be issued at their nominal amount or at a discount
or premium to their nominal amount. Partly Paid Notes may
be issued, the issue price of which will be payable in two or
more instalments.
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Form of Notes:
The Notes may be issued in bookentry form, bearer form or
in registered form. Fed Bookentry Notes, which are Notes
denominated and payable in U.S. dollars cleared through the
bookentry system of the Federal Reserve Banks (the “Federal
Reserve”), will be in bookentry form and may not be
exchanged for Notes in registered form or for Notes in bearer
form.
Unless the issuance is intended to qualify as a targeted bearer
issuance described in United States Treasury Regulations
Section 1.163-5(c)(2)(i)(D)(3)(iii) (a “targeted bearer
issuance”), each Tranche of Bearer Notes will be represented
upon initial issuance by a Temporary Global Note which may
be exchanged (i) after a period of not less than 40 days from
the date of issue for either (a) a Permanent Global Note upon
certification of non-U.S. beneficial ownership in accordance
with the applicable rules and regulations promulgated by the
U.S. Treasury, or (b) Definitive Bearer Notes upon
certification of non-U.S. beneficial ownership in accordance
with the applicable rules and regulations promulgated by the
U.S. Treasury; or (ii) if the applicable Final Terms so
provides, in certain circumstances, for certificates
representing Registered Notes (“Certificates”) representing
the amount of Notes so exchanged, in each case as provided
in the applicable Final Terms. Each Tranche of Bearer Notes
issued as part of a targeted bearer issuance will be
represented upon initial issuance by a Permanent Global Note
or, if specified in the applicable Final Terms, Definitive
Bearer Notes.
Each Tranche of Registered Notes will be represented upon
initial issuance by one or more Certificates, each evidencing
an individual Noteholder’s entire interest in such Registered
Notes. Certificates representing Registered Notes that are
registered in the name of a nominee for one or more clearing
systems are referred to as “Global Certificates”.
Clearing Systems:
It is expected that Notes will be accepted for clearance
through one or more clearing systems as specified in the
applicable Final Terms. These systems will include, in the
United States, the system operated by DTC and, for Fed
Bookentry Notes, the Federal Reserve and, outside the United
States, those operated by Euroclear and Clearstream,
Luxembourg and, if so specified in the applicable Final
Terms in the case of Notes listed on the Stock Exchange of
Singapore Limited, CDP, and in relation to any Series, such
other clearing system as specified in the applicable Final
Terms.
Initial Delivery of Notes:
On or before the issue date for each Tranche of Bearer Notes,
if the relevant Global Note is intended to be recognized as
eligible collateral for Eurosystem monetary policy and intraday credit operations, such Global Note will be delivered to a
common safekeeper (the “Common Safekeeper”) for
Euroclear and Clearstream, Luxembourg (such Global Notes
are issued in new global note (“NGN”) form). On or before
the issue date for each Tranche of Bearer Notes, if the
relevant Global Note is not intended to be recognized as
eligible collateral for Eurosystem monetary policy and intra-
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day credit operations, unless otherwise agreed among the
Corporation, the Global Agent and the relevant Dealer, the
Corporation will deposit (i) a Temporary Global Note
representing Bearer Notes (except in the case of a targeted
bearer issuance); or (ii) a Permanent Global Note or
Definitive Bearer Notes in the case of a targeted bearer
issuance with a common depositary (the “Common
Depositary”) for Euroclear and Clearstream, Luxembourg,
CDP, or any other clearing system specified in the applicable
Final Terms (such Global Notes are issued in classic global
note (“CGN”) form).
On or before the issue date for each Tranche of Registered
Notes, unless otherwise agreed among the Corporation, the
Global Agent and the relevant Dealer, the Global Agent will
deposit a Global Certificate representing Registered Notes
with a custodian for, to be registered in the name of a
nominee of, DTC, or any other clearing system specified in
the applicable Final Terms.
Description of Notes:
Notes may be either interest bearing at fixed or floating rates
or non-interest bearing, with principal repayable at a fixed
amount or by reference to one or more indices or formulae or
any combination of the above, as specified in the applicable
Final Terms.
Fixed Rate Notes:
Notes which are expressed to be Fixed Rate will bear interest
at the rate or rates specified in the applicable Final Terms.
Floating Rate Notes:
Floating Rate Notes will bear interest determined separately
for each Series as follows:
(i)
on the same basis as the floating rate under a notional
interest rate swap transaction in the relevant Specified
Currency governed by an agreement incorporating the
2000 or 2006 ISDA Definitions, as published by the
International Swaps and Derivatives Association, Inc.;
or
(ii) by reference to LIBOR, LIBID, LIMEAN or EURIBOR
(or such other benchmark as may be specified in the
applicable Final Terms) as adjusted for any applicable
margin.
Interest periods will be specified in the applicable Final
Terms.
Zero Coupon:
Zero Coupon Notes may be issued at their nominal amount or
at a discount to it and will not bear interest.
Fixed Redemption Amount:
Notes which have a fixed redemption amount will be
redeemable at par or at a specified amount above or below
par.
Redemption by Instalments:
The applicable Final Terms in respect of each Series of Notes
that are redeemable in two or more instalments will set out
the dates on which, and the amounts in which, such Notes
may be redeemed.
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Automatic Early Redemption:
The applicable Final Terms may provide that Notes of a
Series will be redeemed automatically prior to their stated
maturity on the basis that the interest payable on such Notes
reaches or exceeds a benchmark determined in relation to one
or more interest rates, exchange rates or stock market or
commodities indices or formulae or a combination thereof as
may be specified in, or otherwise provided in such Final
Terms.
Optional Redemption:
The applicable Final Terms will state whether Notes may be
redeemed prior to their stated maturity in whole or in part at
the option of the Corporation and/or the holders, and, if so,
the terms applicable to such redemption. Any limitations
imposed by applicable law relating to the redemption of
Notes denominated in any Specified Currency will be
specified in the applicable Final Terms.
Other Notes:
Terms applicable to variable redemption amount Notes with a
maturity at issue of one year or less, high interest Notes, low
interest Notes, step-up Notes, step-down Notes, dual currency
Notes, reverse dual currency Notes, optional dual currency
Notes, Partly Paid Notes and any other type of Notes that the
Corporation and any Dealer or Dealers may agree to issue
under the Program will be set out in the applicable Final
Terms.
Status of Notes:
The Notes will constitute direct, unconditional, general and
unsecured obligations of the Corporation ranking pari passu
and without any preference among themselves and pari passu
with all other outstanding unsecured and unsubordinated
obligations for borrowed money of the Corporation. The
Notes will not be obligations of the International Bank for
Reconstruction and Development or of any government.
Negative Pledge:
None
Events of Default:
With respect to each Series of Notes, if the Corporation shall
either (i) fail to pay when due the principal of, premium (if
any), or interest on, any Note of such Series or (ii) fail to pay
when due, in aggregate an amount equal to or exceeding
U.S.$20,000,000 or its equivalent in any other relevant
currency or currencies, of the principal of, premium (if any),
or interest on, any Note of another Series or any notes, bonds
or similar obligations (other than the Notes) which shall have
been issued, assumed or guaranteed by the Corporation and,
in either case, such failure shall continue for a period of 90
days, then at any time thereafter and during the continuance
of such failure, the holder of any Note of such Series may
deliver or cause to be delivered to the Corporation at its
principal office in the City of Washington, District of
Columbia, United States of America, written notice that such
holder elects to declare all Notes of such Series held by it (the
serial numbers and denominations of which shall be set forth
in such notice) to be due and payable, and on the thirtieth day
after such notice shall be so delivered to the Corporation,
such Notes shall become due and payable together with
accrued interest thereon, unless prior to that time all such
defaults shall have been cured.
Rating:
The Program has been rated AAA by Standard & Poor’s
12
Ratings Services, a division of The McGraw Hill Companies,
Inc. (“S&P”) and Aaa by Moody’s Investors Service
(“Moody’s”). As defined by S&P, an “AAA” rating means
that the ability of the Corporation to meet its financial
commitment on its obligations is extremely strong. As
defined by Moody’s, an “Aaa” rating means that the
Corporation’s ability to meet its financial obligations is
judged to be of the highest quality, with minimal credit risk.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to suspension, reduction or
withdrawal at any time by the assigning rating agency.
Taxation:
The Notes and interest thereon are not exempt from taxation
generally.
Under the Articles of Agreement, payments in respect of
principal, premium (if any), and interest due on the Notes are
not subject to any tax by a member country (i) which tax
discriminates against the Notes solely because they are issued
by the Corporation or (ii) if the sole jurisdictional basis for
the tax is the place or currency in which the Notes are issued,
made payable or paid, or the location of any office or place of
business maintained by the Corporation.
Under the Articles of Agreement, the Corporation is not
under any obligation to withhold or pay any tax imposed by
any member country in respect of the Notes. Accordingly,
payments in respect of principal, premium (if any) and
interest due on the Notes will be paid to the Fiscal Agent or
the Global Agent without deduction in respect of any such
tax. However, tax withholding requirements may apply to
payments made by financial intermediaries acting in any
capacity other than as the Corporation’s Fiscal Agent, Global
Agent or paying agent.
Governing Law:
English, New York, or such other law as is specified in the
applicable Final Terms. Fed Bookentry Notes will be
governed by the laws of the State of New York.
Listing:
Application has been made for Notes issued under the
Program to be listed on the Official List and admitted to
trading on the regulated market of the Luxembourg Stock
Exchange. However, specific Series of Notes may be listed
on the Stock Exchange of Singapore Limited or on other
stock exchanges or may be unlisted. The applicable Final
Terms in respect of any Series of Notes will specify whether
such Notes will be unlisted or listed on the Luxembourg
Stock Exchange, the Stock Exchange of Singapore Limited or
any other stock exchange.
Selling Restrictions:
The sale and delivery of Notes, and the distribution of
offering material relating to the Notes, are subject to certain
restrictions in the United States and in certain other
jurisdictions as set forth in this Series Prospectus and as may
be set forth in the applicable Final Terms. In particular, the
Notes are not required to be registered under the United
States Securities Act of 1933. Bearer Notes may not be
offered, sold or delivered within the United States or to U.S.
persons in connection with their primary distribution. See
13
“Plan of Distribution”.
14
RISK FACTORS
The following section does not describe all the risks (including those relating to each prospective
investor’s particular circumstances) with respect to an investment in the Notes of a particular series,
including the interest rate, exchange rate or other indices, relevant specified currencies, calculation
formulae, and redemption, option and other rights associated with such Notes or when the investor’s
currency is other than the Specified Currency of issue or in which the payment of such Notes will be
made. The risks in the following section are provided as general information only. The Corporation
disclaims any responsibility to advise prospective investors of such risks as they exist at the date of this
Series Prospectus or as such risks may change from time to time. Prospective investors should consult
their own financial and legal advisors about risks associated with an investment in an issue of Notes.
Certain Notes are complex financial instruments and may not be suitable for all investors. Prospective
investors should have the financial status and sufficient knowledge and experience in financial and
business matters to evaluate the information contained in this Series Prospectus and the applicable
Final Terms and the merits and risks of investing in a particular issue of Notes in the context of their
financial position and particular circumstances. Prospective investors should have the ability and
expertise, and/or access to the appropriate analytical resources to analyze such investment, to evaluate
the sensitivity of such investment to changes in economic conditions, interest rate, exchange rate or
other indices, the relevant calculation formulae, the redemption, option and other rights associated
with such investment, and other factors which may have a bearing on the merits and risks of such
investment, and the suitability of such investment in such investor’s particular circumstances. In
addition, prospective investors should have the financial capacity to bear the risks associated with any
investment in such Notes and should review, among other things, the most recent audited and
unaudited financial statements, if any, of the Corporation incorporated by reference into this Series
Prospectus when deciding whether or not to purchase any Notes. Words and expressions defined or
used in “Terms and Conditions of the Notes” shall have the same meaning in this section.
Interest Rate Risks
An investment in Notes the principal or premium of which is determined by reference to one or
more interest rate indices, either directly or inversely, may entail significant risks not associated with
similar investments in a conventional debt security, including the risk that the resulting interest rate will
be less than that payable on a conventional debt security issued by the Corporation at the same time and
that the investor could lose all or a substantial portion of the principal of its Note or that no premium
may be payable thereon. The secondary market for such Notes will be affected by a number of factors
independent of the creditworthiness of the Corporation and the value of the applicable interest rate
index or indices, including the volatility of such interest rate index or indices, the method of calculating
the index, principal or premium, the time remaining to the maturity of the Notes, the outstanding
nominal amount of the Notes and market interest rates. The value of any applicable interest rate indices
should not be taken as an indication of the future performance of such interest rate indices during the
term of any Note.
Exchange Rate Risks and Exchange Controls
Notes may be denominated or payable in one of a number of currencies. For investors whose
financial activities are denominated principally in a currency (the “Investor’s Currency”) other than the
Specified Currency or where principal of, premium (if any) or interest on Notes is payable by reference
to a Specified Currency index other than an index relating to the Investor’s Currency, an investment in
the Notes entails significant risks that are not associated with a similar investment in a security
denominated in that Investor’s Currency.
Such risks include, without limitation, the possibility of significant changes in the rate of
exchange between the Specified Currency and the Investor’s Currency and the possibility of the
imposition or modification of exchange controls by the country of the Specified Currency or the
Investor’s Currency. Such risks generally depend on economic and political events over which the
Corporation has no control. In recent years, rates of exchange have been volatile and such volatility
may be expected to continue in the future. Fluctuations in any particular exchange rate that have
occurred in the past are not necessarily indicative, however, of fluctuations that may occur in the future.
Depreciation of the Specified Currency against the Investor’s Currency would result in a decrease in
the Investor’s Currency equivalent yield on a Note denominated in that Specified Currency, in the
15
Investor’s Currency equivalent value of the principal payable at maturity of such Note and generally in
the Investor’s Currency equivalent market value of such Note. An appreciation of the Specified
Currency against the Investor’s Currency would have the opposite effect. In addition, depending on the
specified terms of a Note denominated in, or the payment of which is related to the value of, one or
more currencies, changes in exchange rates relating to any of the currencies involved may result in a
decrease in such Note’s effective yield and, in certain circumstances, could result in a loss of all or a
substantial portion of the principal of a Note to the investor.
Governments have imposed from time to time, and may in the future impose, exchange controls
which could affect exchange rates as well as the availability of a Specified Currency at the time of
payment of principal premium (if any) or interest in respect of a Note. Even if there are no actual
exchange controls, it is possible that the Specified Currency for payment on any particular Note may
not be available when payments on such Note are due.
Structure Risks
An investment in a Structured Note issued by the Corporation entails risks (which may be
significant) not associated with an investment in a conventional debt security issued by the
Corporation. A “Structured Note” is a Note with principal, premium (if any) or interest determined by
reference to one or more interest rate indices or currency or currency units (including exchange rates
and swap indices between currencies or currency units), or one or more stock market, commodities or
other indices or formulae (each an “Applicable Index”) (other than a single conventional interest rate
index or formula, such as LIBOR) or features such as embedded options, caps or floors. Such risks may
include, without limitation, the possibility that an Applicable Index may be subject to significant
changes, that changes in an Applicable Index may not correlate with changes in interest rates or
exchange rates generally or with changes in other indices, that two or more indices or formulae that
may be expected to move in tandem or in any other relation to each other may unexpectedly converge
or diverge or otherwise not move as expected, that the resulting interest rate may be less than that
payable on a conventional debt security issued by the Corporation at the same time or that no interest
may be payable, that the repayment of principal may occur at times other than that expected by the
investor, that the investor may lose a substantial portion of the principal of its Note (whether payable at
maturity, upon redemption or otherwise), that the amount of premium based on appreciation rights
payable may be substantially less than anticipated or that no such premium is payable, that Structured
Notes may have more volatile performance results, and that the effects of currency devaluations and (as
discussed under “Risk Factors — Exchange Rate Risks and Exchange Controls”) the imposition or
modification of exchange controls by authorities with jurisdiction over a relevant currency may be
greater for Structured Notes than for conventional debt securities issued by the Corporation. Such risks
generally depend on a number of factors, including financial, economic and/or political events over
which the Corporation has no control. In addition, if an Applicable Index used to determine the amount
of interest payable contains a spread or margin multiplier or if the Applicable Index used to determine
the principal, premium (if any) or interest payable is subject to some other leverage factor, the effect of
any change in such Applicable Index on the principal, premium (if any) or interest may be magnified. If
an Applicable Index includes, or is subject to, a maximum (“cap”) or minimum (“floor”) interest rate
limitation, the interest or principal payable on such Structured Note may be less than that payable on a
conventional debt security issued by the Corporation at the same time. Two issues of Structured Notes
issued at the same time and with interest rates determined by reference to the same Applicable Index
and otherwise comparable terms may have different interest rates and yields when issued and thereafter
if the frequency of interest rate adjustments for each issue is different. In recent years, certain interest
rates, currencies, currency units, exchange rates and stock market, commodities or other indices have
been highly volatile and such volatility may continue in the future. Fluctuations in any particular
interest rate, currency, currency unit, exchange rate or such other index that have occurred in the past
are not necessarily indicative, however, of fluctuations that may occur in the future.
The timing of changes in the level of an Applicable Index may affect the actual yield to an
investor, even if the average level is consistent with the investor’s expectation. In general, the earlier a
change in the level of an Applicable Index occurs, the greater the effect on an investor’s yield. This is
especially the case with Structured Notes providing for repayment of principal at one or more times
prior to maturity. As a result, the effect on an investor’s yield of an Applicable Index level that is lower
16
(or higher) during earlier periods than the rate anticipated by the investor may not be offset by a later
equivalent increase (or reduction).
Any optional redemption feature of Notes is likely to affect the market value of such Notes.
During any period in which such Notes are subject to redemption at the option of the Corporation, their
market value generally will not rise substantially above the redemption price because of the increased
likelihood of redemption by the Corporation, and this also may be true prior to any such period. The
Corporation may be expected to redeem such Notes in circumstances where the Corporation’s cost of
borrowing is lower than the interest rate on such Notes. At such times, an investor generally would not
be able to reinvest redemption proceeds at an effective interest rate which is as high as the interest rate
on such Notes, and such reinvestment might only be at a significantly lower rate. Investors should
consider the related reinvestment risk in light of other investments that may be available to such
investors. A partial redemption of an issue of Notes also may adversely affect liquidity for the
remaining outstanding Notes of such issue.
Investors in Structured Notes should have the ability and expertise, and/or access to appropriate
analytical resources, to analyze quantitatively the effect (or value) of any redemption, cap or floor, or
other features of such Structured Notes, and the resulting impact on the value of such Structured Notes.
Market Liquidity and Yield Risks
Notes may not have an established trading market when issued. There can be no assurance of a
secondary market for any Notes or the liquidity of such market if one develops. Consequently,
investors may not be able to sell their Notes readily or at prices that will enable them to realize a yield
comparable to that of similar instruments, if any, with a developed secondary market. This is
particularly the case for Structured Notes that are especially sensitive to interest rate, currency or other
market risks, that are designed for specific investment objectives, or strategies or that have been
structured to meet the investment requirements of limited categories of investors, which may have a
more limited secondary market and less or no liquidity and may experience more price volatility than
conventional debt securities. Illiquidity may have a severe adverse effect on the market value of
Structured Notes.
Depending upon the type of Notes, market conditions and other factors, investors seeking to sell
relatively small or relatively large amounts of Notes may not be able to do so at prices comparable to
those that may be available to other investors.
The secondary market for an issue of Notes also will be affected by a number of other factors
independent of the creditworthiness of the Corporation and the value of any Applicable Index. These
factors may include the complexity and volatility of such Applicable Index, the method of calculating
the principal, premium (if any) or any interest to be paid in respect of such Notes, the time remaining to
the maturity of such Notes, the outstanding amount of such Notes, any amortization or optional
redemption features of such Notes, the amount of other securities linked to such Applicable Index, the
amount of such Notes being sold in the secondary market from time to time, any legal restrictions
limiting demand for such Notes, the availability of comparable securities, and the level, direction and
volatility of market interest rates generally. Such factors will also affect the market value of the Notes.
No investor should purchase Notes unless such investor understands and is able to bear the risk
that certain Notes may not be readily saleable, that the value of Notes will fluctuate over time, and that
such fluctuations may be significant and could result in significant losses to such investor. This is
particularly the case for investors whose circumstances may not permit them to hold the Notes until
maturity.
In addition to the foregoing considerations, the following additional considerations, among others,
relate to the Notes indicated below.
The market value of Notes bearing interest at a Floating Rate with caps or floors generally are
more volatile than those of Notes bearing interest at a Floating Rate linked to the same Applicable
Index without caps or floors, especially when the Applicable Index approaches the cap or floor.
Similarly, the prices of Notes bearing interest at a Floating Rate with an Applicable Index containing a
rate multiplier or other leverage factor greater than one generally are more volatile than those for Notes
bearing interest at a Floating Rate linked to the same Applicable Index without such a rate multiplier or
other leverage factor.
17
In the case of Notes bearing interest at a Floating Rate with an interest rate equal to a fixed rate
less a rate based upon an Applicable Index, the interest rate will vary in the opposite direction of
changes in such Applicable Index. The prices of such Notes typically are more volatile than those of
conventional floating rate debt securities issued by the Corporation based on the same Applicable Index
(and with otherwise comparable terms). This increased volatility is due to the fact that an increase in
the Applicable Index not only decreases the interest rate (and consequently the value) of such Note, but
also reflects an increase in prevailing interest rates, which further adversely affects the value of such
Note.
In the case of Notes that bear interest at a rate that the Corporation may elect to convert from a
Fixed Rate to a Floating Rate, or from a Floating Rate to a Fixed Rate, the ability of the Corporation to
convert the interest rate will affect the secondary market and the value of such Notes since the
Corporation may be expected to elect such conversion when it would be expected to produce a lower
overall cost of borrowing to the Corporation. If the Corporation elects to convert from a Fixed Rate to a
Floating Rate, the Margin may be lower (if being added to the Applicable Index) or higher (if being
subtracted from the Applicable Index) than prevailing spreads at the time of such conversion on other
floating rate securities issued by the Corporation with comparable maturities using the same Applicable
Index, and the interest rate at any time may be lower than that payable on other securities of the
Corporation. Conversely, if the Corporation elects to convert from a Floating Rate to a Fixed Rate, the
Fixed Rate may be lower than prevailing interest rates on other securities of the Corporation.
The prices at which zero coupon instruments, such as Zero Coupon Notes, interest components
and, in certain cases, principal components, trade in the secondary market tend to fluctuate more in
relation to general changes in interest rates than do such prices for conventional interest-bearing
securities with comparable maturities. This also is generally true in the case of other instruments issued
at a substantial discount or premium from the nominal amount payable on such instruments, such as
Notes issued at a substantial discount to their nominal amount or Notes issued with significantly abovemarket interest rates. Generally, the longer the remaining term of such instruments, the greater their
price volatility as compared to that for conventional interest-bearing securities with comparable
maturities.
Legal Investment Risks
Investors should consult their own legal advisors in determining whether and to what extent Notes
constitute legal investments for such investors and whether and to what extent Notes can be used as
collateral for various types of borrowings. In addition, financial institutions should consult their legal
advisors or regulators in determining the appropriate treatment of Notes under any applicable riskbased capital or similar rules.
Investors whose investment activities are subject to investment laws and regulations or to review
or regulation by certain authorities may be subject to restrictions on investments in certain types of debt
securities, which may include Notes. Investors should review and consider such restrictions prior to
investing in Notes.
Risk Factors relating to the Corporation
As described in more detail in the Corporation’s Information Statement, the Corporation is an
experienced supranational organization providing financing and financial services primarily to the
private sector in developing countries that are members of the Corporation. The Corporation’s
investment products include, among others, loans, equity and quasi-equity investments, guarantees and
partial credit guarantees, and client risk management products. The Corporation’s disbursed investment
portfolio is diversified by country, region, industry, sector and project type, and it operates under a
comprehensive enterprise risk management framework. The value of the Corporation’s investments,
and the financial returns on them, are subject to the risk of adverse changes in the financial condition of
the Corporation’s clients, which may arise from factors specific to a particular client or industry or
from changes in the macroeconomic environment or the financial markets in the countries in which a
client operates.
Minimum Specified Denominations
In relation to any issue of Bearer Notes which have a denomination consisting of the minimum
Specified Denomination plus a higher integral multiple of another smaller amount, it is possible that the
18
Notes may be traded in amounts in excess of the minimum Specified Denomination that are not integral
multiples of the minimum Specified Denomination. In such a case a Noteholder who, as a result of
trading such amounts, holds a principal amount of less than the minimum Specified Denomination will
not receive a definitive Bearer Note in respect of such holding (should definitive Notes be printed) and
would need to purchase a principal amount of Notes such that it holds an amount equal to one or more
Specified Denominations.
Convertibility and Remittance Restrictions
The CNY Notes are denominated in Renminbi. Renminbi is not a freely convertible currency as
of the date hereof and this may adversely affect the liquidity of the CNY Notes. There are significant
restrictions on the remittance of Renminbi into and outside the People’s Republic of China (the
“PRC”). The PRC government continues to regulate conversion between Renminbi and foreign
currencies despite significant reduction in control by it in recent years over trade transactions involving
import and export of goods and services as well as other frequent routine foreign exchange
transactions. These transactions are known as current account items. Participating banks in Hong Kong
have been permitted to engage in the settlement of current account trade transactions in Renminbi
under a pilot scheme introduced in July 2009 which originally applied to approved pilot enterprises in
five cities in the PRC. The pilot scheme was extended in August 2011 to cover the whole nation and to
make RMB trade and other current account item settlement available in all countries worldwide.
On April 7, 2011, the State Administration of Foreign Exchange of the PRC (“SAFE”)
promulgated the Circular on Issues Concerning the Capital Account Items in connection with CrossBorder Renminbi (the “SAFE Circular”), which became effective on May 1, 2011. According to the
SAFE Circular, in the event that foreign investors intend to use cross-border Renminbi (including
offshore Renminbi and onshore Renminbi held in the accounts of non PRC residents) to make a
contribution to an onshore enterprise or make a payment for the transfer of an equity interest of an
onshore enterprise by a PRC resident, such onshore enterprise shall be required to submit the relevant
prior written consent from the Ministry of Commerce of the PRC (“MOFCOM”) to the relevant local
branches of SAFE of such onshore enterprise and register for a foreign invested enterprise status.
Further, the SAFE Circular clarifies that the foreign debts borrowed, and the external guarantee
provided, by an onshore entity (including a financial institution) in Renminbi shall, in principle, be
regulated under the current PRC foreign debt and external guarantee regime.
On October 12, 2011, MOFCOM promulgated the Circular on Issues in relation to Cross-border
Renminbi Foreign Direct Investment Cross-border Renminbi (the “MOFCOM RMB FDI Circular”). In
accordance with the MOFCOM RMB FDI Circular, MOFCOM and its local counterparts are
authorised to approve Renminbi foreign direct investments (“RMB FDI”) in accordance with existing
PRC laws and regulations regarding foreign investment, with certain exceptions which require the
preliminary approval by the provincial counterpart of MOFCOM and the consent of MOFCOM. The
MOFCOM RMB FDI Circular also states that the proceeds of RMB FDI may not be used towards
investment in securities, financial derivatives or entrustment loans in the PRC, except for investments
in PRC domestic listed companies through private placements or share transfers by agreement under
the PRC strategic investment regime.
On October 13, 2011, the People’s Bank of China, the central bank of the PRC (the “PBoC”)
issued the Measures on Administration of Renminbi Settlement in relation to Foreign Direct
Investment (the “PBoC RMB FDI Measures”), to commence the PBOC’s detailed RMB FDI
administration system, which covers almost all aspects of RMB FDI, including capital injection,
payment of purchase price in the acquisition of PRC domestic enterprises, repatriation of dividends and
distribution, as well as RMB denominated cross-border loans. Under the PBOC RMB FDI Measures,
special approval for RMB FDI and shareholder loans from the PBOC which was previously required is
no longer necessary. In some cases however, post-event filing with the PBOC is still necessary. The
MOFCOM RMB FDI Circular and the PBOC RMB FDI Measures, which are new regulations, will be
subject to interpretation and application by the relevant PRC authorities.
There is no assurance that the PRC government will continue to gradually liberalise the control
over cross-border Renminbi remittances in the future, that the pilot scheme introduced in July 2009 will
not be discontinued or that new PRC regulations will not be promulgated in the future which have the
effect of restricting or eliminating the remittance of Renminbi into or outside the PRC. Further, if any
19
new PRC regulations are promulgated in the future which have the effect of permitting or restricting (as
the case may be) the remittance of Renminbi for payment of transactions categorised as capital account
items, then such remittances will need to be made subject to the specific requirements or restrictions set
out in such rules. In the event that funds cannot be repatriated outside the PRC in Renminbi, the Issuer
will need to source Renminbi outside the PRC to finance its obligations under the CNY Notes, and its
ability to do so will be subject to the overall availability of Renminbi outside the PRC.
Holders of interests in the CNY Notes denominated in Renminbi may be required to provide
certifications and other information (including Renminbi account information) in order to allow the
relevant paying agent to carry out the relevant procedures to process payments in Renminbi in
accordance with the permitted banking practices and for such holders to receive payments in Renminbi.
Availability of Renminbi Outside the PRC is Limited
There is only limited availability of Renminbi outside the PRC, which may affect the liquidity of
the CNY Notes and the Corporation’s ability to source Renminbi outside the PRC to service the CNY
Notes.
As a result of the restrictions by the PRC government on cross-border Renminbi fund flows, the
availability of Renminbi outside of the PRC is limited. Since February 2004, in accordance with
arrangements between the PRC government and the Hong Kong government, licensed banks in Hong
Kong may offer limited Renminbi-denominated banking services to Hong Kong residents and specified
business customers. The PBoC has also established a Renminbi clearing and settlement system for
participating banks in Hong Kong. On July 19, 2010, further amendments were made to the Settlement
Agreement on the Clearing of RMB Business (the “Settlement Agreement”) between the PBoC and
Bank of China (Hong Kong) Limited (the “Renminbi Clearing Bank”) to further expand the scope of
Renminbi business for participating banks in Hong Kong. Pursuant to the revised arrangements, all
corporations are allowed to open Renminbi accounts in Hong Kong; there is no longer any limit on the
ability of corporations to convert Renminbi; and there will no longer be any restriction on the transfer
of Renminbi funds between different accounts in Hong Kong.
However, the current size of Renminbi-denominated financial assets outside the PRC is limited.
Renminbi business participating banks do not have direct Renminbi liquidity support from PBoC. The
Renminbi Clearing Bank only has access to onshore liquidity support from PBoC to square open
positions of participating banks for limited types of transactions, including open positions resulting
from conversion services for corporations relating to cross-border trade settlement and for individual
customers of up to CNY20,000 per person per day and for the designated business customers relating to
the RMB received in providing their services. The relevant Renminbi Clearing Bank is not obliged to
square for participating banks any open positions resulting from other foreign exchange transactions or
conversion services and the participating banks will need to source Renminbi from the offshore market
to square such open positions.
Although it is expected that the offshore Renminbi market will continue to grow in depth and size,
its growth is subject to many constraints as a result of PRC laws and regulations on foreign exchange.
There is no assurance that new PRC regulations will not be promulgated or the Settlement Agreement
will not be terminated or amended in the future which will have the effect of restricting availability of
Renminbi offshore. The limited availability of Renminbi outside the PRC may affect the liquidity of the
CNY Notes. To the extent the Issuer is required to source Renminbi in the offshore market to service
the CNY Notes, there is no assurance that the Issuer will be able to source such Renminbi on
satisfactory terms, if at all.
Payments for the CNY Notes will be Made in the Manner Specified in the CNY Notes
All payments to investors in respect of the CNY Notes will be made, solely for so long as the
CNY Notes are represented by a Global Certificate held with the common depositary for Clearstream,
Luxembourg and Euroclear, by transfer to a Renminbi bank account maintained in Hong Kong. The
Corporation cannot be required to make payment by any other means (including in any other currency
or by transfer to a bank account in the PRC).
20
TERMS AND CONDITIONS OF THE NOTES
The following is the text of the terms and conditions (the “Conditions” and each a “Condition”)
that, subject to completion and amendment and as supplemented or varied in accordance with the
provisions of Part A of the applicable Final Terms, will apply to the Notes referred to in such Final
Terms. If Notes are to be printed in definitive form either (i) the full text of these Conditions together
with the relevant provisions of the Final Terms or (ii) these Conditions as so completed, amended,
supplemented or varied (and subject to simplification by the deletion of non-applicable provisions),
shall be endorsed on the Definitive Bearer Notes (as defined below) or on the Certificates (as defined
below) relating to such Registered Notes (as defined below).
The Bearer Notes and the Registered Notes (each as defined in Condition 1(a)) are issued pursuant
to an Amended and Restated Global Agency Agreement (as amended or supplemented as at the date of
issue of the Notes (the “Issue Date”)), dated as of June 3, 2008 (the “Global Agency Agreement”)
between the Corporation, Citibank, N.A., London Branch, as global agent and the other agents named
therein and, in the case of Bearer Notes and Registered Notes to be cleared through The Central
Depository (Pte) Limited, as supplemented by the Supplemental Agency Agreement dated as at June 3,
2008 (the “Supplemental Agency Agreement”) between the Corporation and Citibank, N.A., Singapore
Branch, as Singapore paying agent, and the other agent named therein and, in the case of Bearer Notes
and Registered Notes governed by English law, with the benefit of an Amended and Restated Deed of
Covenant (as amended or supplemented as at the Issue Date, the “Deed of Covenant”) dated as of June
3, 2008 executed by the Corporation in relation to the Notes. The original executed Deed of Covenant
is held by the global agent. The Global Agency Agreement includes forms of the Notes (other than Fed
Bookentry Notes (as defined in Condition 1(a)) and the receipts (if any) for the payment of instalments
of principal (the “Receipts”) relating to Notes in bearer form of which the principal is payable in
instalments, the coupons (if any) attaching to interest-bearing Notes in bearer form (the “Coupons”)
and the talons (if any) for further Coupons relating to such Notes (the “Talons”). The global agent, the
paying agents, the registrar, the transfer agents, the exchange agent(s), the determination agent(s) and
the calculation agent(s) are referred to below respectively as the “Global Agent”, the “Paying Agents”
(which expression shall also include the Global Agent and such additional paying agents the
Corporation may appoint from time to time or in connection with particular issues of Notes), the
“Registrar”, the “Transfer Agents”, the “Exchange Agent(s)”, “the Determination Agent(s)” and the
“Calculation Agent(s)” (which expressions shall include their respective successors and any additional
agents appointed as such by the Corporation from time to time). The Global Agent, the Registrar, the
Transfer Agent, the Exchange Agent(s), the Determination Agent(s), the Calculation Agent(s) and the
Federal Reserve Bank of New York are together referred to herein as the “Agents”. Unless otherwise
specified in these Conditions, the Calculation Agent will be Citibank, N.A., London Branch. The
Noteholders (as defined below), the holders (the “Couponholders”) of the interest coupons
appertaining to interest bearing Notes in bearer form and, where applicable in the case of such Notes,
talons for further Coupons, and the holders of the receipts for the payment of instalments of principal
relating to Bearer Notes of which the principal is payable in instalments are bound by and are deemed
to have notice of all of the provisions of the Global Agency Agreement, the Deed of Covenant and the
Final Terms relevant to such Notes. Copies of the Global Agency Agreement and the Deed of Covenant
are available for inspection at the specified offices of each of the Global Agent, the Registrar and the
Transfer Agents.
The Fed Bookentry Notes are issued in accordance with a uniform fiscal agency agreement
effective as of July 20, 2006 (as amended and supplemented from time to time, the “Fiscal Agency
Agreement”) and made between the Corporation and the Federal Reserve Bank of New York, as fiscal
and paying agent (the “Fiscal Agent”). Copies of the Fiscal Agency Agreement are available for
inspection at the specified offices of the Fiscal Agent.
In these Conditions, “Noteholder” means the bearer of any Bearer Note and the Receipts relating
to it or the Federal Reserve Bank of New York for Fed Bookentry Notes or the person in whose name a
Registered Note is registered, and “holder” (in relation to a Bearer Note, Receipt, Coupon or Talon)
means the bearer of any Bearer Note, Receipt, Coupon or Talon or, in relation to a Fed Bookentry
Note, the Federal Reserve Bank of New York or, in relation to a Registered Note, the person in whose
name a Registered Note is registered, as the case may be.
21
For Notes which are not Definitive Bearer Notes, Fed Bookentry Notes or individually certificated
Registered Notes represented by Certificates (each as defined in Condition 1(a)), references in these
Conditions to terms specified on a Note or specified hereon shall be deemed to include references to
terms specified in the applicable Final Terms issued in respect of a particular issue of Notes of which
such Note forms a part (each a “Final Terms”) and which will be attached to such Note. For Notes
which are Fed Bookentry Notes, references in these Conditions to terms specified on a Fed Bookentry
Note or specified hereon shall be deemed to be references to the Final Terms applicable to such Fed
Bookentry Note.
These Conditions may be amended, modified or varied in relation to any Series of Notes by the
terms of the applicable Final Terms in relation to such Series. All capitalized terms that are not defined
in these Conditions will have the meanings given to them in the applicable Final Terms.
1. Form, Denomination, Title and Specified Currency
(a) Form: Each issue of Notes of which this Note forms a part (the “Notes”) is issued as:
(i)
bearer notes (“Bearer Notes”) in the nominal amount of a Specified Denomination (as
defined in Condition 1(b));
(ii)
uncertificated bookentry notes (“Fed Bookentry Notes”) in the nominal amount of a
Specified Denomination; and/or
(iii)
registered notes other than those registered notes issued in exchange for Fed Bookentry
Notes (“Registered Notes”) in the nominal amount of a Specified Denomination,
as specified on such Note, and these Conditions must be read accordingly. An issue of Notes may
comprise either Bearer Notes only, Registered Notes only, Registered Notes and Bearer Notes only, or
Fed Bookentry Notes only (except as provided in Condition 2(b)).
Bearer Notes may be issued in global form and/or definitive bearer form (“Definitive Bearer
Notes”). Bearer Notes in definitive form are serially numbered and are issued with Coupons (and,
where appropriate, a Talon) attached, except in the case of Notes that do not bear interest, in which case
references to interest (other than in relation to interest due after the Maturity Date), Coupons and
Talons in these Conditions are not applicable. Any Bearer Note the nominal amount of which is
redeemable in instalments is issued with one or more Receipts attached.
Registered Notes are represented by registered certificates (“Certificates”) in global and/or
definitive form. Except as provided in Condition 2(c), one Certificate (including Certificates in global
form) representing the aggregate nominal amount of Registered Notes held by the same holder will be
issued to such holder, unless more than one Certificate is required for clearance and settlement
purposes. Each Certificate will be numbered serially with an identifying number, which will be
recorded in the register (the “Register”) kept by the Registrar.
(b) Denomination: “Specified Denomination” means the denomination or denominations
specified on such Note.
(c) Title:
(i)
Title to Bearer Notes and Receipts, Coupons and Talons shall pass by delivery.
(ii)
The Corporation may deem and treat the Federal Reserve Bank of New York, in respect
of all Fed Bookentry Notes, as the absolute owner thereof for all purposes whatsoever
notwithstanding any notice to the contrary and all payments to or on the order of the
Federal Reserve Bank of New York and such registered owner, respectively, shall be
valid and effective to discharge the liability of the Corporation with respect to such Fed
Bookentry Notes to the extent of the sum or sums so paid. As custodian of Fed
Bookentry Notes, the Federal Reserve Bank of New York may deem and treat other
Federal Reserve Banks and Branches and Holding Institutions (as defined below)
located in the Second Federal Reserve District holding any Fed Bookentry Notes as the
absolute owner thereof for all purposes whatsoever notwithstanding any notice to the
contrary; and all payments to or on the order of such Federal Reserve Banks or
Branches or Holding Institutions, as the case may be, shall be valid and effective to
discharge the liability of the Corporation with respect to such Fed Bookentry Notes to
22
the extent of the sum or sums paid. A “Holding Institution” is a depositary or other
designated institution that has an appropriate bookentry account with a Federal Reserve
Bank or Branch.
The Corporation, the Global Agent, the Paying Agents, the Registrar and the Transfer
Agents shall be entitled to deem and treat the bearer of any Bearer Note, Receipt,
Coupon or Talon, or the Federal Reserve Bank of New York for Fed Bookentry Notes,
or the registered holder of any Registered Note, to be the absolute owner thereof for the
purpose of making payments and for all other purposes, whether or not such Bearer
Note, Receipt, Coupon or Talon, Fed Bookentry Note or Registered Note is overdue and
regardless of any notice of ownership, trust or an interest therein, any writing thereon
(or on the Certificate representing it) or any notice of any previous theft or loss thereof
(or of the related Certificate), and all payments on a Note or Coupon to such holder
shall be deemed valid and effectual to discharge the liability of the Corporation in
respect of such Note or Coupon to the extent of the sum or sums so paid.
(iii)
Title to Registered Notes shall pass by registration in the Register in accordance with
the provisions of the Global Agency Agreement or otherwise in accordance with
applicable law.
(d) Specified Currency: The Specified Currency of any Note is as specified hereon. Unless
otherwise specified hereon, all payments of principal and interest in respect of a Note shall be made in
the Specified Currency.
2. Transfers of Registered Notes and Exchanges of Bearer Notes
(a) Transfers:
(i)
Subject as provided in Condition 2(g), Registered Notes may be transferred in whole or
in part in a Specified Denomination upon the surrender (at the specified office of the
Registrar or any Transfer Agent) of the Certificate representing such Registered Notes
to be transferred, together with the form of transfer endorsed on such Certificate duly
completed and executed. In the case of a transfer of part only of Registered Notes
represented by one Certificate, a new Certificate shall be issued to the transferee in
respect of the part transferred and a further new Certificate in respect of the balance of
the interest in the Notes not transferred shall be issued to the transferor. In the case of a
transfer of Registered Notes to a person who is already a holder of Registered Notes, a
new Certificate representing the transferee’s aggregate interest in the Notes shall only
be issued against surrender of the Certificate representing its existing interest in the
Notes.
(ii)
Registered Notes may not be exchanged for Bearer Notes.
(b) Transfer of Fed Bookentry Notes: Fed Bookentry Notes may be transferred between Holding
Institutions, in Federal Reserve Districts where the respective Federal Reserve Banks have adopted
appropriate procedures, in accordance with such procedures. Fed Bookentry Notes may not be
exchanged for Registered Notes or for Bearer Notes.
(c) Partial Exercise of Options or Partial Redemption in Respect of Registered Notes: In the case
of a partial redemption (in respect of an exercise of the Corporation’s or the Noteholder’s option or
otherwise) of Registered Notes represented by a single Certificate, a new Certificate in respect of the
balance of the interest in any such Registered Notes not redeemed shall be issued to the holder to
reflect the exercise of such option. In the case of a partial exercise of an option (other than in respect of
optional redemption), one or more new Certificates may be issued to the relevant holders reflecting
such exercise. New Certificates shall only be issued against surrender of the existing Certificates to the
Registrar or any Transfer Agent.
(d) Exchange of Bearer Notes: Subject as provided in Condition 2(g), and if so provided hereon,
Bearer Notes may be exchanged for the same aggregate nominal amount of Registered Notes of the
same Series at the request in writing of the relevant Noteholder and upon surrender of each Bearer Note
to be exchanged, together with all unmatured Receipts, Coupons and Talons relating to it, at the
specified office of any Transfer Agent; provided, however, that where such Bearer Note is surrendered
23
for exchange after the Record Date (as defined in Condition 6(c)) for any payment of interest, the
Coupon in respect of that payment of interest need not be surrendered with it. Bearer Notes of one
Specified Denomination may not be exchanged for Bearer Notes of another Specified Denomination.
(e) Delivery of New Certificates and Notes: New Certificate(s) or Note(s) issued upon any
transfer, exchange, partial redemption or partial exercise of options in accordance with this Condition 2
shall be mailed by uninsured post at the risk of the holder entitled to the new Certificate or Note to such
address as may be so specified in the request for transfer or exchange, or in the redemption exercise
notice delivered by the holder requesting such transfer, exchange or partial redemption, to the relevant
Transfer Agent or Registrar, as the case may be (in respect of Registered Notes), or (if no address is so
specified) as appears in the Register, or otherwise in accordance with the customary procedures of the
relevant Transfer Agent, the Registrar or the Fiscal Agent, as the case may be, unless such holder
requests otherwise and pays in advance to the relevant Agent the costs of such other method of delivery
and/or such insurance as it may specify.
(f) Exchange Free of Charge: Exchanges of Bearer Notes for Registered Notes and registrations
of transfers of Certificates shall be effected without charge by or on behalf of the Corporation, the
Registrar or the Transfer Agents, provided that the transferor or holder shall bear the expense of the
issue and delivery of any Registered Note and shall make any payment of any tax or other
governmental charges that may be imposed in relation to it (or the giving of such indemnity as the
Registrar or the relevant Transfer Agent may require).
(g) Closed Periods: No transfer of a Registered Note or the exchange of a Bearer Note for one or
more Registered Note(s) will be effected (i) in the case of a transfer of a Registered Note or exchange
of a Bearer Note, during the period of 15 days immediately preceding the due date for any payment of
principal, redemption amount or premium (if any) in respect of that Note, or, in the case of a transfer of
a Fed Bookentry Note, during the period of 10 days immediately preceding the due date for any
payment of principal, redemption amount or premium (if any) in respect of that Note, (ii) during the
notice period immediately preceding any date on which Notes may be called for redemption by the
Corporation at its option pursuant to Condition 5(c), (iii) after any such Note has been called for
redemption or (iv) during the period of 7 days ending on (and including) any Record Date (as defined
in Condition 6(c)). If specified hereon that Bearer Notes may be exchanged for Registered Notes, then
any such Bearer Note called for redemption may be exchanged for one or more Registered Note(s) not
later than the relevant Record Date, provided that the Certificate in respect of such Registered Note(s)
is simultaneously surrendered.
(h) Provisions Concerning Transfers: All transfers of Registered Notes and entries on the
Register will be made in accordance with the relevant procedures of the Registrar. A copy of the
relevant procedures will be made available by the Registrar to any holder of a Registered Note upon
request.
3. Status of Notes
The Notes are direct, unconditional, general and unsecured obligations of the Corporation ranking
pari passu and without any preference among themselves and pari passu with all other outstanding
unsecured and unsubordinated obligations for borrowed money of the Corporation.
THE NOTES ARE NOT OBLIGATIONS OF THE INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT OR OF ANY GOVERNMENT.
4. Interest
(a) Interest on Fixed Rate Notes: Each Fixed Rate Note bears interest on its outstanding nominal
amount from and including the Interest Commencement Date at the rate per annum equal to the Rate of
Interest, such interest being payable in arrear on each Interest Payment Date. The amount of interest
payable shall be determined in accordance with Condition 4(h).
(b) Interest on Floating Rate Notes and Index Linked Interest Notes:
(i)
Interest Payment Dates:
Each Floating Rate Note and Index Linked Interest Note bears interest on its
outstanding nominal amount from and including the Interest Commencement Date at
24
the rate per annum (expressed as a percentage) equal to the Rate of Interest, such
interest being payable in arrear on each Interest Payment Date. The amount of interest
payable shall be determined in accordance with Condition 4(h). Such Interest Payment
Date(s) is/are either specified hereon as Specified Interest Payment Dates or, if no
Specified Interest Payment Date(s) is/are specified hereon, Interest Payment Date shall
mean each date which falls the number of months or other period specified hereon as
the Interest Period after the preceding Interest Payment Date or, in the case of the first
Interest Payment Date, after the Interest Commencement Date.
(ii)
Business Day Convention:
If any date referred to in these Conditions that is specified to be subject to adjustment in
accordance with a Business Day Convention would otherwise fall on a day that is not a
Business Day, then, if the Business Day Convention specified is (A) the Floating Rate
Business Day Convention, such date shall be postponed to the next day that is a
Business Day unless it would thereby fall into the next calendar month, in which event
(x) such date shall be brought forward to the immediately preceding Business Day and
(y) each subsequent such date shall be the last Business Day of the month in which such
date would have fallen had it not been subject to adjustment, (B) the Following
Business Day Convention, such date shall be postponed to the next day that is a
Business Day, (C) the Modified Following Business Day Convention, such date shall be
postponed to the next day that is a Business Day unless it would thereby fall into the
next calendar month, in which event such date shall be brought forward to the
immediately preceding Business Day or (D) the Preceding Business Day Convention,
such date shall be brought forward to the immediately preceding Business Day.
(iii)
Rate of Interest for Floating Rate Notes:
The Rate of Interest in respect of Floating Rate Notes for each Interest Accrual Period
shall be determined in the manner specified hereon and the provisions below relating to
either ISDA Determination or Screen Rate Determination shall apply, depending upon
which is specified hereon.
(A) ISDA Determination for Floating Rate Notes
Where ISDA Determination is specified hereon as the manner in which the Rate of
Interest is to be determined, the Rate of Interest for each Interest Accrual Period
shall be determined by the Calculation Agent as a rate equal to the relevant ISDA
Rate. For the purposes of this sub-paragraph (A), “ISDA Rate” for an Interest
Accrual Period means a rate equal to the Floating Rate that would be determined
by the Calculation Agent under a Swap Transaction under the terms of an
agreement incorporating the ISDA Definitions and under which:
(x) the Floating Rate Option is as specified hereon;
(y) the Designated Maturity is a period specified hereon; and
(z) the relevant Reset Date is the first day of that Interest Accrual Period unless
otherwise specified hereon.
For the purposes of this sub-paragraph (A), “Floating Rate”, “Calculation Agent”,
“Floating Rate Option”, “Designated Maturity”, “Reset Date” and “Swap
Transaction” have the meanings given to those terms in the ISDA Definitions.
(B) Screen Rate Determination for Floating Rate Notes
(x) Where Screen Rate Determination is specified hereon as the manner in which
the Rate of Interest is to be determined, the Rate of Interest for each Interest
Accrual Period will, subject as provided below, be either:
(1) the offered quotation; or
(2) the arithmetic mean of the offered quotations,
25
(expressed as a percentage rate per annum) for the Reference Rate which
appears or appear, as the case may be, on the Relevant Screen Page as at
either 11.00 a.m. (London time in the case of LIBOR or Brussels time in the
case of EURIBOR) on the Interest Determination Date in question as
determined by the Calculation Agent. If five or more of such offered
quotations are available on the Relevant Screen Page, the highest (or, if there
is more than one such highest quotation, one only of such quotations) and the
lowest (or, if there is more than one such lowest quotation, one only of such
quotations) shall be disregarded by the Calculation Agent for the purpose of
determining the arithmetic mean of such offered quotations.
If the Reference Rate from time to time in respect of Floating Rate Notes is
specified hereon as being other than LIBOR or EURIBOR, the Rate of
Interest in respect of such Notes will be determined as provided hereon.
(y) If the Relevant Screen Page is not available or, if sub-paragraph (x)(1) applies
and no such offered quotation appears on the Relevant Screen Page, or, if
sub-paragraph (x)(2) applies and fewer than three such offered quotations
appear on the Relevant Screen Page, in each case as at the time specified
above, subject as provided below, the Calculation Agent shall request, if the
Reference Rate is LIBOR, the principal London Branch of each of the
Reference Banks or, if the Reference Rate is EURIBOR, the principal Eurozone office of each of the Reference Banks, to provide the Calculation Agent
with its offered quotation (expressed as a percentage rate per annum) for the
Reference Rate if the Reference Rate is LIBOR, at approximately 11.00 a.m.
(London time), or if the Reference Rate is EURIBOR, at approximately 11.00
a.m. (Brussels time) on the Interest Determination Date in question. If two or
more of the Reference Banks provide the Calculation Agent with such offered
quotations, the Rate of Interest for such Interest Accrual Period shall be the
arithmetic mean of such offered quotations as determined by the Calculation
Agent.
(z) If paragraph (y) above applies and the Calculation Agent determines that
fewer than two Reference Banks are providing offered quotations, subject as
provided below, the Rate of Interest shall be the arithmetic mean of the rates
per annum (expressed as a percentage) as communicated to (and at the
request of) the Calculation Agent by the Reference Banks or any two or more
of them, at which such banks were offered, if the Reference Rate is LIBOR,
at approximately 11.00 a.m. (London time) or, if the Reference Rate is
EURIBOR, at approximately 11.00 a.m. (Brussels time) on the relevant
Interest Determination Date, deposits in the Specified Currency for a period
equal to that which would have been used for the Reference Rate by leading
banks in, if the Reference Rate is LIBOR, the London inter-bank market or, if
the Reference Rate is EURIBOR, the Euro-zone inter-bank market, as the
case may be, or, if fewer than two of the Reference Banks provide the
Calculation Agent with such offered rates, the offered rate for deposits in the
Specified Currency for a period equal to that which would have been used for
the Reference Rate, or the arithmetic mean of the offered rates for deposits in
the Specified Currency for a period equal to that which would have been used
for the Reference Rate, at which, if the Reference Rate is LIBOR, at
approximately 11.00 a.m. (London time) or, if the Reference Rate is
EURIBOR, at approximately 11.00 a.m. (Brussels time), on the relevant
Interest Determination Date, any one or more banks (which bank or banks is
or are in the opinion of the Calculation Agent and the Corporation suitable for
such purpose) informs the Calculation Agent it is quoting to leading banks in,
if the Reference Rate is LIBOR, the London inter-bank market or, if the
Reference Rate is EURIBOR, the Euro-zone inter-bank market, as the case
may be, provided that, if the Rate of Interest cannot be determined in
accordance with the foregoing provisions of this paragraph, the Rate of
26
Interest shall be determined as at the last preceding Interest Determination
Date (though substituting, where a different Margin or Maximum or
Minimum Rate of Interest is to be applied to the relevant Interest Accrual
Period from that which applied to the last preceding Interest Accrual Period,
the Margin or Maximum or Minimum Rate of Interest relating to the relevant
Interest Accrual Period, in place of the Margin or Maximum or Minimum
Rate of Interest relating to that last preceding Interest Accrual Period).
(iv)
Rate of Interest for Index Linked Interest Notes:
The Rate of Interest in respect of Index Linked Interest Notes for each Interest Accrual
Period shall be determined in the manner specified hereon and interest will accrue by
reference to an Index or Formula as specified hereon.
(c) Zero Coupon Notes: Where a Note the Interest Basis of which is specified to be Zero Coupon
is repayable prior to the Maturity Date, the amount due and payable prior to the Maturity Date shall be
the Early Redemption Amount of such Note. As from the Maturity Date, the Rate of Interest for any
overdue principal of such a Note shall be a rate per annum (expressed as a percentage) equal to the
Amortization Yield (as described in Condition 5(b)(i)).
(d) Dual Currency Notes: In the case of Dual Currency Notes, if the rate or amount of interest
fails to be determined by reference to a Rate of Exchange or a method of calculating Rate of Exchange,
the rate or amount of interest payable shall be determined in the manner specified hereon.
(e) Partly Paid Notes: In the case of Partly Paid Notes (other than Partly Paid Notes which are
Zero Coupon Notes), interest will accrue as aforesaid on the paid-up nominal amount of such Notes and
otherwise as specified hereon.
(f) Accrual of Interest: Interest shall cease to accrue on each Note on the due date for redemption
unless, upon due presentation, payment is improperly withheld or refused, in which event interest shall
continue to accrue (as well after as before judgment) at the Rate of Interest in the manner provided in
this Condition 4 to the Relevant Date (as defined in Condition 7).
(g) Margin, Maximum/Minimum Rates of Interest, Instalment Amounts and Redemption Amounts
and Rounding:
(i)
If any Margin is specified hereon (either (x) generally, or (y) in relation to one or more
Interest Accrual Periods), an adjustment shall be made to all Rates of Interest, in the
case of (x), or the Rates of Interest for the specified Interest Accrual Periods, in the case
of (y), calculated in accordance with (b) above by adding (if a positive number) or
subtracting the absolute value (if a negative number) of such Margin subject always to
the next paragraph;
(ii)
If any Maximum or Minimum Rate of Interest, Instalment Amount or Redemption
Amount is specified hereon, then any Rate of Interest, Instalment Amount or
Redemption Amount shall be subject to such maximum or minimum, as the case may
be;
(iii)
For the purposes of any calculations required pursuant to these Conditions (unless
otherwise specified), (x) all percentages resulting from such calculations shall be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with
halves being rounded up), (y) all figures shall be rounded to seven significant figures
(with halves being rounded up) and (z) all currency amounts that fall due and payable
shall be rounded to the nearest unit of such currency (with halves being rounded up),
save in the case of yen, which shall be rounded down to the nearest yen. For these
purposes “unit” means the lowest amount of such currency that is available as legal
tender in the country(ies) of such currency.
(h) Calculations: The amount of interest payable per Calculation Amount in respect of any Note
for any Interest Accrual Period shall be equal to the product of the Rate of Interest, the Calculation
Amount specified hereon, and the Day Count Fraction for such Interest Accrual Period, unless an
Interest Amount (or a formula for its calculation) is applicable to such Interest Accrual Period, in which
case the amount of interest payable per Calculation Amount in respect of such Note for such Interest
27
Accrual Period shall equal such Interest Amount (or be calculated in accordance with such formula).
Where any Interest Period comprises two or more Interest Accrual Periods, the amount of interest
payable per Calculation Amount in respect of such Interest Period shall be the sum of the Interest
Amounts payable in respect of each of those Interest Accrual Periods. In respect of any other period for
which interest is required to be calculated, the provisions above shall apply save that the Day Count
Fraction shall be for the period for which interest is required to be calculated. If the Calculation
Amount is not specified hereon, the Calculation Amount shall equal the minimum Specified
Denomination.
(i) Determination and Publication of Rates of Interest, Interest Amounts, Final Redemption
Amounts, Early Redemption Amounts, Optional Redemption Amounts and Instalment Amounts: The
Calculation Agent shall, as soon as practicable on such date as the Calculation Agent may be required
to calculate any rate or amount, obtain any quotation or make any determination or calculation,
determine such rate and calculate the Interest Amounts for the relevant Interest Accrual Period,
calculate the Final Redemption Amount, Early Redemption Amount, Optional Redemption Amount or
Instalment Amount, obtain such quotation or make such determination or calculation, as the case may
be, and cause the Rate of Interest and the Interest Amounts for each Interest Accrual Period and the
relevant Interest Payment Date and, if required to be calculated, the Final Redemption Amount, Early
Redemption Amount, Optional Redemption Amount or any Instalment Amount to be notified to the
Global Agent, Fiscal Agent, the Corporation, each of the Paying Agents, the Noteholders, any other
Calculation Agent appointed in respect of the Notes that is to make a further calculation upon receipt of
such information and, if the Notes are listed on a stock exchange and the rules of such exchange or
other relevant authority so require, such exchange or other relevant authority as soon as possible after
their determination but in no event later than (i) the commencement of the relevant Interest Period, if
determined prior to such time, in the case of notification to such exchange of a Rate of Interest and
Interest Amount, or (ii) in all other cases, the fourth Business Day after such determination. Where any
Interest Payment Date or Interest Period Date is subject to adjustment pursuant to Condition 4(b)(ii),
the Interest Amounts and the Interest Payment Date so published may subsequently be amended (or
appropriate alternative arrangements made by way of adjustment) without notice in the event of an
extension or shortening of the Interest Period. If the Notes become due and payable under Condition 9,
the accrued interest and the Rate of Interest payable in respect of the Notes shall nevertheless continue
to be calculated as previously in accordance with this Condition but no publication of the Rate of
Interest or the Interest Amount so calculated needs to be made. The determination of any rate or
amount, the obtaining of each quotation and the making of each determination or calculation by the
Calculation Agent(s) shall (in the absence of manifest error) be final and binding upon all parties.
(j) Definitions: In these Conditions, unless the context otherwise requires, the following defined
terms shall have the meanings set out below:
“Business Day” means:
(i)
in the case of a currency other than euro, a day (other than a Saturday or Sunday) on
which commercial banks and foreign exchange markets settle payments in the principal
financial centre for such currency; and/or
(ii)
in the case of euro, a day on which the TARGET system is operating (a “TARGET
Business Day”); and/or
(iii)
in the case of a currency and/or one or more Business Centres, a day (other than a
Saturday or a Sunday) on which commercial banks and foreign exchange markets settle
payments in such currency in the Business Centre(s) or, if no currency is indicated,
generally in each of the Business Centres.
“Day Count Fraction” means, in respect of the calculation of an Interest Amount on any Note
for any period of time (from and including the first day of such period to but excluding the
last) (whether or not constituting an Interest Period or an Interest Accrual Period, the
“Calculation Period”):
(i)
if “Actual/Actual” or “Actual/Actual - ISDA” is specified hereon, the actual number of
days in the Calculation Period divided by 365 (or, if any portion of that Calculation
Period falls in a leap year, the sum of (A) the actual number of days in that portion of
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the Calculation Period falling in a leap year divided by 366 and (B) the actual number
of days in that portion of the Calculation Period falling in a non-leap year divided by
365);
(ii)
if “Actual/365 (Fixed)” is specified hereon, the actual number of days in the Calculation
Period divided by 365;
(iii)
if “Actual/360” is specified hereon, the actual number of days in the Calculation Period
divided by 360;
(iv)
if “30/360”, “360/360” or “Bond Basis” is specified hereon, the number of days in the
Calculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =
[360 x (Y 2 - Y 1 )] + [30 x (M 2 - M 1 )] + (D 2 - D 1 )
360
where:
“Y 1 ” is the year, expressed as a number, in which the first day of the Calculation Period
falls;
“Y 2 ” is the year, expressed as a number, in which the day immediately following the
last day included in the Calculation Period falls;
“M 1 ” is the calendar month, expressed as a number, in which the first day of the
Calculation Period falls;
“M 2 ” is the calendar month, expressed as a number, in which the day immediately
following the last day included in the Calculation Period falls;
“D 1 ” is the first calendar day, expressed as a number, of the Calculation Period, unless
such number would be 31, in which case D 1 will be 30; and
“D 2 ” is the calendar day, expressed as a number, immediately following the last day
included in the Calculation Period, unless such number would be 31 and D 1 is greater
than 29, in which case D 2 will be 30;
(v)
if “30E/360” or “Eurobond Basis” is specified hereon, the number of days in the
Calculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =
[360 x (Y 2 - Y 1 )] + [30 x (M 2 - M 1 )] + (D 2 – D 1 )
360
where:
“Y 1 ” is the year, expressed as a number, in which the first day of the Calculation Period
falls;
“Y 2 ” is the year, expressed as a number, in which the day immediately following the
last day included in the Calculation Period falls;
“M 1 ” is the calendar month, expressed as a number, in which the first day of the
Calculation Period falls;
“M 2 ” is the calendar month, expressed as a number, in which the day immediately
following the last day included in the Calculation Period falls;
“D 1 ” is the first calendar day, expressed as a number, of the Calculation Period, unless
such number would be 31, in which case D 1 will be 30; and
“D 2 ” is the calendar day, expressed as a number, immediately following the last day
included in the Calculation Period, unless such number would be 31, in which case D 2
will be 30;
(vi)
if “30E/360 (ISDA)” is specified hereon, the number of days in the Calculation Period
divided by 360, calculated on a formula basis as follows:
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Day Count Fraction =
[360 x (Y 2 - Y 1 )] + [30 x (M 2 - M 1 )] + (D 2 – D 1 )
360
where:
“Y 1 ” is the year, expressed as a number, in which the first day of the Calculation Period
falls;
“Y 2 ” is the year, expressed as a number, in which the day immediately following the
last day included in the Calculation Period falls;
“M 1 ” is the calendar month, expressed as a number, in which the first day of the
Calculation Period falls;
“M 2 ” is the calendar month, expressed as a number, in which the day immediately
following the last day included in the Calculation Period falls;
“D 1 ” is the first calendar day, expressed as a number, of the Calculation Period, unless
(i) that day is the last day of February or (ii) such number would be 31, in which case
D 1 will be 30; and
“D 2 ” is the calendar day, expressed as a number, immediately following the last day
included in the Calculation Period, unless (i) that day is the last day of February but not
the Maturity Date or (ii) such number would be 31, in which case D 2 will be 30;
(vii)
if “Actual/Actual-ICMA” is specified hereon,
(a) if the Calculation Period is equal to or shorter than the Determination Period
during which it falls, the number of days in the Calculation Period divided by the
product of (x) the number of days in such Determination Period and (y) the
number of Determination Periods normally ending in any year; and
(b) if the Calculation Period is longer than one Determination Period, the sum of:
(x) the number of days in such Calculation Period falling in the Determination
Period in which it begins divided by the product of (1) the number of days in
such Determination Period and (2) the number of Determination Periods
normally ending in any year; and
(y) the number of days in such Calculation Period falling in the next
Determination Period divided by the product of (1) the number of days in
such Determination Period and (2) the number of Determination Periods
normally ending in any year,
where:
“Determination Period” means the period from and including a Determination
Date in any year to but excluding the next Determination Date; and
“Determination Date” means the date specified as such hereon or, if none is so
specified, the Interest Payment Date; or
(viii)
in all other cases, such other basis as may be agreed, as specified hereon.
“Euro-zone” means the region comprised of member states of the European Union that adopt
the single currency in accordance with the Treaty establishing the European Community, as
amended.
“Interest Accrual Period” means the period beginning on (and including) the Interest
Commencement Date and ending on (but excluding) the first Interest Period Date and each
successive period beginning on (and including) an Interest Period Date and ending on (but
excluding) the next succeeding Interest Period Date.
“Interest Amount” means:
(i)
in respect of an Interest Accrual Period, the amount of interest payable per Calculation
Amount for that Interest Accrual Period and which, in the case of Fixed Rate Notes, and
30
unless otherwise specified hereon, shall mean the Fixed Coupon Amount or Broken
Amount specified hereon as being payable on the Interest Payment Date ending the
Interest Period of which such Interest Accrual Period forms part; and
(ii)
in respect of any other period, the amount of interest payable per Calculation Amount
for that period.
“Interest Commencement Date” means the Issue Date or such other date as may be specified
hereon.
“Interest Determination Date” means, with respect to a Rate of Interest and Interest Accrual
Period, the date specified as such hereon or, if none is so specified, (i) the first day of such
Interest Accrual Period if the Specified Currency is Sterling or (ii) the day falling two
Business Days in London prior to the first day of such Interest Accrual Period if the
Specified Currency is neither Sterling nor euro or (iii) the day falling two TARGET Business
Days prior to the first day of such Interest Accrual Period if the Specified Currency is euro.
“Interest Period” means the period specified as such hereon or, if none is so specified, the
period beginning on (and including) the Interest Commencement Date and ending on (but
excluding) the first Interest Payment Date and each successive period beginning on (and
including) an Interest Payment Date and ending on (but excluding) the next succeeding
Interest Payment Date.
“Interest Period Date” means each Interest Payment Date unless otherwise specified hereon.
“ISDA Definitions” means the 2006 ISDA Definitions, as published by the International
Swaps and Derivatives Association, Inc., unless otherwise specified hereon.
“Rate of Interest” means the rate of interest payable from time to time in respect of this Note
and that is either specified hereon or calculated in accordance with the provisions specified
hereon.
“Reference Banks” means, in the case of a determination of LIBOR, the principal London
office of four major banks in the London inter-bank market and, in the case of a
determination of EURIBOR, the principal Euro-zone office of four major banks in the Eurozone inter-bank market, in each case selected by the Calculation Agent or as specified
hereon.
“Reference Rate” means the rate specified as such hereon.
“Relevant Screen Page” means such page, section, caption, column or other part of a
particular information service as may be specified hereon.
“Specified Currency” means the currency specified as such hereon or, if none is specified,
the currency in which the Notes are denominated.
“TARGET System” means the Trans-European Automated Real-Time Gross Settlement
Express Transfer (TARGET) System or any successor thereto.
(k) Calculation Agent: The Corporation shall procure that there shall at all times be one or more
Calculation Agents if provision is made for them in the applicable Final Terms and for so long as any
Note is outstanding (as defined in the Global Agency Agreement). Where more than one Calculation
Agent is appointed in respect of the Notes, references in these Conditions to the Calculation Agent shall
be construed as each Calculation Agent performing its respective duties under the Conditions. If the
Calculation Agent is unable or unwilling to act as such or if the Calculation Agent fails duly to
establish the Rate of Interest for an Interest Accrual Period or to calculate any Interest Amount,
Instalment Amount, Final Redemption Amount, Early Redemption Amount or Optional Redemption
Amount, as the case may be, or to comply with any other requirement, the Corporation shall appoint a
leading bank or investment banking firm engaged in the interbank market (or, if appropriate, money,
swap or over-the-counter index options market) that is most closely connected with the calculation or
determination to be made by the Calculation Agent (acting through its principal London office or any
other office actively involved in such market) to act as such in its place. The Calculation Agent may not
resign its duties without a successor having been appointed as aforesaid.
31
5. Redemption, Purchase and Options
(a) Final Redemption: Unless previously redeemed, purchased and cancelled as provided below,
each Note shall be finally redeemed on the Maturity Date specified hereon at its Final Redemption
Amount (which, unless otherwise provided, is its nominal amount) or, in the case of a Note falling
within paragraph (b) below, its final Instalment Amount.
(b) Redemption by Instalments: Unless previously redeemed, purchased and cancelled as
provided in this Condition 6, each Note that provides for Instalment Dates and Instalment Amounts
shall be partially redeemed on each Instalment Date at the related Instalment Amount specified hereon.
The outstanding nominal amount of each such Note shall be reduced by the Instalment Amount (or, if
such Instalment Amount is calculated by reference to a proportion of the nominal amount of such Note,
such proportion) for all purposes with effect from the related Instalment Date, unless payment of the
Instalment Amount is improperly withheld or refused, in which case, such amount shall remain
outstanding until the Relevant Date relating to such Instalment Amount.
(c) Early Redemption Amounts:
(i)
Notes Other than Zero Coupon Notes:
The Early Redemption Amount payable in respect of any Note (other than Notes
described in (ii) below), upon it becoming due and payable as provided in Condition 9,
shall be the Final Redemption Amount unless otherwise specified hereon.
(ii)
Zero Coupon Notes:
(A) The Early Redemption Amount payable in respect of any Zero Coupon Note, upon
it becoming due and payable as provided in Condition 9, shall be the Amortized
Face Amount (calculated as provided below) of such Note unless the Early
Redemption Amount is linked to an index and/or a formula, or unless otherwise
specified hereon.
(B) Subject to the provisions of sub-paragraph (C) below, the Amortized Face Amount
of any such Note shall be the scheduled Final Redemption Amount of such Note
on the Maturity Date discounted at a rate per annum (expressed as a percentage)
equal to the Amortization Yield (which, if none is specified hereon, shall be such
rate as would produce an Amortized Face Amount equal to the issue price of the
Notes if they were discounted back to their issue price on the Issue Date)
compounded annually.
(C) If the Early Redemption Amount payable in respect of any such Note upon it
becoming due and payable as provided in Condition 9 is not paid when due, the
Early Redemption Amount due and payable in respect of such Note shall be the
Amortized Face Amount of such Note as defined in sub-paragraph (B) above,
except that such sub-paragraph shall have effect as though the date on which the
Note becomes due and payable were the Relevant Date. The calculation of the
Amortized Face Amount in accordance with this sub-paragraph shall continue to
be made (both before and, to the extent permitted by applicable law, after
judgment) until the Relevant Date, unless the Relevant Date falls on or after the
Maturity Date, in which case the amount due and payable shall be the scheduled
Final Redemption Amount of such Note on the Maturity Date together with any
interest that may accrue in accordance with Condition 4(c).
Where such calculation is to be made for a period of less than one year, it shall be
made on the basis of the Day Count Fraction specified hereon.
(d) Redemption at the Option of the Corporation: If Call Option is specified hereon as applicable,
the Corporation may, on giving not less than 14 nor more than 30 days’ irrevocable notice to the
Noteholders (or such other notice period as may be specified hereon) redeem, all or, if so provided,
some, of the Notes on any Optional Redemption Date. Any such redemption of Notes shall be at their
Optional Redemption Amount together with interest accrued to the date fixed for redemption. Any such
redemption or exercise must relate to Notes of a nominal amount at least equal to the Minimum
32
Redemption Amount to be redeemed specified hereon and no greater than the Maximum Redemption
Amount to be redeemed specified hereon.
All Notes in respect of which any such notice is given shall be redeemed on the Optional
Redemption Date specified in such notice in accordance with this Condition.
In the case of a partial redemption of Notes other than Fed Bookentry Notes, the notice to
Noteholders shall also contain the certificate numbers of the Bearer Notes, or, in the case of Registered
Notes, shall specify the nominal amount of Registered Notes drawn and the holder(s) of such
Registered Notes, to be redeemed, which shall have been drawn in such place and in such manner as
may be fair and reasonable in the circumstances, taking account of prevailing market practices, subject
to compliance with any applicable laws and stock exchange or other relevant authority requirements.
So long as the Notes are listed on the Luxembourg Stock Exchange or any other stock exchange and
the rules of that stock exchange so require, the Corporation shall, once in each year in which there has
been a partial redemption of the Notes, cause to be published either on the website of the Luxembourg
Stock Exchange (www.bourse.lu) or in a newspaper having general circulation in Luxembourg or, as
specified by such other stock exchange, a notice specifying the aggregate nominal amount of Notes
outstanding and a list of the Notes drawn for redemption but not surrendered. In the case of a partial
redemption of Fed Bookentry Notes, each such Note will be redeemed in the amount of its pro rata
share of the aggregate amount of such partial redemption and thereafter shall be treated as being
outstanding as to its unredeemed balance.
(e) Redemption at the Option of Noteholders: If Put Option is specified hereon as applicable, the
Corporation shall, at the option of the holder of any such Note, upon the holder of such Note giving not
less than 46 nor more than 60 days’ notice to the Corporation (or such other notice period as may be
specified hereon) redeem such Note on the Optional Redemption Date(s) at its Optional Redemption
Amount together with interest accrued to the date fixed for redemption.
In the case of a Note which is not a Fed Bookentry Note, to exercise such option the holder must
deposit (in the case of Bearer Notes) such Note (together with all unmatured Receipts and Coupons and
unexchanged Talons) with any Paying Agent or (in the case of Registered Notes) the Certificate
representing such Note(s) with the Registrar or any Transfer Agent at its specified office, together with
a duly completed option exercise notice (“Exercise Notice”) in the form obtainable from any Paying
Agent, the Registrar or any Transfer Agent (as applicable) within the notice period. In the case of a
Fed Bookentry Note, if the holder wishes to exercise such option, the holder must give notice thereof to
the Corporation through the relevant Holding Institution. No Note or Certificate so deposited and
option exercised may be withdrawn (except as provided in the Fiscal Agency Agreement or the Global
Agency Agreement) without the prior consent of the Corporation.
(f) Automatic Early Redemption: If Automatic Early Redemption is specified hereon as
applicable, the Corporation shall redeem all of the Notes on the Optional Redemption Date at their
Optional Redemption Amount together with interest accrued to the date fixed for redemption.
(g) Partly Paid Notes: Partly Paid Notes will be redeemed, whether at maturity, early redemption
or otherwise, in accordance with the provisions of this Condition and the provisions specified hereon.
(h) Purchases: The Corporation may at any time purchase or otherwise acquire Notes in the open
market or otherwise. Notes purchased or otherwise acquired by the Corporation may be held or resold
or, at the discretion of the Corporation, surrendered to the Global Agent for cancellation (together with
(in the case of Definitive Bearer Notes) any unmatured Coupons, unexchanged Talons or Receipts
attached thereto or purchased therewith). If purchases are made by tender, tenders must be made
available to all Noteholders of the same Series alike.
(i) Cancellation: All Notes purchased by or on behalf of the Corporation may be surrendered for
cancellation, in the case of Bearer Notes, by surrendering each such Note together with all unmatured
Receipts and Coupons and all unexchanged Talons to the Global Agent and, in the case of Registered
Notes, by surrendering the Certificate representing such Notes to the Registrar, and, in each case, if so
surrendered, shall, together with all Notes redeemed by the Corporation, be cancelled forthwith
(together with all unmatured Receipts and Coupons and unexchanged Talons attached thereto or
surrendered therewith). Any Notes so surrendered for cancellation may not be reissued or resold and
the obligations of the Corporation in respect of any such Notes shall be discharged.
33
6. Payments
(a) Bearer Notes:
(i)
Payments of principal and interest in respect of Bearer Notes shall, subject as mentioned
below, be made against presentation and surrender of the relevant Receipts (in the case
of payments of Instalment Amounts other than on the due date for redemption and
provided that the Receipt is presented for payment together with its relative Note),
Notes (in the case of all other payments of principal and, in the case of interest, as
specified in Condition 6(f)(vi)) or Coupons (in the case of interest, save as specified in
Condition 6(f)(vi)), as the case may be, at the specified office of any Paying Agent
outside the United States by a check payable in the relevant currency drawn on, or, at
the option of the holder, by transfer to an account denominated in such currency with, a
Bank. “Bank” means a bank in the principal financial centre for such currency or, in the
case of euro, in a city in which banks have access to the TARGET System.
(ii)
Notwithstanding the foregoing, if the Specified Currency of any Bearer Notes or
payments thereunder are otherwise to be made in U.S. dollars, payments in respect
thereof may be made at the specified office of any Paying Agent in New York City in
the same manner as aforesaid if (i) the Corporation shall have appointed Paying Agents
with specified offices outside the United States with the reasonable expectation that
such Paying Agents would be able to make payment of the amounts on the Notes in the
manner provided above when due, (ii) payment in full of such amounts at all such
offices is illegal or effectively precluded by exchange controls or other similar
restrictions on payment or receipt of such amounts, and (iii) such payment is then
permitted by U.S. law.
Payments of principal, premium (if any) and interest in respect of Bearer Notes represented
by a Global Note in classic global note (“CGN”) form will (subject as provided below) be made in
the manner specified above in relation to Definitive Bearer Notes and otherwise in the manner
specified in the relevant Global Note against presentation or surrender, as the case may be, of such
Global Note at the specified office of any Paying Agent. A record of which payment made against
presentation or surrender of such Global Note in CGN form, distinguishing between any payment
of principal and any payment of interest, will be made on such Global Note by such Paying Agent
and such record shall be prima facie evidence that the payment in question has been made. If the
Global Note is in new global note (“NGN”) form, the Corporation shall procure that details of
each such payment shall be entered pro rata in the records of the relevant clearing system and in
the case of payments of principal, the nominal amount of the Notes recorded in the records of the
relevant clearing system and represented by the Global Note will be reduced accordingly.
Payments under the Global Note in NGN form will be made to its holder. Each payment so made
will discharge the Corporation’s obligations in respect thereof. Any failure to make the entries in
the records of the relevant clearing system shall not affect such discharge.
(b) Fed Bookentry Notes:
(i)
Payments of principal and interest on the Notes will be payable at a designated office or
agency of the Corporation in New York City in U.S. dollars to the holder on the Fed
Bookentry Record Date (as defined below), provided that, at the Corporation’s option,
principal and interest in respect of Fed Bookentry Notes may be paid by credit to a
Federal Reserve Bank or branch account of Holding Institutions holding such Fed
Bookentry Notes. The Federal Reserve Bank of New York, 33 Liberty Street, New
York, New York 10045, will act as the Fiscal Agent for the Notes pursuant to the Fiscal
Agency Agreement. The “Fed Bookentry Record Date” for the purpose of payment of
interest or principal on the Fed Bookentry Notes shall be as of the close of business at
the Fiscal Agent on the day preceding the due date for payment thereof. If any such day
is not a day on which the Fiscal Agent is open for business, the Fed Bookentry Record
Date shall be the next preceding day on which the Fiscal Agent is open for business.
(ii)
Noteholders will not be entitled to any interest or other payment for any delay after the
due date if any date for payment is not a day on which the Fiscal Agent is open for
34
business, and the Noteholder will not be entitled to payment until the next following
day on which the Fiscal Agent is open for business.
(c) Registered Notes:
(i)
Payments of principal (which for the purposes of this Condition 6(c) shall include final
Instalment Amounts but not other Instalment Amounts) in respect of Registered Notes
shall be made against surrender of the relevant Certificates at the specified office of any
of the Transfer Agents or of the Registrar and in the same manner provided in paragraph
(ii) below.
(ii)
Interest (which for the purpose of this Condition 6(c) shall include all Instalment
Amounts other than final Instalment Amounts) on Registered Notes shall be paid to the
person shown on the Register at the close of business on the fifteenth day before the due
date for payment thereof (the “Record Date”). Payments of interest on each Registered
Note shall be made in the relevant currency by check drawn on a Bank and mailed to
the holder (or to the first-named of joint holders) of such Note at its address appearing
in the Register. Upon application by the holder to the specified office of the Registrar or
any Transfer Agent before the Record Date, such payment of interest may be made by
transfer to an account in the relevant currency maintained by the payee with a Bank.
(iii)
Registered Notes held through The Depository Trust Company (“DTC”) will be paid as
follows:
(A) if the Specified Currenc(y/ies) for payment is(are) U.S. dollars, payments of
principal, premium (if any), and/or interest will be made in accordance with
Conditions 6(c)(i) and (ii).
(B) if the Specified Currenc(y/ies) for payment is(are) a currency other than U.S.
dollars, payments of principal and interest will be made by the Global Agent in the
relevant currency to the Exchange Agent who will make payments in such
currency by wire transfer of same day funds to the designated account in such
currency of DTC participants entitled to receive the relevant payment who have
made an irrevocable election prior to 5:00 p.m. New York City time on the third
day on which banks are open for business in New York City (a “DTC Business
Day”) following the applicable Record Date in the case of interest and the twelfth
calendar day prior to the payment date for the payment of principal to receive that
payment in such currency. In the case of DTC participants entitled to receive the
relevant payments but who have not elected to receive payments in such currency,
the Exchange Agent, after converting amounts in such currency into U.S. dollars
as necessary to make payments in U.S. dollars, will deliver U.S. dollar amounts in
same day funds to DTC for payment through its settlement system to such DTC
participants. The Global Agency Agreement sets out the manner in which such
conversions or such elections are to be made.
(iv)
Noteholders will not be entitled to any interest or other payment for any postponed
payment resulting from the application of Condition 6(h) if the Noteholder is late in
surrendering its Certificate (if required to do so) or if its Certificate cannot be
surrendered to a Transfer Agent that is open for business on the day of such surrender or
if a check mailed in accordance with this Condition 6(c) arrived after the due date for
payment.
(d) Payments Subject to Law: All payments are subject in all cases to any applicable fiscal or
other laws, regulations and directives. No commission or expenses shall be charged to the Noteholders
or Couponholders in respect of such payments.
(e) Appointment of Agents: The Fiscal Agent, the Global Agent, the Paying Agents, the
Registrar, the Transfer Agents and the Calculation Agent initially appointed by the Corporation and
their respective specified offices are listed below. The Fiscal Agent, the Global Agent, the Paying
Agents, the Registrar, Transfer Agents and the Calculation Agent(s) act solely as agents of the
Corporation and do not assume any obligation or relationship of agency or trust for or with any
Noteholder or Couponholder. The Corporation reserves the right at any time to vary or terminate the
35
appointment of the Fiscal Agent, the Global Agent, any other Paying Agent, the Registrar, any Transfer
Agent, any Calculation Agent or any other agent and to appoint a substitute Fiscal Agent or Global
Agent and/or additional or other Paying Agents, Registrars, Transfer Agents, Calculation Agents or any
other agent; provided that the Corporation shall at all times maintain (i) a Fiscal Agent with respect to
Fed Bookentry Notes, (ii) a Global Agent with respect to Bearer Notes and Registered Notes, (iii) for
Registered Notes, a Registrar and Transfer Agent in New York City and a Transfer Agent having its
specified office in a European city which, so long as Notes are listed on the Luxembourg Stock
Exchange, will be Luxembourg, (iv) for Bearer Notes, a Paying Agent having its specified office in a
European city which, so long as the Notes are listed on the Luxembourg Stock Exchange, will be
Luxembourg, (v) for so long as any Notes are listed on the Singapore Exchange Securities Trading
Limited (and that Exchange so requires), a paying agent (which may be the Global Agent) having a
specified office in Singapore, (vi) one or more Calculation Agent(s) if specified hereon, and (vii) such
other agents as may be required by any other stock exchange on which the Notes may be listed.
In addition, the Corporation shall appoint a Paying Agent in New York City in respect of any
Bearer Notes the Specified Currency of which is U.S. dollars or payments in respect of which are
otherwise to be made in U.S. dollars in the circumstances described in Condition 6(a)(ii).
Notice of any such change or any change of any specified office shall promptly be given to the
Noteholders in accordance with Condition 13.
(f) Unmatured Coupons and Receipts and Unexchanged Talons:
(i)
Upon the due date for redemption of Bearer Notes which comprise Fixed Rate Notes
(other than Dual Currency Notes or Index Linked Notes), they should be surrendered
for payment together with all unmatured Coupons (if any) relating thereto, failing which
an amount equal to the face value of each missing unmatured Coupon (or, in the case of
payment not being made in full, that proportion of the amount of such missing
unmatured Coupon that the sum of principal so paid bears to the total principal due)
shall be deducted from the Final Redemption Amount, Early Redemption Amount or
Optional Redemption Amount, as the case may be, due for payment. Any amount so
deducted shall be paid in the manner mentioned above against surrender of such
missing Coupon within a period of 10 years from the Relevant Date for the payment of
such principal (whether or not such Coupon has become void pursuant to Condition 8).
(ii)
Upon the due date for redemption of any Bearer Note comprising a Floating Rate Note,
Dual Currency Interest Note or Index Linked Note, any unmatured Coupon relating to
such Note (whether or not attached) shall become void and no payment shall be made in
respect of such Coupon.
(iii)
Upon the due date for redemption of any Bearer Note, any unexchanged Talon relating
to such Note (whether or not attached) shall become void and no Coupon shall be
delivered in respect of such Talon.
(iv)
Upon the due date for redemption of any Bearer Note that is redeemable in instalments,
any Receipt relating to such Note having an Instalment Date falling on or after such due
date (whether or not attached) shall become void and no payment shall be made in
respect of such Receipt.
(v)
Where any Bearer Note that provides that the relative unmatured Coupons are to
become void upon the due date for redemption of those Notes is presented for
redemption without all unmatured Coupons, and where any Bearer Note is presented for
redemption without any unexchanged Talon relating to it, redemption shall be made
only against the provision of such indemnity as the Corporation may require.
(vi)
If the due date for redemption of any Note is not a due date for payment of interest,
interest accrued from the preceding due date for payment of interest or the Interest
Commencement Date, as the case may be, shall only be payable against presentation
(and surrender, if appropriate) of the relevant Bearer Note or Certificate representing it,
as the case may be. Interest accrued on a Note that only bears interest after its Maturity
Date shall be payable on redemption of such Note against presentation of the relevant
Note or Certificate representing it, as the case may be.
36
(g) Talons: On or after the Interest Payment Date for the final Coupon forming part of a Coupon
sheet issued in respect of any Bearer Note, the Talon forming part of such Coupon sheet may be
surrendered at the specified office of the Global Agent in exchange for a further Coupon sheet (and if
necessary another Talon for a further Coupon sheet) (but excluding any Coupons that may have
become void pursuant to Condition 8).
(h) Non-Business Days: If any date for payment in respect of any Note, Receipt or Coupon is not
a business day, the holder shall not be entitled to payment until the next following business day nor to
any interest or other sum in respect of such postponed payment. In this paragraph, “business day”
means a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are
open for business in the relevant place of presentation, in such jurisdictions as shall be specified as
“Financial Centres” in the applicable Final Terms; and:
(i)
(in the case of a payment in a currency other than euro) where payment is to be made by
transfer to an account maintained with a bank in the relevant currency, on which foreign
exchange transactions may be carried on in the relevant currency in the principal
financial centre of the country of such currency; or
(ii)
(in the case of a payment in euro) which is a TARGET Business Day.
(i) Currency of Payment: If any payment in respect of this Note is payable in a Specified
Currency other than U.S. dollars that is no longer used by the government of the country issuing such
currency for the payment of public and private debts or used for settlement of transactions by public
institutions in such country or within the international banking community, or in a Specified Currency
that is not expected to be available, when any payment on this Note is due as a result of circumstances
beyond the control of the Corporation, the Corporation shall be entitled to satisfy its obligations in
respect of such payment by making such payment in U.S. dollars on the basis of the noon buying rate in
U.S. dollars in the City of New York for wire transfers for such Specified Currency as published by the
Federal Reserve Bank of New York on the second Business Day prior to such payment or, if such rate
is not available on such second Business Day or is not so published, on the basis of the rate most
recently available to the Calculation Agent on or prior to such second Business Day. Any payment
made by the Corporation under such circumstances in such other currency or U.S. dollars will
constitute valid payment, and will not constitute a default in respect of this Note. For the purpose of
this Condition 6(i), “Business Day” means a day on which the Federal Reserve Bank of New York is
open for business in New York City.
7. Taxation
The Notes (and any interest thereon) are not exempt from taxation generally.
Under the Articles of Agreement constituting the Corporation, the Corporation is not under any
obligation to withhold or pay any tax imposed by any member country in respect of the Notes.
Accordingly, payments in respect of principal, premium (if any), and interest due on the Notes will be
paid to the Global Agent or the Fiscal Agent, as the case may be, without deduction in respect of any
such tax.
Under the Articles of Agreement constituting the Corporation, payments in respect of principal,
premium (if any), and interest due on the Notes are not subject to any tax by a member (i) which tax
discriminates against the Notes solely because they are issued by the Corporation, or (ii) if the sole
jurisdictional basis for the tax is the place or currency in which the Notes are issued, made payable or
paid, or the location of any office or place of business maintained by the Corporation.
8. Prescription
Other than for Notes, Receipts and Coupons governed by the laws of the State of New York,
claims against the Corporation for payment in respect of the Notes, Receipts and Coupons (which for
this purpose shall not include Talons) shall be prescribed and become void unless made within ten
years (in the case of principal) or five years (in the case of interest) from the appropriate Relevant Date
in respect thereof. As used in these Conditions, “Relevant Date” in respect of any Note, Receipt or
Coupon means the date on which payment in respect of it first becomes due or (if any amount of the
money payable is improperly withheld or refused) the date on which payment in full of the amount
outstanding is made or (if earlier) the date seven days after that on which notice is duly given to the
37
Noteholders that, upon further presentation of the Note (or surrender of the relative Certificate),
Receipt or Coupon being made in accordance with the Conditions, such payment will be made,
provided that payment is in fact made upon such presentation or surrender. References in these
Conditions to (i) “principal” shall be deemed to include any premium payable in respect of the Notes,
all Instalment Amounts, Final Redemption Amounts, Early Redemption Amounts, Optional
Redemption Amounts, Amortized Face Amounts and all other amounts in the nature of principal
payable pursuant to Condition 5 or any amendment or supplement to it and (ii) “interest” shall be
deemed to include all Interest Amounts and all other amounts payable pursuant to Condition 4 or any
amendment or supplement to it.
9. Events of Default
With respect to a Series of Notes, if the Corporation shall either (a) fail to pay when due the
principal of, premium (if any), or interest on, any Note of such Series or (b) fail to pay when due in
aggregate an amount equal to or exceeding U.S.$20,000,000 or its equivalent in any other relevant
currency or currencies of the principal of, premium (if any), or interest on, any Note of another Series,
or any notes, bonds or similar obligations (other than the Notes) which shall have been issued, assumed
or guaranteed by the Corporation and, in either case, such failure shall continue for a period of 90 days,
then at any time thereafter and during the continuance of such failure, the holder of any Note of such
Series may deliver or cause to be delivered to the Corporation at its principal office in the City of
Washington, District of Columbia, United States of America, written notice that such holder elects to
declare all Notes of such Series held by it (the serial numbers and denominations of which shall be set
forth in such notice) to be due and payable, and on the thirtieth day after such notice shall be so
delivered to the Corporation, such Notes shall become due and payable together with accrued interest
thereon, unless prior to that time all such defaults shall have been cured.
For the purpose of this Condition 9, any payment obligations that are denominated in a currency
other than U.S. dollars shall be translated into U.S. dollars at the spot rate for the sale of U.S. dollars
against the purchase of the relevant currency quoted by a leading commercial bank in London on the
day on which default in respect of payment thereon is made (or, if for any reason such rate is not
available on that day, on the first day thereafter on which such rate is available or as otherwise
determined by the Global Agent or the Fiscal Agent, as the case may be, after consultation with the
Corporation).
10. Meeting of Noteholders and Modifications
(a) Meetings of Noteholders: The Global Agency Agreement contains provisions for convening
meetings of Noteholders to consider any matter affecting their interests, including the sanctioning by
Extraordinary Resolution (as defined in the Global Agency Agreement) of a modification of any of
these Conditions. Such a meeting may be convened by Noteholders holding not less than 10 per cent. in
nominal amount of the Notes for the time being outstanding. The quorum for any meeting convened to
consider an Extraordinary Resolution shall be two or more persons holding or representing a clear
majority in nominal amount of the Notes for the time being outstanding, or at any adjourned meeting
two or more persons being or representing Noteholders whatever the nominal amount of the Notes held
or represented, unless the business of such meeting includes consideration of proposals, inter alia, (i) to
amend the dates of maturity or redemption of the Notes, any Instalment Date or any date for payment
of interest or Interest Amounts on the Notes, (ii) to reduce or cancel the nominal amount of, or any
Instalment Amount of, or any premium payable on redemption of, the Notes, (iii) to reduce the Rate(s)
of Interest in respect of the Notes or to vary the method or basis of calculating the Interest Amount(s)
or the basis for calculating any Interest Amount in respect of the Notes, (iv) if a Minimum Rate of
Interest and/or a Maximum Rate of Interest, Instalment Amount, Final Redemption Amount, Early
Redemption Amount, Optional Redemption Amount or other redemption amount is specified, to reduce
any such Minimum Rate of Interest and/or Maximum Rate of Interest or redemption amount, (v) to
vary any method of, or basis for, calculating any redemption amount, including the method of
calculating the Amortized Face Amount, (vi) to vary the currency or currencies of payment or
denomination of the Notes, (vii) to take any steps that as specified hereon may only be taken following
approval by an Extraordinary Resolution to which the special quorum provisions apply or (viii) to
modify the provisions concerning the quorum required at any meeting of Noteholders or the majority
required to pass the Extraordinary Resolution, in which case the necessary quorum shall be two or more
persons holding or representing not less than 75 per cent., or at any adjourned meeting not less than 25
38
per cent., in nominal amount of the Notes for the time being outstanding. Any Extraordinary Resolution
duly passed shall be binding on Noteholders (whether or not they were present at the meeting at which
such resolution was passed) and on all Couponholders.
These Conditions may be amended, modified, or varied in relation to any Series of Notes by the
terms of the applicable Final Terms in relation to such Series.
(b) Modification of Global Agency Agreement and Fiscal Agency Agreement: The Corporation
shall only permit any modification of, or any waiver or authorization of any breach or proposed breach
of or any failure to comply with, the Global Agency Agreement and the Fiscal Agency Agreement, if to
do so could not reasonably be expected to be materially prejudicial to the interests of the Noteholders.
11. Replacement of Notes, Certificates, Receipts, Coupons and Talons
If a Note, Certificate, Receipt, Coupon or Talon is lost, stolen, mutilated, defaced or destroyed, it
may be replaced, subject to applicable laws and regulations, and the rules and regulations of relevant
stock exchanges and clearing systems, at the specified office of the Paying Agent in Luxemourg (in the
case of Bearer Notes, Receipts, Coupons or Talons), and of the Registrar (in the case of Certificates), or
such other Paying Agent or Transfer Agent, as the case may be, as may from time to time be designated
by the Corporation for the purpose and notice of whose designation is given to Noteholders, in each
case on payment by the claimant of the fees and costs incurred in connection therewith and on such
terms as to evidence, security and indemnity (which may provide, inter alia, that if the allegedly lost,
stolen or destroyed Note, Certificate, Receipt, Coupon or Talon is subsequently presented for payment
or, as the case may be, for exchange for further Coupons, there shall be paid to the Corporation on
demand the amount payable by the Corporation in respect of such Notes, Certificates, Receipts,
Coupons or further Coupons) and otherwise as the Corporation may require. Mutilated or defaced
Notes, Certificates, Receipts, Coupons or Talons must be surrendered before replacements will be
issued.
12. Further Issues
The Corporation may from time to time without the consent of the Noteholders create and issue
further notes either having the same terms and conditions as the Notes in all respects (or in all respects
save for the issue date and the first payment of interest thereon) and so that such further issue shall be
consolidated and form a single series with the outstanding securities of any series (including the Notes)
or upon such terms as the Corporation may determine at the time of their issue. References in these
Conditions to the Notes include (unless the context requires otherwise) any other securities issued
pursuant to this Condition and forming a further Tranche of Notes of the same Series as the Notes.
13. Notices
Notices to the holders of Registered Notes shall be mailed to them at their respective addresses in
the Register. Notices to holders of Registered Notes shall be deemed to have been given on the fourth
weekday (being a day other than a Saturday or a Sunday) after the date of mailing. Unless otherwise
specified in the applicable Final Terms, notices to the holders of Bearer Notes shall be valid if
published in a daily newspaper of general circulation in London (which is expected to be the Financial
Times), and so long as the Notes listed on the Luxembourg Stock Exchange, published either on the
website of the Luxembourg Stock Exchange (www.bourse.lu) or in the daily newspaper with general
circulation in Luxembourg (which is expected to be the Luxemburger Wort) and in respect of Notes
listed on the Stock Exchange of Singapore Limited, in a leading English language daily newspaper with
general circulation in Singapore (which is expected to be The Business Times). If any such publication
is not practicable, notice shall be validly given if published in another leading daily English language
newspaper with general circulation in Europe or Singapore, as applicable. Any such notice shall be
deemed to have been given on the date of such publication or, if published more than once or on
different dates, on the date of the first publication as provided above.
Other than in the case of Notes listed on the Luxembourg Stock Exchange or the Stock Exchange
of Singapore Limited and the rules of the relevant stock exchange so require, until such time as any
Definitive Bearer Notes are issued, there may, so long as the Global Note(s) is or are held in its or their
entirety on behalf of Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société
anonyme (“Clearstream, Luxembourg”), be substituted for such publication in such newspaper the
delivery of the relevant notice to Euroclear and Clearstream, Luxembourg for communication by them
39
to the holders of the Notes. Any such notice shall be deemed to have been given to the holders of the
Notes on the seventh day after the day on which the said notice was given to Euroclear and
Clearstream, Luxembourg.
Holders of Coupons, Receipts and Talons shall be deemed for all purposes to have notice of the
contents of any notice given to the holders of Bearer Notes in accordance with this Condition.
Notices to be given by any holder of the Notes (other than Fed Bookentry Notes) shall be in
writing and given by lodging the same, together with the relative Note or Certificate, with the Global
Agent or the Fiscal Agent, as the case may be. In the case of Bearer Notes, so long as any of such Notes
are represented by a Global Note, such notice may be given by any holder of a Note to the Global
Agent via Euroclear and/or Clearstream, Luxembourg, as the case may be, in such manner as the
Global Agent and Euroclear and/or Clearstream, Luxembourg, as the case may be, may approve for this
purpose.
14. Contracts (Rights of Third Parties) Act 1999
In respect of any Notes, Receipts and Coupons governed by English law, unless specified
otherwise in the Notes, no person shall have any right to enforce any term or condition of the Notes
under the Contracts (Rights of Third Parties) Act 1999.
15. Governing Law and Jurisdiction
(a) Governing Law: The Notes, the Receipts, the Coupons and the Talons are governed by, and
shall be construed in accordance with, either English law, the laws of the State of New York, or such
other law as is specified hereon. The governing law of Partly Paid Notes shall not be the laws of the
State of New York.
(b) Jurisdiction: With respect to any legal action or proceedings (“Proceedings”) in the courts of
England arising out of or in connection with any Notes, Receipts, Coupons or Talons, the Corporation
irrevocably submits to the non-exclusive jurisdiction of the courts of England.
(c) Service of Process: The Corporation irrevocably appoints its office at 12th Floor, Millbank
Tower, 21-24 Millbank, London SW1P 4QP as its agent in England to receive, for it and on its behalf,
service of process in any Proceedings in England. If the Corporation no longer maintains an office in
England or if for any reason such process agent ceases to be able to act as such or no longer has an
address in London, the Corporation irrevocably agrees to appoint a substitute process agent and shall
immediately notify Noteholders of such appointment in accordance with Condition 13. Nothing shall
affect the right to serve process in any manner permitted by law.
40
FORM OF NOTES AND PROVISIONS
RELATING TO THE NOTES WHILE IN GLOBAL FORM
Words and expressions defined or used in “Terms and Conditions of the Notes” shall have the
same meaning in this section.
The Corporation and the relevant Dealer(s) shall agree on the form of Notes to be issued in respect
of any issue of Notes. The form may be either registered, bookentry (for Notes denominated and
payable in U.S. dollars to be cleared and settled through the Federal Reserve Banks) or bearer and will
be specified in the applicable Final Terms. Notes payable in certain Specified Currencies may only be
issued in global form.
Registered Notes
Each Series of Registered Notes sold in primary distribution entirely to investors in the United
States shall, unless otherwise specified in the applicable Final Terms, initially be represented by a
single Certificate in registered global form (a “Global Certificate”) deposited on its Issue Date with
Citibank, N.A., London Branch (the “Custodian”) as custodian for, and registered in the name of a
nominee of, DTC (a “DTC Global Certificate”).
Each Series of Registered Notes sold in primary distribution entirely to investors outside the
United States shall, unless otherwise specified in the applicable Final Terms, initially be represented by
one or more Global Certificates deposited on its or their Issue Date with the Custodian as depositary
for, and registered in the name of a nominee of, whichever clearing system(s) is agreed between the
Corporation and the relevant Dealer(s) and specified in the applicable Final Terms.
Each Series of Registered Notes sold in primary distribution both within the United States and
outside the United States shall, unless otherwise specified in the applicable Final Terms, initially be
represented by one or more Global Certificates. A DTC Global Certificate in respect of Notes sold
within the United States will be deposited on its Issue Date with the Custodian as custodian for, and
registered in the name of a nominee of, DTC. The same or one or more other Global Certificates in
respect of Notes sold outside the United States will be deposited on its or their Issue Date with the
Custodian as depositary for, and registered in the name of a nominee of, either DTC or the relevant
clearing system(s) agreed between the Corporation and the relevant Dealer(s) and specified in the
applicable Final Terms.
Registered Notes may, if so specified in the applicable Final Terms, initially be issued in
definitive registered form represented by Certificates registered in the names of the beneficial owners
thereof. Otherwise, Certificates registered in the names of beneficial owners will only be available (i) in
the case of Notes initially issued as Bearer Notes, as described under “Bearer Notes” below; or (ii) in
the case of Registered Notes initially represented by Global Certificates (other than Notes in certain
Specified Currencies), in certain circumstances described below. Certificates to be issued at the request
of a beneficial owner in respect of such owner’s Notes will be issued at the expense of such owner.
Unless otherwise specified in the applicable Final Terms, interests in a Global Certificate will be
exchangeable for Registered Notes represented by Certificates registered in the names of the beneficial
owners thereof only if such exchange is permitted by applicable law and (i) in the case of a DTC
Global Certificate, DTC notifies the Corporation that it is no longer willing or able to discharge
properly its responsibilities as depositary with respect to the DTC Global Certificate, or ceases to be a
“clearing agency” registered under the U.S. Securities Exchange Act of 1934, as amended (the
“Exchange Act”), or is at any time no longer eligible to act as such and the Corporation is unable to
locate a qualified successor within 90 days of receiving notice of such ineligibility on the part of DTC;
or (ii) in the case of any other Global Certificate, if the clearing system(s) through which it is cleared
and settled is closed for business for a continuous period of 14 days (other than by reason of holidays,
statutory or otherwise) or announces an intention permanently to cease business or does in fact do so;
or (iii) if principal in respect of any Note is not paid when due, by the Noteholder giving notice to the
Global Agent of its election for such exchange. In such circumstances, the Corporation will cause
sufficient Certificates to be executed and delivered as soon as practicable (and in any event within 45
days of the occurrence of such circumstances) to the Registrar for completion, authentication and
delivery to the relevant Noteholder(s). A person having an interest in a Global Certificate must provide
the Registrar with a written order containing instructions and such other information as the Corporation
41
and the Registrar may require to complete, execute and deliver such Certificates. Registered Notes shall
not be exchangeable for Bearer Notes.
If so specified in the applicable Final Terms, interests in a Global Certificate may be exchanged
for, or transferred to transferees who wish to take delivery thereof in the form of, interests in a DTC
Global Certificate, and interests in a DTC Global Certificate may be exchanged for, or transferred to
transferees who wish to take delivery thereof in the form of, interests in a Global Certificate. Any such
exchange or transfer shall be made in accordance with the rules and operating procedures of DTC,
Euroclear, and Clearstream, Luxembourg, and in compliance with the provisions of Clauses 7 and 9 of
the Global Agency Agreement.
DTC has advised the Corporation that it will take any action permitted to be taken by a holder of
Registered Notes (including, without limitation, the presentation of DTC Global Certificates for
exchange as described above) only at the direction of one or more participants in whose account with
DTC interests in DTC Global Certificates are credited and only in respect of such portion of the
aggregate nominal amount of the relevant DTC Global Certificates as to which such participant or
participants has or have given such direction. However, in the circumstances described above, DTC
will surrender the relevant DTC Global Certificates in exchange for Certificates registered in the
name(s) of beneficial owners of Registered Notes.
Except as described above, so long as a DTC Global Certificate is deposited with DTC or its
custodian, Certificates registered in the name(s) of beneficial owners of Registered Notes will not be
eligible for clearing or settlement through DTC or any other clearing system.
Fed Bookentry Notes
On initial issue, all Notes denominated and payable in U.S. dollars which will be cleared and
settled through the Federal Reserve Banks will be issued in uncertificated bookentry form only through
the Federal Reserve Bank of New York and held by Holding Institutions designated by the relevant
Dealer(s). After initial issue, all Fed Bookentry Notes will continue to be held by such Holding
Institutions unless an investor arranges for the transfer of its Fed Bookentry Notes to another Holding
Institution.
Bearer Notes
Except as provided below, each Tranche of Bearer Notes with a maturity at issue of more than one
year will initially be represented by a Temporary Global Note without Coupons, which (i) in the case of
NGNs, will be delivered to the Common Safekeeper for Euroclear and Clearstream, Luxembourg on or
prior to the relevant Issue Date or (ii) in the case of CGNs, will be deposited with a common depositary
on behalf of Euroclear and Clearstream, Luxembourg on the relevant Issue Date. Interests in a
Temporary Global Note will be exchangeable in whole or in part for interests in a Permanent Global
Note without Coupons or, if and to the extent specified in the applicable Final Terms, for Bearer Notes
in definitive form, for interests in a Global Certificate or for Certificates registered in the name(s) of
beneficial owners of Registered Notes. Bearer Notes may be exchanged for Registered Notes if and to
the extent specified in the applicable Final Terms. Bearer Notes that are issued as part of a targeted
bearer issuance will initially be represented by a Permanent Global Note or, if specified in the
applicable Final Terms, Definitive Bearer Notes.
Initial Issue of Notes
If the Global Notes are stated in the applicable Final Terms to be issued in NGN form, they are
intended to be eligible collateral for Eurosystem monetary policy and the Global Notes will be
delivered on or prior to the original issue date of the Tranche to a Common Safekeeper. Depositing the
Global Notes with the Common Safekeeper does not necessarily mean that the Notes will be
recognized as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the
Eurosystem either upon issue, or at any or all times during which the Notes are outstanding. Such
recognition will depend upon satisfaction of the Eurosystem eligibility criteria.
Global Notes which are issued in CGN form and Certificates may be delivered on or prior to the
original Issue Date of the Tranche to a Common Depositary.
If the Global Note is in CGN form, upon the initial deposit of a Global Note with the Common
Depositary or registration of Registered Notes in the name of any nominee for Euroclear and
42
Clearstream, Luxembourg and delivery of the relative Global Certificate to the Common Depositary,
Euroclear or Clearstream, Luxembourg will credit each subscriber with a nominal amount of Notes
equal to the nominal amount thereof for which it has subscribed and paid. If the Global Note is in NGN
form, the nominal amount of the Notes shall be the aggregate amount from time to time entered in the
records of Euroclear or Clearstream, Luxembourg. The records of such clearing system shall be
conclusive evidence of the nominal amount of Notes represented by the Global Note and a statement
issued by such clearing system at any time shall be conclusive evidence of the records of the relevant
clearing system at that time.
Notes that are initially deposited with the Common Depositary may also be credited to the
accounts of subscribers with (if indicated in the applicable Final Terms) other clearing systems through
direct or indirect accounts with Euroclear and Clearstream, Luxembourg held by such other clearing
systems. Conversely, Notes that are initially deposited with any other clearing system may similarly be
credited to the accounts of subscribers with Euroclear, Clearstream, Luxembourg or other clearing
systems.
Provisions relating to Bearer Notes while in Global Form
Each Temporary Global Note and each Permanent Global Note will contain provisions which
apply to the Bearer Notes while they are in global form, some of which supplement the terms and
conditions of the Notes set out in this Series Prospectus. The following is a summary of certain of those
provisions:
Exchange. A Temporary Global Note is exchangeable in whole or in part (free of charge to the
holder) either (i) after a period of not less than 40 days from the Issue Date, for either interests in a
Permanent Global Note representing Bearer Notes (if the Global Note is in CGN form, or if the Global
Note is in NGN form, the Corporation will procure that details of such exchange be entered pro rata in
the records of the relevant clearing system) or, if and to the extent specified in the applicable Final
Terms, for Definitive Bearer Notes, in each case upon certification as to non-U.S. beneficial ownership
by the relevant clearing system in the form set out in the Global Agency Agreement; or (ii) in certain
circumstances, if the applicable Final Terms so provides, for interests in a Global Certificate or for
Certificates registered in the names of beneficial owners of Registered Notes. If one or more
Temporary Global Notes are exchanged in whole or in part for Definitive Bearer Notes under (i) above,
such Definitive Bearer Notes shall be issued in Specified Denominations of the minimum Specified
Denomination only.
A Permanent Global Note (other than for Notes denominated in certain Specified Currencies) is
exchangeable in whole (free of charge to the holder) for Definitive Bearer Notes if the Permanent
Global Note is held on behalf of a clearing system and such clearing system is closed for business for a
continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an
intention permanently to cease business or does in fact do so, by such holder giving notice to the Global
Agent. A Permanent Global Note is also exchangeable in whole or in part (free of charge to the holder)
for interests in a Global Certificate or for Certificates registered in the name(s) of the beneficial owners
on or after the Exchange Date (as defined below), if and to the extent specified in the applicable Final
Terms. On or after any Exchange Date, the holder of a Permanent Global Note may surrender the
Permanent Global Note to or to the order of the Global Agent. In exchange for the Permanent Global
Note, the Corporation will deliver, or cause the delivery of, an equal aggregate nominal amount of duly
executed and authenticated Definitive Bearer Notes (having attached to them all Coupons and Talons in
respect of interest which has not already been paid on the Permanent Global Note and security-printed
in accordance with any applicable legal and stock exchange requirements), Global Certificate(s) or
Certificates registered in the names of the beneficial owners of Registered Note(s), as the case may be,
each in or substantially in the form attached to the Global Agency Agreement. On exchange in full of
the Permanent Global Note, the Corporation will, if the holder so requests, ensure that it is cancelled
and returned to the holder.
“Exchange Date” means a day falling, in the case of exchange of a Temporary Global Note for a
Permanent Global Note or Definitive Bearer Notes, not less than 40 days from the Issue Date, and, in
the case of exchange of any Global Note, Definitive Bearer Notes or Global Certificates for Certificates
registered in the names of the beneficial owners of Registered Notes or interests in a Global Certificate,
not less than five days after the day on which the notice requiring exchange is given and on which
43
banks are open for business in the city in which the specified office of the Global Agent is located and,
if applicable, in the cities in which the relevant clearing systems are located.
Payments. Prior to the Exchange Date, payments on a Temporary Global Note will be made only
against certification of non-U.S. beneficial ownership by the relevant clearing system. On or after the
Exchange Date, no payments will be made on the Temporary Global Note unless exchange for interests
in a Permanent Global Note (or, if specified in the applicable Final Terms, for Definitive Bearer Notes,
or for individual Certificates) is improperly withheld or refused. Payments under the Global Note in
CGN form will be made to its holder against presentation for endorsement and, if no further payment is
to be made, surrender of the Permanent Global Note to or to the order of the Global Agent or such other
Paying Agent as shall have been provided in a notice to the Noteholders for such purpose. If the
Permanent Global Note is in CGN form, a record of each payment so made will be endorsed in the
appropriate schedule to the Permanent Global Note, which endorsement will be prima facie evidence
that such payment has been made. If the Permanent Global Note is in NGN form, the Corporation shall
procure, that details of each such payment shall be entered pro rata in the records of the relevant
clearing system and in the case of payments of principal, the nominal amount of the Notes recorded in
the records of the relevant clearing system and represented by the Permanent Global Note will be
reduced accordingly. Payments under the Global Note in NGN form will be made to its holder. Each
payment so made will discharge the Corporation’s obligations in respect thereof. Any failure to make
the entries in the records of the relevant clearing system shall not affect such discharge.
Notices. So long as Bearer Notes are represented by a Permanent Global Note and the Permanent
Global Note is held on behalf of a clearing system, notices to Noteholders may be given by delivery of
the relevant notice to that clearing system for communication by it to entitled accountholders, except
that if and so long as a Series of Bearer Notes is listed on the Luxembourg Stock Exchange or the Stock
Exchange of Singapore Limited and the rules of that exchange so require, notices shall also be
published, in the case of Notes listed on the Luxembourg Stock Exchange, either on the website of the
Luxembourg Stock Exchange (www.bourse.lu) or in a leading newspaper having general circulation in
Luxembourg (which is expected to be the Luxemburger Wort) or, in the case of Notes listed on the
Stock Exchange of Singapore Limited, in a leading newspaper with general circulation in Singapore
(which is expected to be The Business Times).
Prescription. Other than for Notes governed by the laws of the State of New York, claims against
the Corporation for principal and interest in respect of a Permanent Global Note will become prescribed
unless the Permanent Global Note is presented for payment within the number of years from the
appropriate Relevant Date (as described in Condition 8) as specified in the applicable Final Terms.
Purchase and cancellation. Cancellation of any Bearer Note which the Corporation elects to be
cancelled following its purchase will be effected by reduction in the nominal amount of the Permanent
Global Note.
Default. The holder of a Permanent Global Note may cause the Permanent Global Note or a
portion of it to become due and repayable in circumstances described in Condition 9 by stating in the
notice to the Corporation the nominal amount of Notes which is being declared due and repayable.
Following the giving of notice of an event of default, the holder of a Permanent Global Note which is
governed by English law and executed as a deed poll may elect that the Permanent Global Note
becomes void as to a specified portion and that the persons entitled to such portion as accountholders
with a clearing system acquire direct enforcement rights against the Corporation under the Deed of
Covenant.
Redemption at the option of the Corporation. No drawing of Notes will be required under
Condition 5(c) in the event that the Corporation exercises its call option set forth in that Condition
while an issue of Bearer Notes is represented by a Permanent Global Note in respect of less than the
aggregate nominal amount of such Bearer Notes then outstanding. In these circumstances, the relevant
clearing systems will allocate the redemption of Bearer Notes as between holders.
Redemption at the option of a Noteholder. Any Noteholder’s option set out in Condition 5(d) to
require the Corporation to redeem Notes may be exercised by the holder of a Permanent Global Note
giving notice to the Global Agent of the nominal amount of Bearer Notes in respect of which the option
is exercised and, where the Permanent Global Note is in CGN form, presenting the Permanent Global
Note for endorsement of exercise within the time limits specified in Condition 5(d). Where the
44
Permanent Global Note is in NGN form, the Corporation shall procure that details of such exercise
shall be entered pro rata in the records of the relevant clearing system and the nominal amount of the
Notes recorded in those records will be reduced accordingly.
NGN nominal amount. Where the Permanent Global Note is in NGN form, the Corporation shall
procure that any exchange, payment, cancellation, exercise of any option or any right under the Notes,
as the case may be, in addition to the circumstances set out above shall be entered in the records of the
relevant clearing systems and upon any such entry being made, in respect of payments of principal, the
nominal amount of the Notes represented by such Global Note shall be adjusted accordingly.
Meetings
The holder of a Permanent Global Note or of the Notes represented by a Global Certificate shall
(unless such Permanent Global Note or Global Certificate represents only one Note) be deemed to be
two persons for the purposes of any quorum requirements of a meeting of Noteholders. At any such
meeting, the Noteholder shall have one vote in respect of each Specified Denomination of Notes for
which such Global Note may be exchanged or, in the case of Registered Notes, one vote in respect of
each minimum Specified Denomination comprising such Noteholder’s holding, whether or not
represented by a Global Certificate.
Partly Paid Notes
The provisions relating to partly-paid Notes (“Partly Paid Notes”) are not set out in this Series
Prospectus, but will be contained in the applicable Final Terms and thereby in the Global Notes. Partly
Paid Notes governed by the laws of the State of New York will not be issued. While any instalments of
the subscription moneys due from the holder of Partly Paid Notes are overdue, no interest in a Global
Note representing such Notes may be exchanged for an interest in a Permanent Global Note or for
Definitive Bearer Notes (as the case may be). If any Noteholder fails to pay any instalment due on any
Partly Paid Notes within the time specified, the Corporation may forfeit such Notes and shall have no
further obligation to their holder in respect of them.
45
CLEARANCE AND SETTLEMENT
Introduction
The Program has been designed so that Notes may be held through one or more international and
domestic clearing systems, principally, the bookentry systems operated by the Federal Reserve and
DTC in the United States, and by Euroclear and Clearstream, Luxembourg in Europe. Electronic
securities and payment transfer, processing, depositary and custodial links have been established
among these systems and others, either directly or indirectly through custodians and depositaries, which
enable Notes to be issued, held and transferred among the clearing systems across these links. Special
procedures have been established among the Global Agent and these clearing systems to facilitate
clearance and settlement of certain Notes traded across borders in the secondary market. Cross-market
transfers of Notes denominated in certain currencies and issued in global form (as described below)
may be cleared and settled using these procedures on a delivery against payment basis. Cross-market
transfers of Notes in other than global form may be cleared and settled in accordance with other
procedures established for this purpose among the Global Agent and the relevant clearing systems.
The relationship between the Corporation and the holder of a Registered Note, a Fed Bookentry
Note or a Bearer Note is governed by the terms and conditions of that Note. The holder of a Global
Note or a Global Certificate will be one or more clearing systems. The beneficial interests in Notes held
by a clearing system will be in bookentry form in the relevant clearing system or a depositary or
nominee on its or their behalf. Each clearing system has its own separate operating procedures and
arrangements with participants or accountholders which govern the relationship between them and the
relevant clearing system and to which the Corporation is not and will not be a party. The Corporation
will not impose fees payable by any holder with respect to any Notes held by one or more clearing
systems; however, holders of beneficial interests in Notes may incur fees payable in respect of the
maintenance and operation of the bookentry accounts in which Notes are held.
Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg, or any other
specified clearing system as the holder of a Note represented by a Global Note or a Global Certificate
must look solely to such clearing system for his share of each payment made by the Corporation to the
bearer of such Global Note or the registered holder of the Registered Notes represented by such Global
Certificate, as the case may be, and in relation to all other rights arising under the Global Notes or
Global Certificates, subject to and in accordance with the respective rules and procedures of such
clearing system. Such persons shall have no claim directly against the Corporation in respect of
payments due on the Notes for so long as the Notes are represented by such Global Note or Global
Certificate and such obligations of the Corporation will be discharged by payment to the bearer of such
Global Note or the registered holder of the Registered Notes represented by such Global Certificate, as
the case may be, in respect of each amount so paid.
Citibank, N.A., London Branch (“Citibank”) is the Global Agent for Notes held through DTC,
Euroclear, Clearstream, Luxembourg and such other clearing systems as may be specified in the
applicable Final Terms. The Federal Reserve Bank of New York is the fiscal and paying agent for U.S.
dollar denominated Notes issued in the United States and held through the bookentry system operated
by the Federal Reserve Banks.
The Global Agent and Paying Agents
Citibank will act as the Global Agent for Notes issued under the Program. Citibank has direct
custodial and depositary linkages with, and (unless otherwise provided in the applicable Final Terms)
will act as custodian for Global Notes or Global Certificates held by, DTC, Euroclear and Clearstream,
Luxembourg to facilitate issue, transfer and custody of Notes in these clearing systems. As necessary
(and as more fully described below), Citibank will act as Registrar, Transfer Agent, Exchange Agent,
Determination Agent and Paying Agent and, from time to time, Calculation Agent for the Notes as may
be specified in the applicable Final Terms. Citibank, N.A., Singapore Branch will act as Singapore
Paying Agent for Notes held through CDP.
46
The Clearing Systems
Federal Reserve Bookentry System
The Federal Reserve Banks operate the Federal bookentry system which provides bookentry
holding and settlement for all U.S. dollar denominated securities issued by the U.S. government, certain
of its agencies and international organizations (including the Corporation) in which the United States is
a member. The system enables specified depositaries and other institutions with an appropriate account
with a Federal Reserve Bank or Branch (“Holding Institutions”) to hold, make payments and transfer
securities and funds through the Federal Reserve Bank’s Fedwire electronic funds transfer system.
DTC
DTC is a limited-purpose trust company organized under the laws of the State of New York, and
is a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New
York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC holds securities for DTC participants and facilitates the
clearance and settlement of transactions between DTC participants through electronic bookentry
changes in accounts of DTC participants.
Euroclear
Euroclear is incorporated in Belgium and has branch offices in Amsterdam, Paris and London.
Euroclear holds securities for participating organizations and facilitates multicurrency clearance and
settlement of securities transactions between its and Clearstream, Luxembourg accountholders through
electronic bookentry changes in accounts of its accountholders.
Clearstream, Luxembourg
Clearstream, Luxembourg is incorporated under the laws of Luxembourg as a professional
depositary. Clearstream, Luxembourg holds securities for its participating organizations and facilitates
multicurrency clearance and settlement of securities transactions between its and Euroclear’s
accountholders through electronic bookentry changes in accounts of its accountholders.
Other Clearing Systems
Any other clearing system which the Corporation, the Global Agent and the relevant Dealer(s)
agree shall be available for a particular issue of Notes will be described in the applicable Final Terms,
together with the clearance and settlement procedures for such clearing system.
Clearance and Settlement Procedures – Primary Distribution
Introduction
Distribution of Notes will be through one or more of the clearing systems described above or any
other clearing system specified in the applicable Final Terms. Payment for Notes will be on a delivery
versus payment or free delivery basis, as more fully described in the applicable Final Terms.
Registered Notes and Fed Bookentry Notes
The Corporation and the relevant Dealer(s) shall agree whether global clearance and settlement
procedures or specific clearance and settlement procedures should be available for any issue of Notes,
as specified in the applicable Final Terms. Clearance and settlement procedures may vary according to
the Specified Currency of issue. The customary clearance and settlement procedures are described
under the specific clearance and settlement procedures below. Application will be made to the relevant
clearing system(s) for the Notes of the relevant issue to be accepted for clearance and settlement and
the applicable clearance numbers will be specified in the applicable Final Terms.
Unless otherwise agreed between the Corporation and the Global Agent, Citibank, N.A., acting
through its relevant office, will act as the custodian or depositary for all Notes in global form.
(i)
Global Clearance and Settlement – Specified Currencies
Global clearance and settlement of Notes denominated in certain Specified Currencies will
take place through those clearing systems specified in the applicable Final Terms. The
procedures expected to be followed are those which relevant clearing systems have
established to clear and settle single global issues in the Specified Currency and will be set
out in the applicable Final Terms.
47
(ii)
Specific Clearance and Settlement – Federal Reserve Bank of New York
The Federal Reserve Bank of New York will take delivery of and hold Fed Bookentry Notes
as record owner and custodian for other Federal Reserve Banks and for Holding Institutions
located in the Second Federal Reserve District. Holding Institutions located in other Federal
Reserve Districts can hold Fed Bookentry Notes through their respective Federal Reserve
Banks or Branches.
The aggregate holdings of Fed Bookentry Notes of each Holding Institution will be reflected
in the bookentry account of such Holding Institution with its Federal Reserve Bank or
Branch. The Notes may be held of record only by Holding Institutions, which are entities
eligible to maintain bookentry accounts with the Federal Reserve Banks. A Holding
Institution may not be the beneficial holder of a Note. Beneficial holders will ordinarily hold
the Notes through one or more financial intermediaries, such as banks, brokerage firms and
securities clearing organizations. Each Holding Institution, and each other intermediate
holder in the chain to the ultimate beneficial holder, will have the responsibility of
establishing and maintaining accounts for its customers having interests in Fed Bookentry
Notes.
Federal Reserve Banks will be responsible only for maintaining the bookentry accounts of
Holding Institutions, effecting transfers on their books and ensuring that payments from the
Corporation, through the Federal Reserve Bank of New York, are credited to appropriate
Holding Institutions. With respect to Fed Bookentry Notes, Federal Reserve Banks will act
only on the instructions of Holding Institutions for which they maintain such Fed Bookentry
Notes. The Federal Reserve Banks will not record pledges of Fed Bookentry Notes.
(iii)
Specific Clearance and Settlement – DTC
Registered Notes which are to be cleared and settled through DTC will be represented by a
DTC Global Certificate. DTC participants acting on behalf of DTC investors holding
Registered Notes through DTC will follow the delivery practices applicable to DTC’s SameDay Funds Settlement System. Registered Notes will be credited to DTC participants’
securities accounts following confirmation of receipt of payment to the Corporation on the
relevant Issue Date.
(iv)
Specific Clearance and Settlement – Euroclear and Clearstream, Luxembourg
Registered Notes which are to be cleared and settled through Euroclear and Clearstream,
Luxembourg will be represented by one or more Global Certificates registered in the name of
a nominee of the Euroclear and Clearstream, Luxembourg depositaries. Investors holding
Registered Notes through Euroclear and Clearstream, Luxembourg will follow the settlement
procedures applicable to conventional eurobonds. Registered Notes will be credited to
Euroclear and Clearstream, Luxembourg participants’ securities clearance accounts either on
the Issue Date or on the settlement day following the relevant Issue Date against payment in
same day funds (for value on the relevant Issue Date).
Bearer Notes
The Corporation will make applications to Euroclear and Clearstream, Luxembourg for
acceptance in their respective bookentry systems of any issue of Bearer Notes. Customary clearance
and settlement procedures for each such clearing system applicable to bearer eurobonds denominated in
the Specified Currency will be followed, unless otherwise specified in the applicable Final Terms.
Clearance and Settlement Procedures – Secondary Market Transfers
Transfers of Registered Notes
Transfers of interests in a Global Certificate within the various clearing systems which may be
clearing and settling interests therein will be made in accordance with the usual rules and operating
procedures of the relevant clearing system applicable to the Specified Currency and the nature of the
transfer. Further details concerning such rules and procedures may be set forth in the applicable Final
Terms.
48
For issues that are cleared and settled through both DTC and another clearing system, because of
time zone differences, in some cases the securities account of an investor in one clearing system may
be credited during the settlement processing day immediately following the settlement date of the other
clearing system and the cash account will be credited for value on the settlement date but may be
available only as of the day immediately following such settlement date.
The laws of some states in the United States require that certain persons take physical delivery in
definitive form of securities. Consequently, the ability to transfer interests in a DTC Global Certificate
to such persons may be limited. Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having an interest in a DTC Global Certificate to
pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in
respect of such interest, may be affected by the lack of a definitive security in respect of such interest.
Transfers of Fed Bookentry Notes
Transfers of Fed Bookentry Notes between Holding Institutions can be made through the Federal
Reserve Communications System.
Transfer of Bearer Notes
Transfers of interests in a Temporary Global Note or a Permanent Global Note and of Definitive
Bearer Notes held by a clearing system will be made in accordance with the normal euromarket debt
securities operating procedures of the relevant clearing system.
General
Although DTC, Euroclear and Clearstream, Luxembourg have established procedures to facilitate
transfers of beneficial interests in Notes in global form among participants and accountholders of DTC,
Euroclear and Clearstream, Luxembourg, they are under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time. None of the
Corporation, the Global Agent or any other agent will have responsibility for the performance by DTC,
Euroclear and Clearstream, Luxembourg or their respective obligations under the rules and procedures
governing their operations.
Pre-issue Trades Settlement
It is expected that delivery of Notes will be made against payment therefor on the relevant Issue
Date, which could be more than three business days following the date of pricing. Under Rule 15c6-1
of the Commission under the Exchange Act, trades in the United States secondary market generally are
required to settle within three business days (T+3), unless the parties to any such trade expressly agree
otherwise. Accordingly, purchasers who wish to trade Notes in the United States on the date of pricing
or the next succeeding business days until the relevant Issue Date will be required, by virtue of the fact
the Notes initially will settle beyond T+3, to specify an alternate settlement cycle at the time of any
such trade to prevent a failed settlement. Settlement procedures in other countries will vary. Purchasers
of Notes may be affected by such local settlement practices and purchasers of Notes who wish to trade
Notes between the date of pricing and the relevant Issue Date should consult their own adviser.
49
TAX MATTERS
United States Internal Revenue Service Circular 230 Notice: To ensure compliance with U.S.
Internal Revenue Service Circular 230, prospective investors are hereby notified that: (a) any
discussion of U.S. federal tax issues contained or referred to in this Prospectus or any document
referred to herein is not intended or written to be used, and cannot be used, by prospective investors
for the purpose of avoiding penalties that may be imposed on them under the U.S. Internal Revenue
Code; (b) such discussion is written for use in connection with the promotion or marketing of the
transactions or matters addressed herein; and (c) prospective investors should seek advice based on
their particular circumstances from an independent tax advisor.
The following is a summary of the provisions of the Articles of Agreement concerning taxation of
the Notes and of certain anticipated United States federal income, withholding and estate tax
consequences resulting from the ownership of the Notes. This summary does not cover all of the
possible tax consequences relating to the ownership of the Notes and the receipt of interest thereon, and
it is not intended as tax advice to any person. It addresses only holders who are initial purchasers of the
Notes at the initial offering price and hold the Notes as capital assets, and does not address special
classes of holders, such as dealers in securities or currencies, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings, banks, tax-exempt entities, life
insurance companies, persons holding Notes as a hedge or hedged against interest rate or currency risks
or as part of a straddle or conversion transaction, or holders whose functional currency is not the U.S.
dollar. Investors who purchase Notes at a price other than the offering price should consult their tax
advisor as to the possible applicability to them of the amortizable bond premium or market discount
rules. This summary is based upon the United States federal income, withholding and estate tax laws as
currently in effect and as currently interpreted and does not include any description of the tax laws of
any state, local or foreign government that may apply.
Prospective purchasers of Notes should consult their own tax advisers concerning the application
of the United States federal income, withholding and estate tax laws, as well as the possible application
of the tax laws of any other jurisdiction, to their particular situation.
Taxation of the Notes in General
The Notes and the interest thereon generally will be subject to taxation, including United States
federal income taxation. Under the Articles of Agreement, however, the Notes and the interest thereon
are not subject to any tax by a member country of the Corporation (i) which tax discriminates against
the Notes solely because they were issued by the Corporation, or (ii) if the sole jurisdictional basis for
the tax is the place or currency in which the Notes are issued, made payable or paid, or the location of
any office or place of business maintained by the Corporation. The imposition of United States federal
income tax in the manner described herein is not inconsistent with the Articles of Agreement.
United States Federal Income Taxation
Bearer Notes
Notes issued as Bearer Notes under this Program may, in certain circumstances, be treated by the
U.S. Internal Revenue Service as registered notes and not as bearer notes for U.S. federal income tax
purposes. Any reference to “Bearer Notes” in this section assumes that such Bearer Notes will be
treated as bearer notes for U.S. federal income tax purposes.
Treatment of Qualified Stated Interest
Under the Internal Revenue Code of 1986, as amended (the “Code”), a holder of a Note who or
which is (i) a United States citizen or resident alien individual, (ii) a United States domestic
corporation, (iii) an estate subject to United States federal income taxation on a net income basis in
respect of a Note or (iv) a trust if a United States court can exercise primary supervision over the trust’s
administration and one or more United States persons are authorized to control all substantial decisions
of the trust (a “U.S. Holder”) will be taxable on the qualified stated interest accrued or received on such
Note in accordance with such U.S. Holder’s method of accounting for United States federal income tax
purposes. Qualified stated interest is interest that is payable at a single fixed rate at least annually.
Notes bearing interest other than qualified stated interest and Notes issued at a discount may be subject
to the original issue discount provisions of the Code.
50
If an interest payment is denominated in or determined by reference to a currency other than the
U.S. dollar (a “foreign currency”), the amount of income recognized by a cash basis U.S. Holder will
be the U.S. dollar value of the interest payment, based on the exchange rate in effect on the date of
receipt, regardless of whether the payment is in fact converted into U.S. dollars. Accrual basis U.S.
Holders may determine the amount of income recognized with respect to such interest payments in
accordance with either of two methods, in either case regardless of whether the payments are in fact
converted into U.S. dollars. Under the first method, the amount of income recognized will be based on
the average exchange rate in effect during the interest accrual period (or, with respect to an accrual
period that spans two taxable years, the partial period within the taxable year).
Under the second method, an accrual basis U.S. Holder may elect to translate interest income into
U.S. dollars at the exchange rate in effect on the last day of the accrual period (or, in the case of an
accrual period that spans two taxable years, at the exchange rate in effect on the last day of the partial
period within the taxable year). Additionally, if a payment of interest is actually received within five
business days of the last day of the accrual period or taxable year, an electing accrual basis U.S. Holder
may instead translate such accrued interest into U.S. dollars at the exchange rate in effect on the day of
actual receipt. Any election to use the second method will apply to all debt instruments held by the U.S.
Holder at the beginning of the first taxable year to which the election applies or thereafter acquired by
such U.S. Holder, and will be irrevocable without the consent of the Internal Revenue Service.
Upon receipt of an interest payment (including a payment attributable to accrued but unpaid
interest upon the sale or retirement of a Note) denominated in, or determined by reference to, a foreign
currency, an accrual basis U.S. Holder will recognize ordinary income or loss measured by the
difference between (x) the average exchange rate used to accrue interest income, or the exchange rate
as determined under the second method described above if the U.S. Holder elects that method, and (y)
the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted
into U.S. dollars.
The United States Treasury Department has issued to the Corporation a ruling dated February 14,
1992 (the “Ruling”) regarding certain United States federal tax consequences of the receipt of interest
on securities issued by the Corporation. The Ruling provides that interest paid by the Corporation on
such securities, including payments attributable to accrued original issue discount, constitutes income
from sources without the United States.
Because, under the Ruling, interest and original issue discount on the Notes is treated as income
from sources without the United States, interest paid by the Corporation would ordinarily not be subject
to United States federal income tax, including withholding tax, if paid to a nonresident alien individual
(or foreign estate or trust not subject to United States federal income tax on a net income basis) or to a
foreign corporation (a “non-U.S. Holder”), whether or not such person is engaged in trade or business
in the United States. However, absent any special statutory or treaty exception, such income would be
subject to United States federal income tax in the following cases: (a) such interest is derived by such
person in the active conduct of a banking, financing or similar business within the United States and
such interest is attributable to an office or other fixed place of business of such person within the
United States or (b) such person is a foreign corporation taxable as an insurance company carrying on a
United States insurance business to which such interest is attributable.
Purchase, Sale and Retirement of the Notes
A U.S. Holder’s initial tax basis in a Note will generally be its U.S. dollar cost. The U.S. dollar
cost of Notes purchased with foreign currency will generally be the U.S. dollar value of the purchase
price on the date of purchase or, in the case of Notes traded on an established securities market (within
the meaning of Treasury Regulations Section 1.988-2(a)(2)(iv)) purchased by a cash basis U.S. Holder
(or an electing accrual basis U.S. Holder), on the settlement date for the purchase. A U.S. Holder’s
initial tax basis in a Note may be adjusted in certain circumstances, such as, in the case of an accrual
basis U.S. Holder, the accrual of interest income.
A U.S. Holder generally will recognize gain or loss on the sale or retirement of a Note equal to the
difference between the amount realized on the sale or retirement and the adjusted tax basis of the Note.
The amount realized on a sale or retirement for an amount in a foreign currency will be the U.S. dollar
value of such amount on the date of sale or retirement or, in the case of Notes traded on an established
securities market (within the meaning of Treasury Regulations Section 1.988-2(a)(2)(iv)) sold by a cash
51
basis U.S. Holder (or an electing accrual basis U.S. Holder), on the settlement date for the sale. Except
to the extent described in the next succeeding paragraph or attributable to accrued but unpaid interest,
gain or loss recognized on the sale or retirement of a Note will be capital gain or loss. Capital gain of a
non-corporate U.S. Holder that is recognized in taxable years beginning before January 1, 2011 is
generally taxed at a maximum rate of 15 per cent. where the holder has a holding period greater than
one year.
Gain or loss recognized by a U.S. Holder on the sale or retirement of a Note that is attributable to
changes in exchange rates will be treated as ordinary income or loss. However, exchange gain or loss is
taken into account only to the extent of total gain or loss realized on the transaction.
A United States person generally will not be entitled to deduct any loss sustained on the sale or
other disposition (including the receipt of principal) of Bearer Notes (other than Bearer Notes having a
maturity of one year or less from the date of issue) and must treat as ordinary income any gain realized
on the sale or other disposition (including the receipt of principal) of Bearer Notes (other than Bearer
Notes having a maturity of one year or less from the date of issue).
A non-U.S. Holder generally will not be taxable on gain or loss on the sale or exchange of a Note
unless ownership of the Note is effectively connected with the conduct of a trade or business in the
United States or, in the case of a nonresident alien individual, such individual is present in the United
States for 183 or more days in the taxable year of the sale or exchange and certain other conditions are
met.
Exchange of Amounts in Foreign Currency
Foreign currency received as interest on a Note or on the sale or retirement of a Note will have a
tax basis equal to its U.S. dollar value at the time such interest is received or at the time of such sale or
retirement. Foreign currency that is purchased will generally have a tax basis equal to the U.S. dollar
value of such foreign currency on the date of purchase. Any gain or loss recognized on a sale or other
disposition of a foreign currency (including its use to purchase Notes or upon exchange for U.S.
dollars) will be ordinary income or loss.
United States Federal Withholding Tax
Under the Articles of Agreement, the Corporation is not under any obligation to withhold or pay
any tax imposed by any member on the interest on the Notes. The Ruling confirms that neither the
Corporation nor an agent appointed by it as principal for the purpose of paying interest on securities
issued by the Corporation is required to withhold tax on interest paid by the Corporation. Payments of
interest and accrued original issue discount on the Notes will therefore be made to the Fiscal Agent
without deduction in respect of any such tax.
United States Federal Estate Tax
In the case of United States federal estate tax, the Ruling determined that, unless an applicable
death tax convention with a foreign country provides otherwise, securities of the Corporation are
deemed to be situated without the United States for purposes of the United States federal estate tax and
are not includible in the value of the gross estate for purposes of such tax in the case of the estate of a
nonresident of the United States who is not a citizen of the United States.
United States Information Reporting and Backup Withholding
The Corporation is not subject to the reporting requirements that generally are imposed by United
States law with respect to certain payments of interest or principal on debt obligations, nor is it subject
to backup withholding obligations imposed in certain circumstances by United States law with respect
to such payments. While temporary regulations issued by the Internal Revenue Service confirm that the
backup withholding requirements do not apply to any paying agent of the Corporation with respect to
the Notes, the Fiscal Agent may file information returns with the Internal Revenue Service with respect
to payments on the Notes made within the United States to certain non-corporate United States persons
as if such returns were required.
Brokers, trustees, custodians and other intermediaries within the United States are subject to
reporting and backup withholding requirements with respect to certain payments on the Notes received
by them for the account of certain non-corporate United States persons, and foreign persons receiving
52
payments on the Notes within the United States may be required by such intermediaries to establish
their status in order to avoid information reporting and backup withholding by such intermediaries in
respect of such payments.
53
CURRENCY CONVERSIONS
Payments for Notes
Investors will be required to pay for Notes in the applicable Specified Currency. Each Dealer may,
under certain terms and conditions, arrange for the conversion of the Investor’s Currency into the
Specified Currency to enable investors whose financial activities are denominated principally in the
Investor’s Currency to pay for the Notes in the Specified Currency. Each such conversion will be made
by such Dealer (in this respect acting as principal and not as an agent of the Corporation) on such terms
and subject to such conditions, limitations and charges as such Dealer may from time to time establish
in accordance with its regular foreign exchange practices, and subject to any applicable laws and
regulations. All costs of conversion will be borne by such investors of the Notes.
Payments on Notes
Payments in respect of such Notes will be made in the Specified Currency for principal, premium
(if any) and/or interest payments as specified in the applicable Final Terms. Currently, there are limited
facilities in the United States for the conversion of U.S. dollars into foreign currencies and vice versa.
In addition, most banks in the United States do not currently offer non-U.S. dollar denominated
checking or savings account facilities in the United States. Accordingly, unless otherwise specified in
the applicable Final Terms, payments in respect of Notes in a Specified Currency other than U.S.
dollars will be made to an account outside the United States.
Noteholders holding interests in a DTC Global Note denominated in a Specified Currency other
than U.S. dollars (“DTC Noteholders”) will receive payments in U.S. dollars, unless they elect to
receive such payments in the Specified Currency. In the event that a DTC Noteholder shall not have
made such election, payments to such DTC Noteholder will be converted to U.S. dollars by the
Exchange Agent. The U.S. dollar amount in respect of any payment to be paid to a DTC Noteholder
who did not make a timely election to receive payment in the Specified Currency will be based on the
Exchange Agent’s spot rate for the purchase of U.S. dollars with the aggregate amount of the Specified
Currency payable to all DTC Noteholders receiving U.S. dollar payments, for settlement on the
applicable Payment Date, at a time and date immediately preceding such Payment Date, unless
otherwise specified in the applicable Final Terms. If such spot rate is not available, the Exchange Agent
will obtain a bid quotation from a leading foreign exchange bank in London or New York City selected
by the Exchange Agent for such purchase. All costs of any such conversion into U.S. dollars will be
borne by the relevant DTC Noteholder by deduction from such payments. If no spot rate or bid
quotation is available, the Exchange Agent will make payments in the Specified Currency to
Noteholders who were expecting to receive U.S. dollars, provided that such payment will only be made
to such a Noteholder if and when the Exchange Agent has been notified of the Specified Currency
account to which such payment should be made.
A DTC Noteholder may elect to receive payment of the principal and premium (if any) of, or
interest with respect to, the Notes in the Specified Currency (other than U.S. dollars) by notifying DTC
prior to 5:00 p.m. Eastern Standard Time (“E.S.T.”) on the third DTC Business Day following the
applicable record date in the case of interest, and the twelfth calendar day prior to the payment date for
the payment of principal, of (i) such holder’s election to receive all or a portion of such payment in the
Specified Currency for value the relevant due date for interest payment or final redemption, as the case
may be, and (ii) wire transfer instructions to an account denominated in the Specified Currency with
respect to any payment to be made in the Specified Currency. Such election shall be made by the
Noteholder holding its interest in a DTC Global Note and any such election in respect of that payment
shall be irrevocable. An indirect DTC participant must notify the DTC Noteholder through which it is
holding its interest in a DTC Global Note of such election and wire transfer instructions prior to 5:00
p.m. E.S.T. on the first DTC Business Day following the applicable record date. DTC will notify the
Exchange Agent of such election and wire transfer instructions and of the amount of the Specified
Currency to be converted into U.S. dollars, prior to 5:00 p.m. E.S.T. on the fifth DTC Business Day
following the applicable record date in the case of interest and the tenth calendar day prior to the
payment date for the payment of principal. If complete instructions are received by the DTC participant
and forwarded by the DTC participant to DTC, and by DTC to the Exchange Agent, on or prior to such
dates, the DTC Noteholder will receive payment in the Specified Currency outside DTC. Otherwise,
only U.S. dollar payments will be made by the Exchange Agent. Payments in the Specified Currency
54
(other than U.S. dollars) outside DTC will be made by wire transfer of same day funds in accordance
with the relevant wire transfer instructions for value the relevant payment date.
55
PLAN OF DISTRIBUTION
Dealers
The Program provides for the appointment of dealers in respect of any particular issue of Notes
(all such dealers together, the “Dealers”), the names of which will be set out in the applicable Final
Terms. References herein to the Dealers include any Managers set out in the applicable Final Terms.
Morgan Stanley & Co. International plc (“Morgan Stanley”) is arranger of the Program pursuant to a
Program Agreement between the Corporation and Morgan Stanley, dated June 3, 2008. There are no
sponsoring dealers under the Program. Any Dealer will be able to purchase Notes on an underwritten
basis, either individually or as part of a syndicate, or on an agency basis.
Standard Provisions
Notes may be sold from time to time by the Corporation to or through any one or more Dealers
and by the Corporation itself. The arrangements under which the Notes may from time to time be
agreed to be sold by the Corporation to or through the Dealers are set out in the Standard Provisions
dated as of June 3, 2008 (as amended or supplemented from time to time, the “Standard Provisions”).
The Standard Provisions will be incorporated by reference into the terms agreement by which Dealers
are appointed in respect of a particular issue of Notes.
Any agreement for the sale of Notes will, inter alia, make provision for the form and terms and
conditions of the relevant Notes, the method of distribution of the Notes, the price at which such Notes
will be purchased by the relevant Dealer(s) and the commissions or other agreed deductibles (if any)
which are payable or allowable by the Corporation in respect of such purchase. In addition, each
placement of Notes is subject to certain conditions, including the condition that there shall not have
occurred any national or international calamity or development, crisis of a political or economic nature,
or change in the money or capital markets in which the Notes are being offered, the effect of which on
such financial markets shall be such as in the judgment of the relevant Dealer(s) or the Corporation
materially adversely affects the ability of the relevant Dealer(s) to sell or distribute the Notes, whether
in the primary market or in respect of dealings in the secondary market.
Sales Restrictions
No action has been or will be taken in any jurisdiction by any Dealer or the Corporation that
would permit a public offering of any of the Notes, or possession or distribution of this Series
Prospectus, or any part thereof including any Final Terms, or any other offering or publicity material
relating to the Notes, in such jurisdiction. The relevant Dealer(s) (and the Corporation in connection
with sales of Notes on its own behalf) will, to the best of its knowledge, comply with all relevant laws,
regulations and directives in each jurisdiction in which it purchases, offers, sells, or delivers Notes or
has in its possession or distributes this Series Prospectus, or any part thereof including any Final Terms,
or any such other material, in all cases at its own expense.
No Dealer is authorized to make any representation or use any information in connection with the
issue, offering and sale of the Notes other than as contained in this Series Prospectus, the applicable
Final Terms or such other information relating to the Corporation and/or the Notes which the
Corporation has authorized to be used.
Selling restrictions may be modified by the agreement of the Corporation and the relevant
Dealer(s) following a change in any relevant law, regulation or directive. Selling restrictions may also
be added to reflect the requirements of any particular Specified Currency. Any such modification or
addition will be set out in the Final Terms issued in respect of each issue of Notes to which such
modification or addition relates or in a supplement to this Series Prospectus.
United States
The Notes are not required to be registered under the U.S. Securities Act of 1933, as amended.
Bearer Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered
within the United States or its possessions, except in certain transactions permitted by U.S. tax
regulations. Accordingly, under U.S. federal tax laws and regulations, Bearer Notes (including
Temporary Global Notes and Permanent Global Notes) with a maturity of more than one year may not
56
be offered or sold during the restricted period (as defined in United States Treasury Regulations Section
1.163-5(c)(2)(i)(D)(7)) within the United States or to United States persons (each as defined below)
other than to an office located outside the United States of a United States financial institution (as
defined in United States Treasury Regulations Section 1.165-12(c)(1)(v)), purchasing for its own
account or for resale or for the account of certain customers, that provides a certificate stating that it
agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Code, and the United
States Treasury Regulations thereunder, or to certain other persons described in United States Treasury
Regulations Section 1.163-5(c)(2)(i)(D)(1)(iii)(B). Moreover, such Bearer Notes may not be delivered
in connection with their sale during the restricted period within the United States. Any distributor (as
defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(4)) participating in the
offering or sale of Bearer Notes with a maturity of more than one year must agree that it will not offer
or sell during the restricted period any such Bearer Notes within the United States or to United States
persons (other than the persons described above), it will not deliver in connection with the sale of such
Bearer Notes during the restricted period any such Bearer Notes within the United States and it has in
effect procedures reasonably designed to ensure that its employees and agents who are directly engaged
in selling the Bearer Notes are aware of the restrictions on offers and sales described above. No Bearer
Notes (other than a Temporary Global Note and certain Bearer Notes described in the following
paragraph) with a maturity of more than one year may be delivered, nor may interest be paid on any
such Bearer Note, until the person entitled to receive such Bearer Note or such interest furnishes a
written certificate to the effect that the relevant Bearer Note (i) is owned by a person that is not a
United States person, (ii) is owned by a United States person that is a foreign branch of a United States
financial institution purchasing for its own account or for resale, or is owned by a United States person
who acquired the Bearer Note through the foreign branch of such a financial institution and who holds
the Bearer Note through such financial institution on the date of certification, provided, in either case,
that such financial institution provides a certificate to the Corporation or the distributor selling the
Bearer Note to it, within a reasonable time of selling the Bearer Note, stating that it agrees to comply
with the requirements of Section 165(j)(3)(A), (B) or (C) of the Code and the United States Treasury
Regulations thereunder, or (iii) is owned by a financial institution for purposes of resale during the
restricted period. A financial institution described in clause (iii) of the preceding sentence (whether or
not also described in clause (i) or (ii)) must certify that it has not acquired the Bearer Note for purposes
of resale directly or indirectly to a United States person or to a person within the United States. In the
case of a Note represented by a Permanent Global Note, such certification must be given in connection
with notation of a beneficial owner’s interest therein.
A Bearer Note will not be subject to the certification requirements described in the preceding
paragraph if the Bearer Note is sold during the restricted period and all of the following conditions are
satisfied: (i) the interest and principal with respect to the Bearer Note are denominated only in the
currency of a single foreign country; (ii) the interest and principal with respect to the Bearer Note are
payable only within that foreign country; (iii) the Bearer Note is offered and sold in accordance with
practices and documentation customary in that foreign country; (iv) the distributor of the Bearer Note
agrees to use reasonable efforts to sell the Bearer Note within that foreign country; (v) the Bearer Note
is not listed, or the subject of an application for listing, on an exchange located outside that foreign
country; (vi) the U.S. Internal Revenue Service has designated the foreign country as a foreign country
in which certification under Treasury Regulations Section 1.163-5(c)(2)(i)(D)(3)(i) is not permissible;
(vii) the issue of the Bearer Note is subject to guidelines or restrictions imposed by governmental,
banking or securities authorities in that foreign country; and (viii) more than 80 per cent., by value, of
the Bearer Notes included in the offering of which the Bearer Note is a part are sold to non-distributors
by distributors maintaining an office located in that foreign country. Bearer Notes that are convertible
into U.S. dollar denominated debt obligations or which are otherwise linked by their terms to the U.S.
dollar are not eligible for the certification exemption described in this paragraph. The only foreign
countries that have been designated as foreign countries in which certification under Treasury
Regulations Section 1.163-5(c)(2)(i)(D)(3)(i) is not permissible are Switzerland and Germany.
Each Temporary Global Note, Permanent Global Note or Bearer Note with a maturity of more
than one year, and any Talons and Coupons relating to such Bearer Notes, will bear the following
legend:
57
“Any United States person who holds this obligation will be subject to limitations under the
United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a)
of the Internal Revenue Code.”
As used herein, “United States person” means any citizen or resident of the United States, any
corporation, partnership or other entity created or organized in or under the laws of the United States
and any estate or trust the income of which is subject to United States federal income taxation
regardless of its source, and “United States” means the United States of America (including the states
thereof and the District of Columbia) and its possessions. Other terms used herein have the meanings
given to them by the Code and the Treasury Regulations issued thereunder.
United Kingdom
Each Dealer will be required to represent, warrant and agree that it has complied and will comply
with all applicable provisions of the Financial Services and Markets Act 2000 with respect to anything
done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
Japan
The Notes have not been and will not be registered under the Financial Instruments and Exchange
Law of Japan (the “Financial Instruments and Exchange Law”) and each Dealer will be required to
represent, warrant and agree that it will not offer or sell any Notes, directly or indirectly, in Japan or to,
or for the benefit of, any resident of Japan (which term as used herein means any person resident in
Japan, including any corporation or other entity organised under the laws of Japan), or to others for reoffering or resale, directly or indirectly, in Japan or to a resident of Japan except pursuant to an
exemption from the registration requirements of, or otherwise in compliance with, the Financial
Instruments and Exchange Law and any applicable laws, regulations and ministerial guidelines of
Japan.
Singapore
Each dealer acknowledges that this Series Prospectus has not been registered as a prospectus with
the Monetary Authority of Singapore. Accordingly, each Dealer will be required to represent, warrant
and agree that it has not offered or sold any Notes or caused the Notes to be made the subject of an
invitation for subscription or purchase nor will it offer or sell the Notes or cause the Notes to be made
the subject of an invitation for subscription or purchase, nor has it circulated or distributed nor will it
circulate or distribute this Series Prospectus or any other document or material in connection with the
offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and
Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1),
or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section
275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA.
France
Any offer of Notes in France pursuant to this Series Prospectus falls within Article L.411-2 of the
Code monétaire et financier. This Series Prospectus has not been reviewed by the Autorité des
marchés financiers.
58
VALIDITY OF THE NOTES
The validity of the Notes will be passed on by the General Counsel, or the Deputy General
Counsel, of the Corporation and by Sullivan & Cromwell LLP (as to Notes governed by New York
law) and Linklaters LLP (as to Notes governed by English law), counsel to the Dealers, each of which,
with respect to certain matters, will rely upon counsel to the Corporation. It is expected that the validity
of Notes governed by the law of any other jurisdiction will be passed on by counsel to the relevant
Dealers at the time of issue.
The opinions of counsel to the Corporation, Sullivan & Cromwell LLP and Linklaters LLP will be
conditioned upon, and subject to certain assumptions regarding, future action required to be taken by
the Corporation and the Global Agent or the Fiscal Agent in connection with the issuance and sale of
any particular Note, the specific terms of Notes and other matters which may affect the validity of
Notes but which cannot be ascertained on the date of such opinions.
59
GENERAL INFORMATION
The execution of all documents associated with the Program and, subject to the borrowing limit
authorized by the Board of Directors of the Corporation from time to time, the creation, issue, sale
execution and delivery of the Notes has been authorized by resolutions approved by the Board of
Directors of the Corporation.
There has been no significant change in the financial position of the Corporation since June 30,
2013.
The Corporation is not involved in any governmental, legal or arbitration proceedings (including
any such proceedings which are pending or threatened of which the Corporation is aware) during the 12
months preceding the date of this Series Prospectus which are likely to have, or have had in the recent
past, significant effects on the financial position of the Corporation.
Each Bearer Note having a maturity of more than one year, Receipt, Coupon and Talon will bear
the following legend: “Any United States person who holds this obligation will be subject to limitations
under the United States income tax laws, including the limitations provided in Sections 165(j) and
1287(a) of the Internal Revenue Code”.
For so long as Notes may be issued pursuant to this Series Prospectus, the following documents
will be available, during usual business hours on any weekday (Saturdays and public holidays
excepted), for inspection at the office of Global Agent:
(i)
the Global Agency Agreement (which includes the form of the Global Notes, the
Definitive Bearer Notes, the Certificates, the Coupons, the Receipts and the Talons);
(ii)
the Fiscal Agency Agreement (which includes the form of the Definitive Registered
Bookentry Notes);
(iii)
the Program Agreement;
(iv)
the Deed of Covenant;
(v)
the Articles of Agreement of the Corporation;
(vi)
the documents incorporated by reference in this Series Prospectus;
(vii)
each Final Terms (other than for an unlisted Series of Notes);
(viii)
a copy of this Series Prospectus together with any supplement to this Series Prospectus
or further Series Prospectus; and
(ix)
all reports, letters and other documents, balance sheets, valuations and statements by
any expert any part of which is extracted or referred to in this Series Prospectus.
Copies of the latest Information Statement and the latest unaudited quarterly financial statements
of the Corporation may be obtained, and copies of the Global Agency Agreement, the Fiscal Agency
Agreement and the Deed of Covenant will be available for inspection, at the specified office of the
Global Agent during normal business hours, so long as any of the Notes is outstanding.
KPMG LLP of 1801 K Street NW, Washington, DC 20006, U.S.A. have audited the financial
statements of the Corporation as of June 30, 2013 in accordance with auditing standards generally
accepted in the United States of America, and rendered their report dated August 7, 2013 without
qualification.
60
APPENDIX A
CNY NOTES FINAL TERMS
Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the
Series Prospectus dated March 7, 2014. This document constitutes the Final Terms of the CNY Notes (the
“Notes” or the “CNY Notes”) described herein and must be read in conjunction with the Series Prospectus.
Full information on International Finance Corporation (the “Corporation”) and the offer of the Notes is only
available on the basis of the combination of these Final Terms and the Series Prospectus. The Series
Prospectus may be obtained (without charge) from the office of the Corporation at 2121 Pennsylvania
Avenue, N.W., Washington D.C., 20433 U.S.A. and is available for viewing at the website of the
Corporation (www.ifc.org).
THE NOTES ARE NOT AN OBLIGATION OF THE INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT OR OF ANY GOVERNMENT.
PART A – CONTRACTUAL TERMS
1. Issuer:
2.
International Finance Corporation
(i)
Series Number:
1303
(ii)
Tranche Number:
01
3. Specified Currency or Currencies:
Renminbi (CNY)
4. Aggregate Nominal Amount:
(i)
Series:
(ii) Tranche:
CNY1,000,000,000
CNY1,000,000,000
5. Issue Price:
100.00 per cent. of the Aggregate Nominal Amount
6.
CNY10,000
7.
(i)
Specified Denominations:
(ii) Calculation Amount:
CNY10,000
(i)
March 11, 2014
Issue Date:
(ii) Interest Commencement
Date:
Issue Date
8. Maturity Date:
January 18, 2017, adjusted in accordance with the Modified
Following Business Day Convention
9.
2.00 per cent. Fixed Rate
Interest Basis:
10. Redemption/Payment Basis:
Redemption at par
11. Change of Interest or
Redemption/Payment Basis:
Not Applicable
12. Put/Call Options:
Not Applicable
13. Status of the Notes:
Senior
14. Method of distribution:
Syndicated
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
15. Fixed Rate Note Provisions:
Applicable
(i)
Rate of Interest:
2.00 per cent. per annum payable semi-annually in arrear
(ii)
Interest Payment Date(s):
January 18 and July 18 in each year, beginning July 18,
2014, adjusted in accordance with the Modified Following
Business Day Convention
(iii) Fixed Coupon Amount(s):
Not Applicable
61
(iv) Broken Amount(s):
CNY70.68 per Calculation Amount payable on July 18,
2014 in respect of the period from, and including, March
11, 2014 to, but excluding, July 18, 2014
(v)
Actual/365 (Fixed)
Day Count Fraction:
(vi) Determination Dates:
Not Applicable
(vii) Other terms relating to the
method of calculating interest for
Fixed Rate Notes:
Not Applicable
16. Floating Rate Note Provisions:
Not Applicable
17. Zero Coupon Note Provisions:
Not Applicable
18. Index Linked Interest Note/other
variable-linked interest Note
Provisions:
Not Applicable
19. Dual Currency Note Provisions:
Not Applicable
PROVISIONS RELATING TO REDEMPTION
20. Call Option:
Not Applicable
21. Put Option:
Not Applicable
22. Final Redemption Amount of each
Note:
CNY10,000 per Calculation Amount
23. Early Redemption Amount:
Early Redemption Amount:
CNY10,000 per Calculation Amount
GENERAL PROVISIONS APPLICABLE TO THE NOTES
24. Form of Notes:
Registered Notes:
Global Certificate available on Issue Date
25. New Global Note (NGN):
No
26. Financial Centre(s) or other special
provisions relating to payment dates:
Hong Kong and New York
Notwithstanding Condition 6(h), if any payment date would
fall on a date which is not a business day, the relevant date
will be the first following day which is a business day,
unless that day falls in the next calendar month, in which
case the relevant date will be the first preceding day which
is a business day.
In the above paragraph, “business day” means a day on
which banks and foreign exchange markets are open for
business in (i) the relevant place of presentation, (ii) any
Financial Centres and (iii) the principal financial centre of
the country of the relevant currency.
27. Talons for future Coupons or Receipts
to be attached to Definitive Notes (and
dates on which such Talons mature):
No
28. Details relating to Partly Paid Notes:
amount of each payment comprising
the Issue Price and date on which each
payment is to be made and
consequences (if any) of failure to pay,
including any right of the Corporation
Not Applicable
62
to forfeit the Notes and interest due on
late payment:
29. Details relating to instalment Notes:
amount of each instalment, date on
which each payment is to be made:
Not Applicable
30. Redenomination, renominalization and
reconventioning provisions:
Not Applicable
31. Consolidation provisions:
Not Applicable
32. Additional terms:
Applicable
(i)
Governing law:
(ii) Others:
English
All payments in respect of the Notes will be made by
transfer to the Renminbi account maintained by the payee
with a bank in Hong Kong.
See Annex A for certain modifications to the Conditions
with respect to the Notes
DISTRIBUTION
33. (i)
If syndicated, names and
addresses of Managers and
underwriting commitments:
HSBC Bank plc: CNY333,340,000
Industrial and Commercial Bank of China (Asia) Limited:
CNY333,330,000
J.P. Morgan Securities (Asia Pacific) Limited:
CNY333,330,000
34.
(ii) Date of Terms Agreement:
March 7, 2014
(iii) Stabilizing Manager(s) (if any):
HSBC Bank plc
If non-syndicated, name and address
of Dealer:
Not Applicable
35. Additional selling restrictions:
(a)
People’s Republic of China:
Each Manager has represented and agreed that the
Notes are not being offered or sold and may not be
offered or sold, directly or indirectly, in the
People’s Republic of China (for such purposes, not
including Hong Kong and Macau Special
Administrative Regions or Taiwan), except as
permitted by the securities laws of the People’s
Republic of China.
(b)
Hong Kong:
Each Manager has represented and agreed that it
has not issued or had in its possession for the
purposes of issue, and will not issue or have in its
possession for the purposes of issue, whether in
Hong Kong or elsewhere, any advertisement,
invitation or document relating to the Notes, which
is directed at, or the contents of which are likely to
be accessed or read by, the public of Hong Kong
(except if permitted to do so under the securities
laws of Hong Kong) other than with respect to the
Notes which are or are intended to be disposed of
only to persons outside Hong Kong or only to
“professional investors” as defined in the Securities
and Futures Ordinance (Cap. 571 of Hong Kong)
63
and any rules made under that Ordinance.
RESPONSIBILITY
The Corporation accepts responsibility for the information contained in these Final Terms.
Signed on behalf of the Corporation:
By:
Duly authorized
64
PART B – OTHER INFORMATION
1. LISTING
(i)
Listing:
The Official List of the London Stock Exchange
(ii)
Admission to trading:
Application has been made to the London Stock Exchange for
the CNY Notes to be admitted to trading on the London Stock
Exchange’s Regulated Market with effect from March 11, 2014
2. RATINGS
Ratings:
The Notes to be issued have been rated:
S & P: AAA
Moody’s: Aaa
3. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE
Save as discussed in “Plan of Distribution” in the Series Prospectus, so far as the Corporation is aware,
no person involved in the offer of the Notes has an interest material to the offer.
4. OPERATIONAL INFORMATION
Intended to be held in a manner
which would allow Eurosystem
eligibility:
No
ISIN Code:
XS1043504452
Common Code:
104350445
CUSIP:
Not Applicable
CINS:
Not Applicable
Any clearing system(s) other than
Euroclear Bank S.A./N.V.,
Clearstream Banking, société
anonyme and The Depository Trust
Company and the relevant
identification number(s):
Not Applicable
Delivery:
Delivery against payment
Names and addresses of additional
Paying Agent(s) (if any):
Not Applicable
5. GENERAL
Applicable TEFRA exemption:
Not Applicable
65
ANNEX A - MODIFICATIONS TO THE CONDITIONS
The Terms and Conditions shall be further modified as set forth below for the purposes of the CNY Notes
that are subject to these Final Terms:
1. Defined terms:
The following defined terms shall be inserted:
““PRC” means the People’s Republic of China which, for the purpose of these Conditions, shall
exclude Hong Kong, the Macau Special Administrative Region of the People’s Republic of China
and Taiwan.”
““Spot Rate” means the spot Renminbi/U.S. dollar exchange rate for the purchase of U.S. dollars
with Renminbi in the over-the-counter Renminbi exchange market in Hong Kong for settlement in
two business days, as determined by the Calculation Agent at or around 11.00 a.m. (Hong Kong
time) on the Determination Date, on a deliverable basis by reference to Reuters Screen Page
TRADCNY3, or if no such rate is available, on a non-deliverable basis by reference to Reuters
Screen Page TRADNDF. If neither rate is available, the Calculation Agent will determine the Spot
Rate at or around 11.00 a.m. (Hong Kong time) on the Determination Date as the most recently
available Renminbi/U.S. dollar official fixing rate for settlement in two business days reported by
The State Administration of Foreign Exchange of the PRC, which is reported on the Reuters Screen
Page CNY=SAEC. Reference to a page on the Reuters Screen means the display page so designated
on the Reuters Monitor Money Rates Service (or any successor service) or such other page as may
replace that page for the purpose of displaying a comparable currency exchange rate.”
2. Condition 6 (Payment):
Condition 6(i) shall be replaced with the following:
“Currency of Payment: If the Specified Currency is no longer used by the government of the PRC
for the payment of public and private debts or used for settlement of transactions by public
institutions in the PRC or, in the reasonable opinion of the Calculation Agent, is not expected to be
available, when any payment on the Notes is due as a result of circumstances beyond the control of
the Corporation, the Corporation shall be entitled to satisfy its obligations in respect of such
payment by making such payment in U.S. dollars on the basis of the Spot Rate on the second
Business Day prior to such payment (the “Determination Date”) or, if such rate is not available on
the Determination Date, on the basis of the Spot Rate most recently available prior to such
Determination Date, as determined by the Calculation Agent. Any payment made under such
circumstances in U.S. dollars, will constitute valid payment, and will not constitute a default in
respect of the Notes. For these purposes “Business Day” means a day (other than a Saturday or
Sunday) on which commercial banks are open for general business (including dealings in foreign
exchange) in Hong Kong and New York.”
66
APPENDIX B
IFC INFORMATION STATEMENT
67
Information Statement
International Finance Corporation
I
N
L
C
N
O
RP
RNATIO
ORAT
TE
IO
N
A
FINANCE
International Finance Corporation (“IFC” or the “Corporation”) intends from time to time to issue its notes,
bonds, structured debt securities or other evidences of indebtedness (“Securities”), with maturities and on terms
determined by market conditions at the time of sale. The Securities may be sold to dealers or underwriters that
may resell them in public offerings or otherwise, or they may be sold by IFC, either directly or through agents.
In connection with the sale of Securities issued at any particular time, the aggregate principal amount,
maturity, interest rate(s) or method for determining such rate(s), interest payment dates, redemption premium (if
any), purchase price to be paid to IFC, provisions for redemption or other special terms, form and denomination
of such Securities, information as to stock exchange listing and the names of the dealers, underwriters or agents
as well as other relevant information will be set forth in a prospectus, offering circular or information
memorandum for such issuance or in related offering documents.
Except as otherwise indicated, in this Information Statement (1) all amounts are stated in current United
States dollars translated as indicated in the notes to the consolidated financial statements, Note A-Summary of
significant accounting and related policies, remeasurement of foreign currency transactions, and (2) all
information is given as of June 30, 2013.
AVAILABILITY OF INFORMATION
IFC will provide additional copies of this Information Statement to the public upon request and without
charge. Written or telephone requests should be directed to IFC’s principal office at 2121 Pennsylvania Avenue,
N.W., Washington, D.C., 20433, Attention: Treasury Department, Tel: (202) 458-9230. IFC’s consolidated
financial statements and other information filed with the U.S. Securities and Exchange Commission (the
“Commission”) may also be inspected at the offices of the Commission at Room 1580, 100 F Street, N.E.,
Washington, D.C., 20549, and copies of such material may be obtained from the Public Reference section of the
Commission at the above address at prescribed rates.
The Information Statement is also available on IFC’s website at http://www.ifc.org/investors. Other
documents on IFC’s website are not intended to be incorporated by reference in this Information Statement.
Recipients of this Information Statement should retain it for future reference, as it is intended that
each prospectus, offering circular, information memorandum or other offering document will refer to this
Information Statement for a description of IFC, its operations and financial status.
November 21, 2013
SUMMARY INFORMATION
Except as otherwise indicated, all data are as of June 30, 2013.
IFC is an international organization, established in 1956 to further economic growth in its developing member countries by promoting
private sector development. IFC is a member of the World Bank Group, which also comprises the International Bank for Reconstruction and
Development (“IBRD”), the International Development Association (“IDA”), the Multilateral Investment Guarantee Agency (“MIGA”), and
the International Centre for Settlement of Investment Disputes (“ICSID”). It is a legal entity separate and distinct from IBRD, IDA, MIGA,
and ICSID with its own Articles of Agreement, share capital, financial structure, management, and staff. Membership in IFC is open only to
member countries of IBRD. The obligations of IFC are not obligations of, or guaranteed by, IBRD or any government.
IFC is an experienced supranational organization providing financing and financial services primarily to the private sector in developing
countries that are members of IFC. It combines the characteristics of a multilateral development bank with those of a private financial
institution. As of June 30, 2013, IFC’s entire share capital was held by 184 member countries. As of June 30, 2013, member countries of the
Organization for Economic Cooperation and Development (“OECD”) held 68.36% of the voting power of IFC. The five largest of IFC’s
184 shareholders are the United States (22.41% of the total voting power), Japan (5.58%), Germany (5.10%), United Kingdom (4.79%), and
France (4.79%). Generally, IFC charges market-based rates for its loans and seeks market returns on its equity investments and investments in
debt securities. Unlike most other multilateral institutions, IFC does not accept host government guarantees of its loans. The financial strength
of IFC is based principally on the quality of its investment portfolio, its substantial paid-in capital and retained earnings, low debt to equity
ratio, the size of its liquid assets portfolio, its diversified earnings base and its profitability.
Basis of Preparation of IFC’s Consolidated Financial Statements. The accounting and reporting policies of IFC conform to
accounting principles generally accepted in the United States (“US GAAP”). IFC’s accounting policies are discussed in more detail in the
Section, Critical Accounting Policies and in Note A to IFC’s Consolidated Financial Statements as of and for the year ended June 30, 2013
(“FY13”) (“FY13 Consolidated Financial Statements”).
Investment Products. As of June 30, 2013, IFC’s disbursed loan, equity, and debt securities investment portfolio (“disbursed
investment portfolio”) amounted to United States dollars (“US dollars” or “$”) 33.9 billion. Loans represented 66.7%, equity investments
27.2%, and debt securities 6.1% of the disbursed investment portfolio. The disbursed investment portfolio is diversified by country, region,
industry, sector, and project type. Risks are shared with other private sector investors as IFC does not generally provide financing for its own
account for more than 25% of project cost. IFC’s investment portfolio is subject to a number of operational and prudential limits, including
limitations on single project/client exposure, single country exposure, and segment concentration. IFC applies stringent lending and
investment criteria; projects are appraised on their technical, managerial, financial, and economic merits. Generally, IFC loans are priced on a
market basis and equity and debt security investment decisions are similarly made based on risk-reward considerations.
Liquid Assets. As of June 30, 2013, the fair value of IFC’s liquid assets portfolio (net of associated derivative instruments and
securities lending activities) amounted to $31.2 billion, up from $29.7 billion at June 30, 2012. IFC’s liquid assets plus undrawn borrowings
from IBRD are sufficient to cover all of IFC’s undisbursed loan and equity commitments. IFC’s liquidity policy is to maintain a minimum
level of liquidity, consisting of proceeds from external funding, to cover at least 65% of the sum of: (i) 100% of committed but undisbursed
straight senior loans; (ii) 30% of committed guarantees; and (iii) 30% of committed client risk management products. During the three months
ended March 31, 2013, IFC’s management decided to modify the External Funding Policy by eliminating the cap on the operational range of
65% to 85%. IFC invests its liquid assets portfolio in highly rated fixed and floating rate instruments issued by, or unconditionally guaranteed
by governments, government agencies and instrumentalities, multilateral organizations, and high quality corporate issuers; these include assetbacked securities (“ABS”) and mortgage-backed securities (“MBS”), time deposits and other unconditional obligations of banks and financial
institutions. Diversification in multiple dimensions ensures a favorable risk return profile. IFC manages the market risk associated with these
investments through a variety of hedging techniques including derivatives, principally currency and interest rate swaps and financial futures.
Borrowings. IFC raises virtually all of the funds for its lending, equity and debt security investment activities through the issuance of
debt obligations in the international capital markets, while maintaining a small borrowing window with IBRD. IFC diversifies its borrowings
by currency, country, source and maturity to provide flexibility and cost effectiveness. As of June 30, 2013, IFC’s outstanding borrowings,
including fair value adjustments, totaled $44.9 billion. In addition, IFC undertakes a substantial volume of currency swap and interest rate
swap transactions to convert its market borrowings into variable-rate US dollar liabilities.
Enterprise Risk Management. In executing its sustainable private sector development business, IFC assumes various risks of various
types. Active management of these risks is critical to IFC’s ability to maintain financial sustainability and achieve development impact.
IFC has developed a comprehensive enterprise risk management framework within which risks are continuously identified, measured,
monitored, analyzed and controlled. This framework is defined in terms of several interrelated dimensions, namely: IFC’s guiding principles
provide the foundation for active management of risk in IFC’s business, in its entirety, under the supervision of the Board of Directors, the
Audit Committee, the Executive Vice President/CEO and the Management Team; risk appetite is defined and implemented in the form of
exposure limits, policies and procedures; the Risk Management, Portfolio Vice Presidency, together with independent institutional oversight
bodies, monitors compliance with prescribed limits, policies and procedures; risk governance is provided by a sub-committee of the
Management Team, the Corporate Risk Committee which reviews and approves all risk policies, sets risk standards and receives regular
reports on different aspects of risk management at the enterprise level; and as a member of the World Bank Group, IFC liaises with the
corresponding Risk Management areas across the group on a regular basis.
Total Capital. As of June 30, 2013, IFC’s total capital amounted to $22.3 billion, including $18.7 billion in retained earnings, of which
$0.3 billion has been designated for specific purposes. IFC’s reporting of capital adequacy is “Deployable Strategic Capital.” Deployable
Strategic Capital is based on the Corporation’s Board of Director-approved risk based economic capital. Deployable Strategic Capital as a
percentage of Total Resources Available (defined as paid-in capital plus retained earnings net of designated retained earnings plus general and
specific reserves against losses on loans) stood at 8% at June 30, 2013. Under IFC’s Articles of Agreement, so long as IFC has outstanding
indebtedness to IBRD, IFC’s leverage, as measured by the ratio of IFC’s debt (borrowings plus outstanding guarantees) to equity (total
subscribed capital plus retained earnings), may not exceed 4.0 to 1. At June 30, 2013, this ratio was 2.6 to 1.
The above information is supplemented and qualified by the additional information
and Consolidated Financial Statements and Notes thereto appearing elsewhere in this Information Statement.
2
SELECTED FINANCIAL DATA
The table below presents selected financial data for the last five fiscal years (in millions of US dollars,
except where otherwise stated):
2013
Net income highlights:
Income from loans and guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Provision) release of provision for losses on loans, guarantees and other
receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from liquid asset trading activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gains and losses on non-trading activities . . . . . . . . . . . .
Income (loss) before net gains and losses on other non-trading financial instruments
accounted for at fair value and grants to IDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gains and losses on other non-trading financial instruments accounted for at fair
value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of and for the years ended 30 June
2012
2011
2010
2009
$ 1,059
(243)
752
5
500
(220)
441
(1,401)
35
928
$
938
$
877
$
801
$
871
(117)
1,457
81
313
(181)
448
(1,207)
145
40
1,464
46
529
(140)
222
(981)
(33)
(155)
1,638
108
815
(163)
176
(853)
(82)
(438)
(42)
71
474
(488)
153
(764)
10
1,877
2,024
2,285
(153)
422
(219)
155
(339)
452
Income before grants to IDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants to IDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,350
(340)
1,658
(330)
2,179
(600)
1,946
(200)
299
(450)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,010
1,328
1,579
1,746
(151)
Less: Net loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . .
8
—
—
—
Net income (loss) attributable to IFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,018
$ 1,328
$ 1,579
$ 1,746
$ (151)
Consolidated balance sheet highlights:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquid assets, net of associated derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings outstanding, including fair value adjustments . . . . . . . . . . . . . . . . . . . . . . .
$77,525
31,237
34,677
44,869
$75,761
29,721
31,438
44,665
$68,490
24,517
29,934
38,211
$61,075
21,001
25,944
31,106
$51,483
17,864
22,214
25,711
Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,275
$20,580
$20,279
$18,359
$16,122
$18,435
278
2,403
1,121
38
$17,373
322
2,372
513
—
$16,032
335
2,369
1,543
—
$14,307
481
2,369
1,202
—
$12,251
791
2,369
711
—
Of which:
Undesignated retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Designated retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (AOCI) . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial ratios:(1)
Return on average assets (GAAP basis)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average assets (non-GAAP basis)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average capital (GAAP basis)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average capital (non-GAAP basis)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and liquid investments as a percentage of next three years’ estimated net cash
requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External funding liquidity level(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt to equity ratio(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total reserves against losses on loans to total disbursed portfolio(8) . . . . . . . . . . . . . . .
Capital measures:
Capital to risk-weighted assets ratio(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total resources required ($ billions)(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total resources available ($ billions)(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic capital(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deployable strategic capital(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deployable strategic capital as a percentage of total resources available . . . . . . . . . .
3
—
1.3%
0.9%
4.8%
3.1%
1.8%
2.8%
6.5%
9.9%
2.4%
1.8%
8.2%
6.0%
3.1%
3.8%
10.1%
11.8%
(0.3)%
(1.1)%
(0.9)%
(3.0)%
77%
309%
2.6:1
7.2%
77%
327%
2.7:1
6.6%
83%
266%
2.6:1
6.6%
71%
190%
2.2:1
7.4%
75%
163%
2.1:1
7.4%
n/a
16.8
20.5
3.8
1.7
8%
n/a
15.5
19.2
3.7
1.8
9%
n/a
14.4
17.9
3.6
1.8
10%
n/a
12.8
16.8
4.0
2.3
14%
44%
10.9
14.8
3.9
2.3
16%
1
2
3
4
5
6
7
8
9
10
11
12
13
Certain financial ratios as described below are calculated excluding the effects of unrealized gains and losses on investments, other non-trading financial
instruments, AOCI, and impacts from consolidated Variable Interest Entities (“VIEs”).
Net income for the fiscal year as a percentage of the average of total assets at the end of such fiscal year and the previous fiscal year.
Net income excluding unrealized gains and losses on certain investments accounted for at fair value, income from consolidated VIEs, and net gains and losses on
non-trading financial instruments accounted for at fair value, as a percentage of total disbursed loan and equity investments (net of reserves) at cost, liquid assets
net of repos, and other assets averaged for the current period and previous fiscal year.
Net income for the fiscal year as a percentage of the average of total capital (excluding payments on account of pending subscriptions) at the end of such fiscal
year and the previous fiscal year.
Net income excluding unrealized gains and losses on certain investments accounted for at fair value, income from consolidated VIEs, and net gains and losses on
non-trading financial instruments accounted for at fair value, as a percentage of paid-in share capital and retained earnings (before certain unrealized gains and
losses and excluding cumulative designations not yet expensed) averaged for the current period and previous fiscal year.
IFC’s objective is to maintain a minimum level of liquidity, consisting of proceeds from external funding to cover at least 65% of the sum of (i) 100% of
committed but undisbursed straight senior loans; (ii) 30% of committed guarantees; and (iii) 30% of committed client risk management products. As of FY13 Q3,
IFC’s management decided to modify the External Funding Policy by eliminating the cap on the operational range of 65% to 85%.
Leverage (Debt/equity) ratio is defined as the number of times outstanding borrowings plus outstanding guarantees cover paid-in capital and accumulated earnings
(net of retained earnings designations and certain unrealized gains/losses).
Total reserves against losses on loans to total disbursed loan portfolio is defined as reserve against losses on loans as a percentage of the total disbursed loan
portfolio at the end of the fiscal year.
The ratio of capital (including paid-in capital, retained earnings, and portfolio (general) loan loss reserves) to risk-weighted assets, both on- and off-balance sheet.
The ratio does not include designated retained earnings reported in total capital on IFC’s consolidated balance sheet. The Board of Directors has approved the use
of a risk-based economic capital framework beginning in the year ended June 30, 2008 (“FY08”). Parallel use of the capital to riskweighted assets ratio has now
been discontinued.
The minimum capital required consistent with the maintenance of IFC’s AAA rating. It is computed as the aggregation of risk-based economic capital
requirements for each asset class across the Corporation.
Paid-in capital plus retained earnings net of designated retained earnings plus general and specific reserves against losses on loans. This is the level of available
resources under IFC’s risk-based economic capital adequacy framework.
Total resources available less total resources required.
90% of total resources available less total resources required.
USE OF PROCEEDS
The net proceeds to IFC from the sale of the Securities will normally be used for the general operations of IFC in
accordance with its Articles of Agreement.
FINANCIAL STRUCTURE OF IFC
Total assets were $77.5 billion at June 30, 2013 ($75.8 billion — June 30, 2012), including $31.2 billion in liquid
assets, net of associated derivatives ($29.7 billion — June 30, 2012) and $34.7 billion in the investment portfolio,
including fair value and other adjustments, and net of reserves against losses on loans ($31.4 billion — June 30, 2012).
Total assets also include $3.4 billion in derivative assets at fair value ($4.6 billion — June 30, 2012).
4
MANAGEMENT’S DISCUSSION AND ANALYSIS
AS OF AND FOR THE YEAR ENDED JUNE 30, 2013
OVERVIEW OF FINANCIAL RESULTS
IFC helps developing countries achieve sustainable growth by financing private sector investment,
mobilizing capital in international financial markets, and providing advisory services to businesses and
governments. IFC’s principal investment products are loans and equity investments, with smaller debt securities
and guarantee portfolios. IFC also plays an active and direct role in mobilizing additional funding from other
investors and lenders through a variety of means. Such means principally comprise: loan participations, parallel
loans, sales of loans, the non-IFC portion of structured finance transactions which meet core mobilization
criteria, the non-IFC portion of commitments in IFC’s initiatives, and the non-IFC investment portion of
commitments in funds managed by IFC’s wholly owned subsidiary, IFC Asset Management Company LLC
(“AMC”), (collectively “Core Mobilization”). Unlike most other development 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 international capital markets, while maintaining a small borrowing window
with IBRD. Equity investments are funded from net worth. For FY13, IFC had an authorized borrowing program
of up to $10 billion, and up to $2 billion to allow for possible prefunding during FY13 of the funding program for
the year ending June 30, 2014 (“FY14”). For FY14, IFC has an authorized borrowing program of up to $13.5
billion, and, subject to completion of its FY14 program, up to $2.0 billion to allow for possible prefunding during
FY14 of the funding program for the year ending June 30, 2015 (“FY15”).
IFC’s capital base and its assets and liabilities, other than its equity investments, are primarily denominated
in US dollars. IFC seeks to minimize foreign exchange and interest rate risks by closely matching the currency
and rate bases of its assets in various currencies with liabilities having the same characteristics. IFC generally
manages non-equity investment related and certain lending related residual currency and interest rate risks by
utilizing currency and interest rate swaps and other derivative instruments.
The Management’s Discussion and Analysis contains forward looking statements which may be identified
by such terms as “anticipates,” “believes,” “expects,” “intends,” “plans” or words of similar meaning. Such
statements involve a number of assumptions and estimates that are based on current expectations, which are
subject to risks and uncertainties beyond IFC’s control. Consequently, actual future results could differ materially
from those currently anticipated.
BASIS OF PREPARATION OF IFC’S CONSOLIDATED FINANCIAL STATEMENTS
The accounting and reporting policies of IFC conform to US GAAP. IFC’s accounting policies are
discussed in more detail in Critical Accounting Policies and in Note A to IFC’s FY13 Consolidated Financial
Statements.
FINANCIAL PERFORMANCE SUMMARY
From year to year, IFC’s net income is affected by a number of factors that can result in volatile financial
performance. Such factors are detailed more fully in Results of Operations.
IFC reported income before net gains and losses on other non-trading financial instruments accounted for at
fair value and grants to IDA of $928 million in FY13, as compared to $1,877 million in the year ended June 30,
2012 (“FY12”) and $2,024 million in the year ended June 30, 2011 (“FY11”).
5
The decrease in income before net gains and losses on other non-trading financial instruments accounted for
at fair value and grants to IDA in FY13 when compared to FY12 and in FY12 when compared to FY11 was
principally as a result of the following (US$ millions):
Increase
(decrease)
FY13 vs FY12
Realized capital gains on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions for losses on loans, guarantees and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gains and losses on non-trading activities . . . . . . . . . . . . . . . . . . . . . .
Advisory services expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense from pension and other postretirement benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from liquid asset trading activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairments on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,079)
(126)
(110)
(91)
(77)
154
187
251
(58)
Overall change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (949)
Increase
(decrease)
FY12 vs FY11
Unrealized losses on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairments on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from liquid asset trading activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on non-monetary exchanges of equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions for losses on loans, guarantees and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advisory services expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gains and losses on non-trading activities . . . . . . . . . . . . . . . . . . . . . .
Realized capital gains on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (582)
(474)
(216)
(214)
(157)
132
178
1,263
(77)
Overall change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (147)
Net gains on other non-trading financial instruments accounted for at fair value totaled $422 million in FY13
(net losses of $219 million in FY12 and net gains of $155 million in FY11) resulting in income before grants to IDA
of $1,350 million in FY13, as compared to $1,658 million in FY12 and $2,179 million in FY11. Grants to IDA
totaled $340 million in FY13, as compared to $330 million in FY12 and $600 million in FY11. Net loss attributable
to noncontrolling interests totaled $8 million in FY13 ($0 in FY12 and FY11). Accordingly, net income attributable
to IFC totaled $1,018 million in FY13, as compared with $1,328 million in FY12 and $1,579 million in FY11.
IFC’s net income (loss) for each of the past five fiscal years ended June 30, 2013 is presented below (US$
millions):
US$ millions
2,000
1,500
1,000
500
(500)
2009
2010
2011
6
2012
2013
IFC’s financial performance is detailed more fully in Results of Operations.
CLIENT SERVICES
BUSINESS OVERVIEW
IFC fosters sustainable economic growth in developing countries by financing private sector investment,
mobilizing capital in the international financial markets, and providing advisory services to businesses and
governments.
IFC has five strategic focus areas:
• strengthening the focus on frontier markets
• addressing climate change and ensuring environmental and social sustainability
• addressing constraints to private sector growth in infrastructure, health, education, and the food-supply
chain
• developing local financial markets
• building long-term client relationships in emerging markets
For all new investments, IFC articulates the expected impact on sustainable development, and, as the
projects mature, IFC assesses the quality of the development benefits realized.
IFC’s strategic focus areas are aligned to advance the World Bank Group’s global priorities.
IFC has three businesses: Investment Services, Advisory Services, and Asset Management.
INVESTMENT SERVICES
IFC’s investments are normally made in its developing member countries. The Articles of Agreement
mandate that IFC shall invest in productive private enterprise. The requirement for private ownership does not
disqualify enterprises that are partly owned by the public sector if such enterprises are organized under local
commercial and corporate law, operate free of host government control in a market context and according to
profitability criteria, and/or are in the process of being totally or partially privatized.
IFC provides a range of financial products and services to its clients to promote sustainable enterprises,
encourage entrepreneurship, and mobilize resources that wouldn’t otherwise be available. IFC’s financing products
are tailored to meet the needs of each project. Investment services product lines include: loans, equity investments,
trade finance, loan participations, structured finance, client risk management services, and blended finance.
IFC’s investment project cycle can be divided into the following stages:
• Business Development
• Concept Review
• Appraisal (Due Diligence)
• Investment Review
• Negotiations
• Public Disclosure
• Board of Directors Review and Approval
• Commitment
• Disbursement of funds
• Project Supervision and Development Outcome Tracking
• Evaluation
• Closing
7
IFC carefully supervises its projects to monitor project performance and compliance with contractual
obligations and with IFC’s internal policies and procedures.
Investment products
Loans — IFC finances projects and companies through loans, typically for seven to twelve years. IFC also
makes loans to intermediary banks, leasing companies, and other financial institutions for on-lending. IFC’s
loans traditionally have been denominated in the currencies of major industrial nations, but has a growing local
currency product line.
Equity — IFC’s equity investments provide developmental support and long-term growth capital for private
enterprises, and opportunities to support corporate governance and enhanced social responsibility. IFC invests
directly in companies’ equity, and also through private equity funds. IFC generally invests between 5 and 20
percent of a company’s equity. IFC also invests in preferred shares and uses put and call options, profit
participation features, conversion features, warrants and other types of instruments in managing its equity
investments.
Debt Securities — Investments typically in the form of bonds and notes issued in bearer or registered form,
securitized debt obligations and preferred shares that are mandatorily redeemable by the issuer or puttable by IFC
are classified as debt securities in IFC’s consolidated balance sheet.
Trade and Supply Chain Finance — IFC’s Global Trade Finance Program (“GTFP”) guarantees traderelated payment obligations of approved financial institutions. Separately, the Global Trade Liquidity Program
(“GTLP”) and Critical Commodities Finance Program (“CCFP”) provides liquidity for trade in developing
countries. IFC has also commenced a number of other Trade and Supply Chain Finance-related programs,
including Global Trade Supplier Finance, Global Warehouse Finance Program, Working Capital and Systemic
Solutions and Global Trade Structured Trade.
Loan Participations — IFC’s loan participation program mobilizes capital from international commercial
banks, emerging market banks, funds, insurance companies, and development-finance institutions for
development needs.
Structured Finance — IFC uses structured and securitized products to provide forms of financing that may
not otherwise be available to clients to help clients diversify funding, extend maturities, and obtain financing in
particular currencies. Products include partial credit guarantees, structured liquidity facilities, portfolio risk
transfer, securitizations, and Islamic finance.
Client Risk Management Services — IFC provides derivative products to its clients to allow them to hedge
their interest rate, currency, or commodity-price exposures. IFC intermediates between clients in developing
countries and derivatives market makers to provide such clients with access to risk-management products.
Blended Finance — IFC combines concessional funds, typically from donor partners, with IFC’s resources
to finance certain projects.
ADVISORY SERVICES
Advisory services recognized as a key part of the Corporation’s mandate, and have grown to become an
increasingly important tool for delivering on IFC’s mission. Advisory Services play a crucial role in helping
government clients create an effective enabling environment for private investment, while strengthening the
capacity and know-how of private sector clients — thereby extending IFC’s reach into challenging markets.
IFC’s advisory services are organized into four business lines:
Access to finance — Works with financial intermediaries to expand access to financial services. Provides
advice on small and medium enterprises (“SMEs”) and micro/retail finance solutions, as well as enabling
financial infrastructure.
8
Investment climate — Works with governments to create an enabling environment to increase the role of
private sector growth and development. Provides advice on business regulation and taxation, investment policies,
as well as industry-specific investment climate reform.
Public-private partnerships — to help governments design and implement public-private partnerships
(“PPPs”) in infrastructure and other basic public services. Provides advice on preparing and structuring of PPP
mandates.
Sustainable business — Works with companies and their supply chains to promote adoption of, and catalyze
investment in, sound environmental, social and governance practices and technologies that create a competitive
edge.
Around half of IFC’s advisory projects work with government clients to help unlock investment
opportunities for IFC and others — as is the case when IFC assists governments to improve the investment
climate or to design and implement PPPs, complementing the work of IBRD and the International Monetary
Fund. The other half of advisory projects involves work with private sector clients to build capacity or
demonstrate the business case for desirable business practices. Investment Services and Advisory Services may
be offered either in tandem or sequentially. Examples include microfinance, SME banking, energy efficiency
financing, corporate governance, or supply chain development in the agricultural sector.
Advisory Services make a substantial contribution to IFC’s shared corporate priorities. Advisory Services
are often IFC’s first offering in new or challenging markets. Advisory Services have continuously strengthened
their alignment and deepened their synergies with investment operations, particularly with regards to Fragile &
Conflict Situations, Climate Change, SMEs, Agribusiness and Infrastructure, with gender as a cross-cutting
priority.
ASSET MANAGEMENT COMPANY
AMC, a wholly-owned subsidiary of IFC, invests third-party capital and IFC capital, enabling outside
investors to benefit from IFC’s expertise in achieving strong equity returns, as well as positive development
impact in the countries in which it invests in developing and frontier markets. Investors in funds managed by
AMC include sovereign wealth funds, national pension funds, multilateral and bilateral development institutions,
national development agencies and international financial institutions. AMC helps IFC mobilize additional
capital resources for investment in productive private enterprise in developing countries.
At June 30, 2013, AMC managed seven funds, with $5.5 billion under management: the IFC Capitalization
(Equity) Fund, L.P. (“Equity Capitalization Fund”); the IFC Capitalization (Subordinated Debt) Fund, L.P.
(“Sub-Debt Capitalization Fund”); the IFC African, Latin American and Caribbean Fund, LP (“ALAC Fund”);
the Africa Capitalization Fund, Ltd. (“Africa Capitalization Fund”); the IFC Russian Bank Capitalization Fund,
LP (“Russian Bank Cap Fund”); the IFC Catalyst Fund, LP and the IFC Catalyst Fund (UK), LP (collectively,
“Catalyst funds”); and the IFC Global Infrastructure Fund, LP (“Global Infrastructure Fund”). The Equity
Capitalization Fund and the Sub-Debt Capitalization Fund are collectively referred to as the Global
Capitalization Fund.
The Global Capitalization Fund, established in the year ended June 30, 2009 (“FY09”), helps strengthen
systemically important banks in emerging markets.
The ALAC Fund was established in the year ended June 30, 2010 (“FY10’). The ALAC Fund invests in
equity investments across a range of sectors in Sub-Saharan Africa, Latin America, and the Caribbean.
The Africa Capitalization Fund was established in FY10 to capitalize systemically important commercial
banking institutions in northern and Sub- Saharan Africa.
The Russian Bank Cap Fund was established in FY12 to invest in mid-sized, commercial banks in Russia that are
either: (i) privately owned and controlled; or (ii) state-owned; or (iii) controlled and on a clear path to privatization.
The Catalyst Funds were established in FY13 to make investments in selected climate- and resource
efficiency-focused private equity funds in emerging markets.
9
The Global Infrastructure Fund was established in FY13 to focus on making equity and equity-related
investments in the infrastructure sector in global emerging markets.
INVESTMENT PROGRAM
Commitments
In FY13, total commitments were $24,853 million, compared with $20,358 million in FY12, an increase of
22%, of which IFC commitments totaled $18,349 million ($15,462 million – FY12) and Core Mobilization
totaled $6,504 million ($4,896 million – FY12).
FY13 and FY12 commitments and Core Mobilization comprised the following (US$ millions):
FY13
FY12
$24,853
$20,358
$ 8,520
2,732
$ 6,668
2,282
6,477
482
138
6,004
398
110
Total IFC commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,349
$15,462
Core Mobilization
Loan participations, parallel loans, and other mobilization
Loan participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parallel loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other mobilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,829
1,269
480
$ 1,764
927
814
Total loan participations, parallel loans, and other mobilization . . . . . . . . . . . . . . . . . .
$ 3,578
$ 3,505
$
214
209
210
92
43
$
24
215
190
8
—
Total AMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
768
$
437
Other initiatives
GTLP and CCFP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PPP Mobilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure Crisis Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt & Asset Recovery Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,096
942
110
10
$
850
41
63
—
Total other initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,158
$
954
Total Core Mobilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,504
$ 4,896
Core Mobilization Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.35
0.32
Total commitments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IFC Commitments
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantees:
GTFP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Client risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AMC:
Equity Capitalization Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sub-Debt Capitalization Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ALAC Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Africa Capitalization Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Russian Bank Cap Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Debt security commitments are included in loans and equity investments based on their predominant
characteristics.
10
Disbursements
IFC disbursed $10,012 million for its own account in FY13 ($7,981 million in FY12): $6,940 million of
loans ($5,651 million in FY12), $2,549 million of equity investments ($1,810 million in FY12), including $42
million attributable to noncontrolling interest ($0 in FY12), and $523 million of debt securities ($520 million in
FY12).
Disbursed investment portfolio
IFC’s total disbursed investment portfolio (a non-US GAAP performance measure) was $33,885 million at
June 30, 2013 ($30,700 million at June 30, 2012), comprising the disbursed loan portfolio of $22,606 million
($21,043 million at June 30, 2012), the disbursed equity portfolio of $9,209 million ($7,547 million at June 30,
2012), and the disbursed debt security portfolio of $2,070 million ($2,110 million at June 30, 2012).
IFC’s disbursed investment portfolio is diversified by industry sector and geographic region with a focus on
strategic high development impact sectors such as financial markets and infrastructure.
The carrying value of IFC’s investment portfolio comprises: (i) the disbursed investment portfolio;
(ii) reserves against losses on loans; (iii) unamortized deferred loan origination fees, net and other; (iv) disbursed
amount allocated to a related financial instrument reported separately in other assets or derivative assets;
(v) unrealized gains and losses on equity investments held by consolidated variable interest entities;
(vi) unrealized gains and losses on investments accounted for at fair value as available-for-sale; and
(vii) unrealized gains and losses on investments.
The following charts show the distribution of the disbursed investment portfolio by geographical region and
industry sector as of June 30, 2013, and June 30, 2012:
Distribution by region
FY13
FY12
Latin America and
Caribbean
Latin America and
Caribbean
Europe and Central Asia
Europe and Central Asia
Asia
Asia
Middle East and North
Africa
Middle East and North
Africa
Sub-Saharan Africa
Sub-Saharan Africa
Other
Other
11
Distribution by industry sector
Finance & Insurance
Electric Power
Collecve Investment Vehicles
Oil, Gas and Mining
Transportaon and Warehousing
Agriculture and Forestry
Chemicals
Informaon
Nonmetallic Mineral Product Manufacturing
Industrial & Consumer Products
Food & Beverages
Health Care
Ulies
Construcon and Real Estate
Wholesale and Retail Trade
Primary Metals
Accommodaon & Tourism Services
Educaon Services
Pulp & Paper
Texles, Apparel & Leather
Other
0%
5%
FY12
10%
15%
20%
25%
30%
35%
40%
FY13
Disbursed loan participations
The portfolio of disbursed and outstanding loan participations which are serviced by IFC at June 30, 2013,
totaled $6,621 million, as compared with $6,463 million at June 30, 2012.
Additional information on IFC’s investment portfolio as of and for the years ended June 30, 2013, and
June 30, 2012, can be found in Notes B, D, E, F, G, H and I to IFC’s FY13 Consolidated Financial Statements.
Loans
Loans generally have the following characteristics:
Term — typically amortizing with final maturities generally for seven to twelve years, although some loans
have been made for tenors as long as 20 years
Currency — primarily in major convertible currencies, principally US dollar, and to a lesser extent, Euro,
but with a growing local currency loan portfolio
Interest rate — typically variable (or fixed and swapped into variable)
Pricing — reflects such factors as market conditions and country and project risks
IFC’s loans traditionally have been made in major currencies, based on client demand and on IFC’s ability
to economically hedge loans in these currencies through the use of mechanisms such as cross-currency swaps or
forward contracts. Fixed-rate loans and loans in currencies other than US dollars are normally economically
hedged using currency and/or interest rate swaps, into US dollar variable rate assets.
Loans traditionally have been denominated in the currencies of major industrial nations, but IFC has a
growing portfolio of local currency products. IFC typically offers local currency products in other currencies
where it can economically hedge the local currency loan cash flows back into US dollars using swap markets or
where it can fund itself in local bond markets. IFC’s disbursed loan portfolio at June 30, 2013 includes $2,633
million of currency products denominated in Indian rupee, Mexican peso, Chinese renminbi, Philippine pesos,
Russian ruble, South African rand, Brazilian reais, Indonesian rupiah, Colombian pesos, Turkish lira and
Vietnamese dong ($2,314 million at June 30, 2012). IFC has also made loans in a number of frontier market
currencies such as Tunisian dinar, Paraguayan guarani, Rwandan franc, and Zambian kwacha.
IFC’s disbursed loan portfolio totaled $22,606 million at June 30, 2013 ($21,043 million at June 30, 2012).
The carrying amount of IFC’s loan portfolio on IFC’s consolidated balance sheet (comprising the disbursed loan
portfolio together with adjustments as detailed in Note D to IFC’s FY13 Consolidated Financial Statements)
grew 7% to $20,831 million at June 30, 2013 ($19,496 million at June 30, 2012).
12
Loans comprise 67% of the disbursed investment portfolio as of June 30, 2013 (68% at June 30, 2012) and
60% of the carrying amount of the investment portfolio as of June 30, 2013 (62% at June 30, 2012).
At June 30, 2013, 74% (74% at June 30, 2012) of IFC’s disbursed loan portfolio was US dollardenominated.
The currency composition of the disbursed loan portfolio at June 30, 2013, and June 30, 2012, is shown
below:
US dollars
Euro
Chinese renminbi
Indian rupees
Mexican pesos
Philippine pesos
Brazilian reais
South African rand
Russian rubles
Indonesian rupiah
Colombian pesos
Turkish lira
Other
0
2,000
4,000
6,000
8,000
FY12
10,000
12,000
14,000
16,000
18,000
FY13
Equity investments
IFC’s equity investments are typically in the form of common or preferred stock which is not mandatorily
redeemable by the issuer or puttable to the issuer by IFC and are usually denominated in the currency of the
country in which the investment is made.
IFC’s disbursed equity portfolio totaled $9,209 million at June 30, 2013 ($7,547 million at June 30, 2012),
an increase of 22%.
The carrying amount of IFC’s equity investment portfolio (comprising the disbursed equity portfolio,
together with adjustments as detailed in Note D to IFC’s FY13 Consolidated Financial Statements), grew 20% to
$11,695 million at June 30, 2013 ($9,774 million at June 30, 2012).
The fair value of IFC’s equity portfolio2 was $14,654 million at June 30, 2013 ($12,985 million at June 30,
2012).
Equity investments accounted for 27% of IFC’s disbursed investment portfolio at June 30, 2013, compared
with 25% at June 30, 2012 and 34% of the carrying amount of the investment portfolio at June 30, 2013 (31% at
June 30, 2012).
Debt securities
Debt securities are typically in the form of bonds and notes issued in bearer or registered form, securitized debt
obligations (e.g. asset-backed securities (“ABS”), mortgage-backed securities (“MBS”), and other collateralized
debt obligations) and preferred shares that are mandatorily redeemable by the issuer or puttable to the issuer by IFC.
IFC’s disbursed debt securities portfolio totaled $2,070 million at June 30, 2013 ($2,110 million at June 30,
2012).
The carrying amount of IFC’s debt securities portfolio (comprising the disbursed debt securities portfolio,
together with adjustments as detailed in Note D to IFC’s FY13 Consolidated Financial Statements), was $2,151
million at June 30, 2013 ($2,168 million at June 30, 2012).
Debt securities accounted for 6% of IFC’s disbursed investment portfolio at June 30, 2013 (7% at June 30,
2012) and 6% of the carrying amount of the investment portfolio at June 30, 2013 (7% at June 30, 2012).
2
Including “equity-like” securities classified as debt securities in IFC’s consolidated balance sheet and equity-related
options.
13
Guarantees
Global Trade Finance Program
FY13 commitments include $6,477 million ($6,004 million – FY12) relating to GTFP.
Guarantees and partial credit guarantees
IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client obligations on bonds
and/or loans. IFC’s guarantee is available for debt instruments and trade obligations of clients and covers
commercial as well as noncommercial risks. IFC will provide local currency guarantees, but when a guarantee is
called, the client will generally be obligated to reimburse IFC in US dollar terms. Guarantee fees are consistent
with IFC’s loan pricing policies. FY13 commitments include $482 million of guarantees ($398 million – FY12).
Client risk management products
IFC provides derivative products to its clients to allow them to hedge their interest rate, currency or
commodity price exposures. IFC intermediates between its developing country clients and derivatives market
makers in order to provide IFC’s clients with full market access to risk management products. FY13
commitments included $138 million of such products ($110 million – FY12).
Core Mobilization
Core Mobilization is financing from entities other than IFC that becomes available to clients due to IFC’s
direct involvement in raising resources. IFC finances only a portion, usually not more than 25%, of the cost of
any project. All IFC-financed projects, therefore, require other financial partners. IFC mobilizes such private
sector finance from other entities through loan participations, parallel loans, partial credit guarantees,
securitizations, loan sales, and risk sharing facilities. In FY09, IFC launched AMC and a number of other
initiatives, each with a formally approved Core Mobilization component, and revised its mobilization resources
definition accordingly to include these in the measure. In FY12, IFC expanded the Core Mobilization definition
to account for third party financing made available for PPP projects due to IFC’s mandated lead advisor role to
national, local government or other government entity.
The components of Core Mobilization are as follows:
Loan participations
The principal direct means by which IFC mobilizes private sector finance is through the sale of
participations in its loans. Through the loan participation program, IFC has worked primarily with commercial
banks but also with nonbank financial institutions in financing projects since the early 1960s.
Whenever it participates a loan, IFC will always make a loan for its own account, thereby sharing the risk
alongside its loan participants. IFC acts as the lender of record and is responsible for the administration of the
entire loan, including the loan participation. IFC charges fees to the borrower at prevailing market rates to cover
the cost of the loan participation.
Loan participation commitments were $1,829 million in FY13 ($1,764 million in FY12).
Parallel loans
Loans from other financial institutions that IFC helped arrange for clients and received a fee, but for which
IFC is not the lender of record, in FY13 were $1,269 million ($927 million in FY12).
Other mobilization
Other case-by-case mobilization decisions totaled $480 million in FY13 ($814 million in FY12).
14
AMC
The activities of the funds managed by AMC at June 30, 2013 and June 30, 2012 can be summarized as
follows (US$ millions unless otherwise indicated):
Equity
Sub-Debt
Africa
Russian Bank
Global
Capitalization Capitalization ALAC Capitalization
Cap
Catalyst Infrastructure
Fund
Fund
Fund
Fund
Fund
Funds
Fund
Total
Assets under management
as of June 30, 2013 . . .
From IFC . . . . . . . . . . .
From other investors . .
For the year ended
June 30, 2013
Fund Commitments to
Investees:
From IFC . . . . . . . . . . .
From other investors . .
Disbursements from
investors to Fund:
From IFC . . . . . . . . . . .
From other investors . .
Disbursements made by
Fund . . . . . . . . . . . . . . .
Disbursements made by
Fund (number) . . . . . . .
$1,275
775
500
$1,725
225
1,500
$1,000
200
800
$182
—
182
$550
250
300
$282
75
207
$500
100
400
$5,514
1,625
3,889
332
214
31
209
52
210
—
92
35
43
—
—
—
—
450
768
336
217
33
223
63
252
—
94
38
46
1
2
1
3
472
837
546
249
297
91
78
—
—
1,261
7
5
12
4
2
—
—
30
Equity
Sub-Debt
Africa
Russian Bank
Global
Capitalization Capitalization ALAC Capitalization
Cap
Catalyst Infrastructure
Fund
Fund
Fund
Fund
Fund
Funds
Fund
Total
Assets under management
as of June 30, 2012 . . .
From IFC . . . . . . . . . . .
From other investors . .
For the year ended
June 30, 2012
Fund Commitments to
Investees:
From IFC . . . . . . . . . . .
From other investors . .
Disbursements from
investors to Fund:
From IFC . . . . . . . . . . .
From other investors . .
Disbursements made by
Fund . . . . . . . . . . . . . . .
Disbursements made by
Fund (number) . . . . . . .
$1,275
775
500
$1,725
225
1,500
$1,000
200
800
$182
—
182
$275
125
150
$—
—
—
$—
—
—
$4,457
1,325
3,132
36
24
32
215
48
190
—
8
—
—
—
—
—
—
116
437
62
40
28
186
52
208
—
14
—
—
—
—
—
—
142
448
97
208
174
11
—
—
—
490
6
2
8
3
—
—
—
19
15
Other initiatives
GTLP and CCFP
IFC’s FY13 Core Mobilization included $1,096 million ($850 million – FY12) relating to GTLP and CCFP.
Infrastructure Crisis Facility
The infrastructure crisis facility is a facility that includes debt and equity components and provides short- to
medium-term financing for infrastructure projects. It also includes advisory services to help governments design
or redesign public-private-partnership projects. FY13 Core Mobilization includes $110 million relating to the
Infrastructure Crisis Facility ($63 million – FY12).
PPP Mobilization
FY13 resources mobilized includes $942 million relating to PPP Mobilization, which is the non-IFC, nongovernment portion of financing made available for PPP projects due to IFC’s mandated lead advisor role to
national/local government or other government entity ($41 million – FY12).
Core Mobilization ratio
The Core Mobilization ratio is defined as:
Loan participations + parallel loans + sales of loans and other mobilization + non-IFC investment part of structured finance
which meets core mobilization criteria + non-IFC commitments in Initiatives
+ non-IFC investments committed in funds managed by AMC + PPP Mobilization
Commitments (IFC investments + IFC portion of structured finance + IFC commitments in new Initiatives
+ IFC investments committed in funds managed by AMC)
For each dollar that IFC committed, IFC mobilized (in the form of loan participations, parallel loans, other
mobilization, the non-IFC portion of structured finance and the non-IFC commitments in Initiatives, and the nonIFC investments committed in funds managed by AMC) $0.35 in FY13 ($0.32 in FY12).
ADVISORY SERVICES
The IFC Advisory Services Portfolio as of June 30, 2013 totaled $1,037 million, as compared to $894
million as of June 30, 2012.
The Advisory Services program with clients grew to $232 million in FY13, up from $197 million in FY12,
with continued focus on strategic priority areas, including IDA, fragile situations and climate change. In FY13
the Advisory Services program grew in each of these areas.
The largest regional advisory program in FY13 was in Sub Saharan Africa ($65 million), comprising, 28%
of the total Advisory Services program, followed by East Asia and the Pacific ($39 million; 17%), Europe and
Central Asia ($36 million; 16%), South Asia ($34 million; 14%) and others regions ($58 million; 25%). Program
focus by business line shows that the largest program was in Investment Climate ($75 million; 32%), followed by
Access to Finance ($63 million; 27%), Sustainable Business ($55 million; 24%) and Public Private Partnerships
($39 million; 17%).
In FY13, the Advisory Services program in IDA countries grew by 17% to $142 million, or 65% of the total
Advisory Services program. The program in Fragile and Conflict Situations grew by 18% to $39 million (18% of
the total Advisory Services program). Engagements in climate change increased almost 80% to $53 million (24%
of the total Advisory Services program).
Program results continue to show a positive trend. Development effectiveness ratings of the projects reached
a record 76% success rate in FY13, up from 72% in FY12. Likewise, client satisfaction reached a record of 90%,
up from 88% in FY12.
16
LIQUID ASSETS
IFC invests its liquid assets portfolio in highly rated fixed and floating rate instruments issued by, or
unconditionally guaranteed by, governments, government agencies and instrumentalities, multilateral
organizations, and high quality corporate issuers; these include ABS and MBS, time deposits, and other
unconditional obligations of banks and financial institutions. Diversification in multiple dimensions ensures a
favorable risk return profile. IFC manages the market risk associated with these investments through a variety of
hedging techniques including derivatives, principally currency and interest rate swaps and financial futures.
IFC’s liquid assets are invested in seven separate portfolios, internally named P0 through P4, P6 and P7. All
seven portfolios are accounted for as trading portfolios.
IFC’s liquid assets portfolio is summarized as follows:
Portfolio
Fair value
($ billions)*
Comprising
Managed by
Invested in
Benchmark
P0
$1.7
($0.5)
Proceeds from
discount note program
and cash inflows from
investment operations
IFC’s Treasury
Department
Money market
instruments
Overnight US dollar
London Interbank
Bid Rate (LIBID)
P1
$22.5
($21.9)
Proceeds from market
borrowings invested
pending disbursement
of operational loans
IFC’s Treasury
Department
Principally global
government bonds, ABS,
bank deposits, and high
quality corporate bonds
generally swapped into 3month US dollar LIBOR
Custom-created
index of a series of
six, equally weighted
6-month LIBID
deposits that mature
on the 15th of each
month – average life
of 3 months**
P2
$4.4
($5.6)
Primarily IFC’s paidin capital and
accumulated earnings
that have not been
invested in equity and
quasi-equity
investments
IFC’s Treasury
Department
US Treasuries, ABS, and
other sovereign and
agency issues
Lehman Brothers US
1 – 3 year maturity
Treasury Index***
P3
$0.9
($0.9)
An outsourced
portion of the
P1 portfolio
External
managers
appointed by IFC
Global government bonds
and other high quality
corporate bonds as well as
mortgage-backed
securities
Same as for P1
P4
$0.8
($0.8)
An outsourced
portion of the
P2 portfolio
External
managers
appointed by IFC
Global government
bonds, and other high
quality corporate bonds as
well as mortgage-backed
securities
Same as for P2
P6
$0.9
($0.7)
The proceeds of
liquidity raised in
local currency prior to
disbursement
IFC’s Treasury
Department
Short-term money market
instruments denominated
in South African rand,
Turkish lira, Polish zloty,
Russian rubles, Mexican
pesos and Brazilian reais
Local interbank rate
indices
Total
$31.2
($30.4)
* at June 30, 2013 (June 30, 2012)
** The net duration of the P1 and P3 benchmarks is approximately 0.25 years.
*** The net duration of the P2 and P4 benchmark is 1.9 years.
The P7 portfolio was created in FY10, and, prior to FY13, contained the after-swap proceeds from variablerate borrowings denominated and invested in Euros. In FY13, IFC invested part of the proceeds of a Nigeria
naira borrowing in the P7 portfolio. The P7 portfolio was $31 million at June 30, 2013.
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IFC has a flexible approach to managing the liquid assets portfolios by making investments on an aggregate
portfolio basis against its benchmark within specified risk parameters. In implementing these portfolio
management strategies, IFC utilizes derivative instruments, including futures and options, and takes positions in
various industry sectors and countries.
All liquid assets are managed according to an investment authority approved by the Board of Directors and
liquid asset investment guidelines approved by IFC’s Corporate Risk Committee, a subcommittee of IFC’s
Management Team.
FUNDING RESOURCES
IFC’s funding resources (comprising borrowings, capital and retained earnings) as of June 30, 2013 and
June 30, 2012 are as follows:
FY13
FY12
Borrowings from market
sources
Borrowings from market
sources
Discount Note Program
Discount Note Program
Borrowings from IBRD
Borrowings from IBRD
Paid-in capital
Paid-in capital
Retained earnings
Retained earnings
BORROWINGS
The major source of IFC’s borrowings is the international capital markets. Under the Articles of Agreement,
IFC may borrow in the public markets of a member country only with approvals from that member, together with
the member in whose currency the borrowing is denominated. IFC borrowed (after the effect of borrowingrelated derivatives) $12.8 billion during FY13 ($11.9 billion in FY12 and $10.3 billion in FY11). In addition, the
Board of Directors has authorized the repurchase and/or redemption of debt obligations issued by IFC, which
enhances the liquidity of IFC’s borrowings. During FY13, IFC repurchased and retired $0.4 billion of
outstanding debt ($0.6 billion in FY12 and $0.3 billion in FY11), generating gains on buybacks of $11 million in
FY13 ($19 million — FY12 and $10 million — FY11).
IFC diversifies its borrowings by currency, country, source, and maturity to provide flexibility and costeffectiveness. IFC also has a developmental role in helping open up new domestic markets to foreign issuers in
its member countries. In FY13, IFC borrowed in fourteen currencies and in final maturities ranging from one to
30 years. Outstanding market borrowings have remaining maturities ranging from less than one year to
approximately 30 years, with a weighted average remaining contractual maturity of 4.1 years at June 30, 2013
(5.5 years at June 30, 2012). Actual maturities may differ from contractual maturities due to the existence of call
features in certain of IFC’s borrowings.
Market borrowings are generally swapped into floating-rate obligations denominated in US dollars. As of
June 30, 2013, IFC had gross payables from borrowing-related currency swaps of $18.7 billion ($18.3 billion at
June 30, 2012) and from borrowing-related interest rate swaps in the notional principal payable amount of $37.8
billion ($35.2 billion at June 30, 2012). After the effect of these derivative instruments is taken into
consideration, 99% of IFC’s market borrowings at June 30, 2013 were variable rate US dollar-denominated
(99% — June 30, 2012).
IFC’s mandate to help develop domestic capital markets can result in raising local currency funds. At
June 30, 2013, $0.5 billion of such non-US$-denominated market borrowings were outstanding, denominated in
C.F.A. francs, Chinese renminbi, Dominican pesos, Nigerian naira, and Russian rubles. Proceeds of such
borrowings were invested in such local currencies, onlent to clients and/or partially swapped into US dollars.
18
The weighted average cost of market borrowings after currency and interest rate swap transactions was
0.4% at June 30, 2013 (0.7% at June 30, 2012).
Prior to FY13, IFC had a short term US$ discount note program to provide an additional funding and
liquidity management tool for IFC in support of certain of IFC’s trade finance and supply chain initiatives.
Beginning in FY13, IFC launched a short term CNY discount note program to complement the US$ program and
to expand the availability of short-term local currency finance for private enterprises in CNY. The discount note
program provides for issuances with maturities ranging from overnight to one year. At June 30, 2013, $1.1 billion
($1.4 billion — June 30 2012) and $0.2 billion ($0 — June 30, 2012) were outstanding under the US$ and CNY
short-term discount note programs, respectively.
CAPITAL AND RETAINED EARNINGS
As of June 30, 2013, IFC’s authorized capital was $2.58 billion ($2.58 billion — June 30, 2012), of which
$2.40 billion was subscribed and paid-in at June 30, 2013 ($2.37 billion at June 30, 2012).
As of June 30, 2013, IFC’s total capital as reported in IFC’s consolidated balance sheet amounted to $22.28
billion, up from the June 30, 2012 level of $20.58 billion. At June 30, 2013, total capital comprised $2.40 billion
of paid-in capital, up from $2.37 billion at June 30, 2012, $18.71 billion of retained earnings ($17.70 billion at
June 30, 2012), and $1.12 billion of accumulated other comprehensive income ($0.51 billion at June 30, 2012).
Noncontrolling interests totaled $0.05 billion at June 30, 2013 ($0 — June 30, 2012).
Selective Capital Increase (“SCI”)
On July 20, 2010 the Board of Directors recommended that the Board of Governors approve an increase in
the authorized share capital of IFC of $130 million, to $2,580 million, and through the issuance of $200 million
of shares (including $70 million of unallocated shares). The Board of Directors also recommended that the Board
of Governors approve an increase in Basic Votes aimed at enhancing the voice and participation of developing
and transition countries (“DTCs”) and requiring an amendment to IFC’s Articles of Agreement.
The resolution recommended by the Board of Directors was adopted by the Board of Governors on March 9,
2012. The amendment to the Articles of Agreement and the increase in the authorized share capital have become
effective on June 27, 2012. As of the same date, eligible members have been authorized to subscribe to their
allocated IFC shares. The subscription period will end on June 27, 2014 and payment of subscribed shares must
occur no later than June 27, 2015. During the year ended FY13, IFC received $31 million of capital subscriptions
related to the SCI.
Designations of retained earnings
Beginning in the year ended June 30, 2004 (“FY04”), IFC began a process of designating retained earnings
to increase its support of advisory services and, subsequently, for performance-based grants (“PBG”) (year ended
June 30, 2005 (“FY05”)), grants to IDA (year ended June 30, 2006 (“FY06”)), the Global Infrastructure Project
Development Fund (“FY08”), and IFC SME Ventures for IDA Countries (“FY08”). The levels and purposes of
retained earnings designations are set based on the Board of Directors-approved principles, which are applied
each year to assess IFC’s financial capacity and to determine the maximum levels of retained earnings
designations.
Amounts available to be designated are determined based on a Board of Directors-approved income-based
formula and, beginning in FY08, on a principles-based Board of Directors-approved financial distribution policy,
and are approved by the Board of Directors.
IFC recognizes designations of retained earnings for advisory services when the Board of Directors
approves it and recognizes designation of retained earnings for grants to IDA when it is noted with approval by
the Board of Governors.
19
Expenditures for the various approved designations are recorded as expenses in IFC’s consolidated income
statement in the year in which they occur, and have the effect of reducing retained earnings designated for this
specific purpose.
FY12 designations
On August 9, 2012, the Board of Directors approved the designation of $340 million of IFC’s retained
earnings for grants to IDA and a designation of $80 million of IFC’s retained earnings for advisory services. On
October 12, 2012, the Board of Governors noted with approval these designations.
On January 15, 2013, IFC recognized expenditures against grants to IDA of $340 million on signing of a
grant agreement between IDA and IFC concerning the transfer to IDA and use of funds corresponding to the
aforementioned paragraph. IFC recognized expenditures for advisory services and expenditures against other
designated retained earnings totaling $124 million, compared to $82 million in FY12.
At June 30, 2013, retained earnings comprised $18,435 million of undesignated retained earnings ($17,373
million at June 30, 2012; and $16,032 million at June 30, 2011), $199 million of retained earnings designated for
advisory services ($219 million at June 30, 2012; and $217 million at June 30, 2011), $31 million of retained
earnings designated for PBG ($41 million at June 30, 2012; and $54 million at June 30, 2011), $20 million of
retained earnings designated for the Global Infrastructure Project Development Fund ($30 million at June 30,
2012; and $30 million at June 30, 2011), and $28 million of retained earnings designated for IFC SME Ventures
for IDA countries ($32 million at June 30, 2012; and $34 million at June 30, 2011).
FY13 designations
Income available for designations in FY13 (a non-GAAP measure)3 totaled $1,060 million. Based on the
Board-approved distribution policy, the maximum amount available for designation was $251 million. On
August 7, 2013, the Board of Directors approved a designation of $251 million of IFC’s retained earnings for
grants to IDA. This designation is expected to be noted with approval by the Board of Governors, and thereby
concluded, in FY14.
Deployable strategic capital
IFC’s deployable strategic capital decreased from 9.3% at June 30, 2012 to 8.4% at June 30, 2013. This
decrease represents the effects of increases in investment commitments and disbursements partially offset by
realized gains in FY13 and the reduction in the net unfunded status of the pension plans as of June 30, 2013 when
compared to June 30, 2012.
ENTERPRISE RISK MANAGEMENT
In executing its sustainable private sector development business, IFC assumes various risks of various types.
Active management of these risks is critical to IFC’s ability to maintain financial sustainability and achieve
development impact.
IFC has developed a comprehensive enterprise risk management framework within which risks are
continually identified, measured, monitored, analyzed and controlled. This framework is defined in terms of
several interrelated dimensions:
• IFC’s guiding principles provide the foundation for active management of risk in IFC’s business, in its
entirety, under the supervision of the Board of Directors, the Audit Committee, the Executive Vice
President/CEO and the Management Team.
3
Income available for designations generally comprises net income excluding unrealized gains and losses on
investments and unrealized gains and losses on other non-trading financial instruments, income from
consolidated VIEs, and expenses reported in net income related to prior year designations.
20
• Risk appetite is defined and implemented in the form of exposure limits, policies and procedures. The
Risk Management and Portfolio Vice Presidency, together with independent institutional oversight bodies,
monitors compliance with prescribed limits, policies and procedures.
• Risk governance is provided by a sub-committee of the Management Team, the Corporate Risk
Committee which reviews and approves all risk policies, sets risk standards and receives regular reports
on different aspects of risk management at the enterprise level.
• As a member of the World Bank Group, IFC liaises with the corresponding Risk Management areas
across the group on a regular basis.
KEY RISK MANAGEMENT PRINCIPLES
The key principles which guide IFC’s integrated risk management framework are:
• the effective balancing of development impact, risk and reward;
• ensuring business decisions are based on an understanding of risks;
• being extremely selective in undertaking activities which may result in adverse reputational impact; and
• shared responsibility for risk management across the Corporation.
RISK PROFILE
At the highest level, IFC’s risk management objectives are to maintain financial soundness and preserve its
reputation. Financial soundness is impacted by, among other things, the level of deployable strategic capital,
IFC’s cost of funding and the liquidity of the liquid asset portfolios. Key to maintaining IFC’s reputation is the
Corporation’s ability to continually adapt to an evolving external business environment, the integrity and
corporate governance of its business partners and clients, and the environmental and social effects of the projects
with which IFC is associated. IFC’s capacity to take risks is constrained primarily by its capital base.
RISK APPETITE
IFC’s risk appetite defines the types of risk which IFC is willing to assume in the pursuit of its business
objectives. Risk tolerance defines the amount of each risk type that IFC considers acceptable in the context of its
business activities. IFC translates risk appetite and tolerance into limits, policies, procedures and directives. The
Corporation regularly measures, monitors and evaluates its risk profile to ensure that both individual and
aggregated risks remain within the ranges deemed acceptable by Senior Management.
RISK GOVERNANCE
The Board of Directors and Board Committees oversee the overall risk tolerance for the Corporation and
provide the highest level of oversight. Centralized risk management is provided by IFC’s Management
Committees and Senior Management. IFC’s Management Team, under the direction of the Executive Vice
President and CEO, is responsible for the Corporation’s day-to-day operations, including oversight and
management of existing and potential risks. The Risk Management and Portfolio Vice Presidency is responsible
for managing IFC’s financial and operational risks. Project-specific environmental, social and corporate
governance issues which arise out of IFC’s activities are overseen by the Business Advisory Services Vice
Presidency; legal issues are overseen by the General Counsel Vice Presidency. There is common and shared
accountability for strategic and stakeholder risk management at the IFC Management Team level.
The Independent Evaluation Group assesses the alignment between projected and realized outcomes while
the Compliance Advisor/Ombudsman, ensures that IFC remains accessible to its stakeholders. In addition, the
World Bank Group’s Internal Audit Vice Presidency monitors internal controls and governance while the
Integrity Vice Presidency monitors integrity in operations and investigates allegations of fraud and corruption.
MANAGING FINANCIAL AND REPUTATIONAL IMPACT
The consequences of failing to manage risks optimally are financial loss and/or adverse impact to IFC’s
reputation. Reputational impact is of significant concern to IFC as negative perceptions of stakeholders and/or
the general public may adversely impact IFC’s ability to carry out its business effectively.
21
Risks are mitigated in practice by a variety of measures including close monitoring by risk management
units and oversight by IFC’s Senior Management.
In FY13, communication activities related to reputational impact were managed by the Corporate Relations
Department, which provides advice on strategic and crisis communications in order to manage potential and
actual reputational impacts both at the corporate and project levels throughout the investment cycle. This team is
also responsible for external and internal communications, public affairs and brand marketing and collaborates
across the Corporation to help develop and implement effective communications strategies.
FY13 enterprise risk highlights
Highlights from significant changes made in FY13 are as follows:
• Updated the existing framework to include a more comprehensive approach to measuring economic
capital for IFC’s Treasury activities.
• Created a working group, tasked with improving and formalizing the process and methodology for
Corporation-wide stress testing.
• Extended Risk and Control Self-Assessment to all departments to support active management of
operational risk.
• Designed enhancements to IFC’s Integrity Due Diligence process to increase consistency, better manage
accountability and augment decision-making efficiency.
• Created a new Regional Chief Risk Officer role to serve IFC’s decentralized business model and provide
senior risk oversight for the Sub-Saharan Africa region.
• Benchmarked IFC against industry best practice in workouts and operational risk management.
STRATEGIC RISK
IFC defines strategic risk as the potential reputation, financial, and other consequences of a failure to
achieve its strategic objectives, and in particular, the risk of not achieving IFC’s purpose of furthering economic
development by “encouraging the growth of productive private enterprise in member countries” and its vision
“that people should have the opportunity to escape poverty and improve their lives.”
The key guiding principles and policies established as part of the framework for managing IFC’s strategic
risks consist of:
• An ex-ante assessment of strategic fit of each project;
• Guiding principles for IFC’s operations (catalytic role, business partnership and additionality);
• Environment and social policies; and
• IFC’s sanctions procedures.
The overall management of strategic risk is effected through the design, confirmation and implementation of
an annual strategy for IFC. The strategy is developed by Senior Management and approved by the Board of
Directors. IFC monitors the implementation of its strategy through many processes, including: (i) corporate and
department scorecards; (ii) cascaded objectives; (iii) and an integrated quarterly management report. In addition,
the Independent Evaluation Group conducts ex-post evaluations of the implementation of IFC’s strategy on an
ongoing basis.
Given the nature and scope of products and services that IFC provides its clients in furtherance of its
development mandate, operational or business conflicts of interest can arise in the normal course of its activities.
IFC recognizes that adverse reputational, client-relationship and other implications can arise if such conflicts are
not carefully managed. In order to properly manage operational or business conflicts, IFC has implemented
processes directed at (i) the identification of such conflicts as and when they arise; and (ii) the application of
mitigation measures specifically tailored to the circumstances pertaining to the identified conflicts.
22
IFC’s Sustainability Framework articulates the Corporation’s strategic commitment to sustainable
development and is an integral component of IFC’s approach to risk management. The Sustainability Framework
comprises IFC’s Policy and Performance Standards on Environmental and Social Sustainability and IFC’s
Access to Information Policy:
• The Policy on Environmental and Social Sustainability describes IFC’s commitments, roles and
responsibilities in relation to environmental and social sustainability.
• The Performance Standards are intended to help guide clients on sustainable business practices a part of
which involves continually identifying and managing risks through stakeholder engagements and client
disclosure obligations in relation to project-level activities.
• IFC’s Access to Information Policy reflects the Corporation’s commitment to transparency and good
governance and outlines institutional disclosure obligations.
IFC uses the Sustainability Framework along with other strategies, policies and initiatives to focus business
activities on achieving the Corporation’s development objectives. All project teams are required to record
expectations of development outcomes with time-bound targets using standard indicators. These indicators are
tracked and performance is rated on an annual basis for the entire duration of every project.
Guiding principles for IFC’s operations
Catalytic role: IFC will seek above all to be a catalyst in facilitating productive investments in the private
sector of its developing member countries. It does so by mobilizing financing from both foreign and domestic
investors from the private and public sectors.
Business partnership: IFC functions as a business in partnership with the private sector. Thus, IFC takes the
same commercial risks as do private institutions, investing its funds under the discipline of the marketplace.
Additionality: IFC participates in an investment only when it can make a special contribution not offered or
brought to the deal by other investors.
Sanctions procedures
In the year ended June 30, 2007, IFC established a set of procedures to sanction parties involved in IFC
projects committing corrupt, fraudulent, collusive, coercive or obstructive practices. In April 2010, the World
Bank Group concluded an agreement with other multilateral development banks (“MDBs”) whereby entities
debarred by one MDB may be sanctioned for the same misconduct by the other participating development banks.
The enhanced emphasis on combating fraud and corruption does not change the high expectations IFC has
always held for its staff, clients and projects, including due diligence and commitment to good corporate
governance.
FY13 strategic risk highlights
IFC’s Development Goals (“IDGs”) are targets for reach, access, or other tangible development outcomes
that IFC projects are expected to deliver during their lifetime. In FY12, the testing phase for two such goals, IDG
2 (Health and Education) and IDG 3 (Financial Services), was completed and in FY13, they moved into
implementation and are fully integrated into IFC’s corporate scorecard and incentives for management.
FINANCIAL RISK
Financial risk management is about taking calculated risks that are aligned with the Corporation’s overall
risk appetite and within the boundaries of established tolerances. As such, financial risk management at IFC
begins with an articulation of the Corporation’s risk appetite as defined by the types of risk that the Corporation
is willing to take in the pursuit of its strategic objectives. Following from this articulation is an enterprise risk
management framework that encompasses strategy, capital planning, target setting and risk monitoring and
management.
IFC’s risk appetite, as it pertains to financial risk, has been defined by Senior Management and the Board of
Directors as maintaining a AAA rating within a three-year time horizon. To align risk tolerance with this
definition, IFC uses its economic capital framework to measure the capital required to maintain its AAA rating.
Further, processes are in effect which translate IFC’s risk appetite into limits, policies, procedures and directives
that help guide the management of IFC’s financial risk within acceptable tolerance bands.
23
An important consideration when setting IFC’s risk appetite is the need to use capital efficiently by
recognizing the inherent trade-offs involved with maintaining reserve capital. Excess capital that is not deployed
has limited financial and no development impact; at the same time, keeping some capital in reserve allows IFC to
maintain financial strength and respond proactively in the event of future crises.
Key financial policies and guidelines
IFC operates under a number of key financial policies and guidelines as detailed below, which have been
approved by its Board of Directors:
• Minimum liquidity (liquid assets plus undrawn borrowing commitments from IBRD) must be sufficient at
all times to cover at least 45% of IFC’s estimated net cash requirements for the next three years.
• Loans are funded with liabilities that have similar characteristics in terms of interest rate basis and
currency and, for fixed rate loans, duration except for the Board of Directors-approved new products
involving asset-liability mismatches.
• IFC maintains a minimum level of liquidity, consisting of proceeds from external funding, that covers at
least 65% of the sum of: (i) 100% of committed but undisbursed straight senior loans; (ii) 30% of
committed guarantees; and (iii) 30% of committed client risk management products.
• IFC is required to maintain a minimum level of total resources (including paid-in capital, total loss
reserves and retained earnings, net of designations) equal to total potential losses for all on- and offbalance sheet exposures estimated at levels consistent with the maintenance of a AAA rating.
Credit risk
IFC defines credit risk as the risk that third parties that owe IFC money, securities or other assets will not
fulfill their obligations. These parties may default on their obligations to IFC due to bankruptcy, lack of liquidity,
operational failure or other reasons. Credit risk management consists of policies, procedures and tools for
managing credit risk, primarily in IFC’s loan portfolio, but also related to counterparty risk taken in the liquid
asset and borrowing portfolios.
Credit risk management spans investment origination to final repayment or sale; it includes portfolio
management and risk modeling activities that provide an integrated view of credit risks and their drivers across
the Corporation. With respect to IFC’s credit risk exposure to clients in developing emerging markets, at key
steps during the investment approval process, information obtained from the investment departments is analyzed
and an independent review of the credit risk of the transaction undertaken, including the assignment of a credit
risk rating. The credit risk rating, together with investment size and product type, is a key input into the risk
tiering that determines authority levels required for transaction approval. After commitment, the quality of IFC’s
investment portfolio is monitored according to principles and procedures defined in the Operational Policies and
Procedures. Responsibility for the day-to-day monitoring and management of credit risk in the portfolio rests
with the individual investment departments.
Credit risk also includes concentration risk: the risk of extreme credit losses due to concentration of credit
exposure to a common risk factor. IFC manages concentration risk through a number of operational and
prudential limits, including limitations on single project/client exposure, single country exposure, and segment
concentration. Similarly, credit policies and guidelines have been formulated covering treasury operations; these
are subject to annual review and approval by the Corporate Risk Committee.
Credit risk across IFC’s investment portfolio is monitored and managed through proactive identification of
emerging risks and portfolio stress testing in focus sub-portfolios.
For impaired loans and other investments at risk, rapid response is essential, as early involvement is the key
to recovery when projects get into difficulty. IFC provides focused attention on portfolio projects that require
more sophisticated workout and restructuring. To help enable early involvement, seasoned professionals from
IFC’s Special Operations Department comprised of workout professionals with extensive experience in handling
such projects, work in close coordination with IFC’s Legal Department to provide rapid response.
24
The credit risk of loans is quantified in terms of the probability of default, loss given default and exposure at
risk. These risk parameters are used to determine risk based economic capital for capital adequacy, capital
allocation and internal risk management purposes as well as for setting general loan loss reserves and limits.
Treasury counterparty credit risk is managed to mitigate potential losses from the failure of a trading
counterparty to fulfill its contractual obligations.
General counterparty eligibility criteria are set by the Board of Directors-approved Asset-Liability
Management and Derivative Products Authorization and Liquid Asset Management General Investment
Authorization. IFC Counterparties are subject to conservative eligibility criteria and are predominantly restricted
to banks and financial institutions with high quality credit ratings by leading international credit rating agencies.
The eligibility criteria and limits of Treasury counterparties are stipulated by the “Liquid Asset Investment
Directives.”
Specifically, IFC has adopted the following key financial policies and guidelines that have been approved
by the Corporate Risk Committee:
Investment operations
• IFC does not normally finance for its own account more than 25% of a project’s cost.
• Total exposure to a country is based on the amount of economic capital required to support its investment
portfolio in that country. Exposure limits are set for each country based on the size of its economy and its
risk score. Sub-limits apply for certain sector exposures within a country.
• Lender of record exposure in a country may not exceed a specified percentage of a country’s total longterm external debt. Lower trigger levels are set for certain countries.
• IFC’s total exposure to a single obligor and groups of obligors may not exceed stipulated economic capital
and nominal limits based on the riskiness of the obligor.
• IFC’s committed exposure in guarantees that are subrogated in local currency is limited to $300 million
for currencies for which there are no adequate currency and interest rate risk hedging instruments as
determined by IFC’s Treasury Department at the time of commitment. There is a sublimit of $100 million
for an individual currency under this limit.
Treasury operations
• Counterparties are subject to conservative eligibility criteria. For derivative instruments, IFC’s
counterparties are currently restricted to banks and financial institutions with high quality credit ratings
(with a mark-to-market agreement) by leading international credit rating agencies. In addition to IFC’s
traditional use of top-rated international banks as swap counterparties, for the sole purpose of funding
local currency loans, IFC has recently extended the universe of eligible swap counterparties to include
central banks and select local banks.
• Exposures to individual counterparties are subject to concentration limits. For derivatives, exposure is
measured in terms of replacement cost for measuring total potential exposure. Institution-specific limits
are updated at least quarterly based on changes in the total size of IFC derivatives portfolio or as needed
according to changes in counterparty’s fundamental situation or credit status.
• To limit its exposure, IFC signs collateral agreements with counterparties that require the posting of
collateral when net mark-to-market exposures exceed certain predetermined thresholds. IFC also requires
that low quality counterparties should not have more than 30% of total net-of-collateral exposures.
• Because counterparties can be downgraded during the life of a given transaction, the agreements provide
an option for IFC to terminate all swaps if the counterparty is downgraded below investment grade or if
other early termination events materialize.
• For exchange-traded instruments, IFC limits credit risk by restricting transactions to a list of authorized
exchanges, contracts and dealers, and by placing limits on the Corporation’s position in each contract.
25
FY13 credit risk highlights
Investment operations
The quality of IFC’s loan portfolio, as measured by aggregate risk ratings was substantially unchanged
between June 30, 2012 and June 30, 2013.
IFC does not recognize income on loans where collectability is in doubt or payments of interest or principal
are past due more than 60 days unless collection of interest is expected in the near future.
The amount of non-performing loans as a percentage of the disbursed loan portfolio4, a key indicator of loan
portfolio performance, was 5.6% at June 30, 2013 (4.1% at June 30, 2012). The principal amount outstanding on
non-performing loans totaled $1,272 million at June 30, 2013, an increase of $413 million (48%) from the
June 30, 2012 level of $859 million. The increase in the amount of non-performing loans as a percentage of the
disbursed loan portfolio was largely driven by the placing of seven loans with principal outstanding greater than
$45 million for an aggregate amount of $423 million, partially offset by the removal of one loan with principal
outstanding of $45 million.
Total reserves against losses on loans at June 30, 2013, increased to $1,628 million ($1,381 million at
June 30, 2012). Total reserves against losses on loans are equivalent to 7.2% of the disbursed loan portfolio
(6.6% — June 30, 2012).
The five-year trend of non-performing loans is presented below:
% of disbursed loans
6.0
5.0
4.0
3.0
2.0
1.0
-
1,400
1,200
1,000
800
600
400
200
-
09
FY
10
FY
11
FY
12
FY
% of disbursed loans
$ millions
$ millions
13
FY
The guarantee portfolio is exposed to the same idiosyncratic and systematic risks as IFC’s loan portfolio and
the inherent probable losses in the guarantee portfolio need to be covered by a reserve for loss. The reserve at
June 30, 2013, was $17 million, down from $21 million at June 30, 2012, based on the year-end portfolio, and is
included in payables and other liabilities on IFC’s consolidated balance sheet. There was a release of provision of
$4 million on guarantees in the consolidated income statement in FY13 ($3 million release of provision —
FY12).
Treasury operations
Counterparty credit risk in IFC’s Treasury operations is managed on a daily basis through strict eligibility
criteria and accompanying limits. Treasury operations counterparties also remain well diversified by sector and
geography.
In accordance with IFC’s key financial policies and guidelines noted above, IFC holds collateral in the
amount of $1,274 million at June 30, 2013 ($3,570 million — June 30, 2012).
Market risk
IFC’s exposure to market risk is largely mitigated by the Corporation’s matched-funding policy and by the
use of derivative instruments to convert most of IFC’s assets that are funded from market borrowings and such
market borrowings into floating rate US dollar assets and liabilities with similar duration. Additional strategies
that are employed are as described below.
4
Excluding “loan-like” debt securities.
26
Investment operations
IFC takes equity risk in its listed and unlisted equity investments in emerging markets. The Corporate
Equity Committee, a subcommittee of the Management Team, provides guidance on IFC’s overall strategy in
equity investments, equity portfolio management and asset allocation. Numerous factors are taken into
consideration when making asset allocation decisions, reflecting IFC’s roles as a development institution and
long-term investor, as well as the fact that most of the Corporation’s equity investments are in private securities,
at least at origination. The factors taken into consideration by the Corporate Equity Committee include projected
developmental impact, IFC’s additionality and comparative advantages, country diversification, sector
diversification, IFC’s country exposure considerations, macro-economic considerations, global trends in equity
markets, and valuations.
Interest rate and currency exchange risk associated with fixed rate and/or non-US dollar lending is largely
economically hedged via currency and interest rate swaps that convert cash flows into variable rate US dollar
flows.
Market risk resulting from derivative transactions with clients, which are intended to facilitate clients’ risk
management, is mitigated by entering into offsetting positions with highly rated market counterparties.
Liquid asset portfolios
The market risk in the internally-managed liquid asset portfolios is measured using a corporate value-at-risk
model, which calculates daily value-at-risk measurements, interest rate exposure and credit spread exposure.
The primary instruments for maintaining sufficient liquidity are IFC’s seven liquid asset portfolios:
• P0, which is generally invested in short-dated deposits, money market funds, fixed certificates of deposits,
one-month floater securities and repos, reflecting its use for short-term funding requirements
• P1 and P2, which are generally invested in: (a) high quality foreign sovereign, sovereign-guaranteed and
supranational fixed income instruments; (b) US Treasury or agency instruments; (c) high quality ABS
rated by at least two rating agencies and/or other high quality notes issued by corporations; (d) MBS;
(e) interest rate futures and swaps to manage currency risk in the portfolio, as well as its duration relative
to benchmark; and (f) cash deposits and repos
• P3, which is an outsourced portion of the P1 portfolio (managed by external managers)
• P4, which is an outsourced portion of the P2 portfolio (managed by external managers)
• P6, which is invested in short-term local currency money market instruments and local government
securities
• P7, which consists of after-swap proceeds from variable-rate borrowings denominated and invested in
Euros and proceeds from fixed-rate borrowings denominated and invested in Nigerian naira.
The P0, P1 and P3 portfolios are managed to variable rate US dollar benchmarks, on a portfolio basis. To
this end, a variety of derivative instruments are used, including short-term, over-the-counter foreign exchange
forwards (covered forwards), interest rate and currency swaps, and exchange-traded interest rate futures and
options. IFC takes both long and short positions in securities in the management of these portfolios to their
respective benchmarks.
The primary source of interest rate risk in the liquid asset portfolios is the P2 and P4 portfolios, which are
managed to Barclay’s 1-3 year US Treasury Index benchmark. P2 represents the portion of IFC’s capital not
disbursed as equity investments, and the benchmark reflects the chosen risk profile for this un-invested capital
(paid-in capital and retained earnings). P4 represents an outsourced portion of the P2 portfolio. In addition, the
P1 and P3 portfolios also contain spread risk of high quality credit counterparties.
The P6 portfolio consists of foreign currency proceeds raised locally through swaps and other funding
instruments to provide more flexible local currency loan products to clients.
27
The Euro portion of the P7 portfolio is managed to six equal-weighted EURIBID deposits maturing at the
next six monthly reset dates of outstanding liabilities, rebalanced at each calendar month-end. The Nigerian naira
portion of the P7 portfolio is managed to the related IFC debenture issued in FY13.
Borrowing activities
IFC expands its access to funding and decreases its overall funding cost by issuing debt securities in various
capital markets in a variety of currencies, sometimes using complex structures. These structures include
borrowings payable in multiple currencies, or borrowings with principal and/or interest determined by reference
to a specified index such as a reference interest rate, or one or more foreign exchange rates.
Market risk associated with fixed rate obligations and structured instruments entered into as part of IFC’s
funding program is generally mitigated by using derivative instruments to convert them into variable rate US
dollar obligations, consistent with the matched-funding policy.
Asset-liability management
While IFC’s matched-funding policy provides a significant level of protection against currency and interest
rate risk, IFC can be exposed to residual market risks in its overall asset and liability management of the market
borrowings funded balance sheet. Residual currency risk arises from events such as changes in the level of
non-US dollar loan loss reserves. The aggregate position in each lending currency is monitored on a daily basis
and the risk is managed within a range of +/- $5 million equivalent in each currency.
Residual interest rate risk may arise from differing interest rate reset dates on assets and liabilities or assets
that are fully match-funded at inception, which can become mismatched over time due to write-downs,
prepayments, or rescheduling.
The residual interest rate risk is managed by measuring the sensitivity of the present value of assets and
liabilities in each currency to a one basis point change in interest rates and managed on a daily basis within a
range of +/- $50,000.
FY13 market risk highlights
The overall level of market risk in IFC’s Treasury operations increased in FY13 due to increasing volatility
of Sovereign interest rates near the end of FY13 yet Treasury market risk still remained low compared to other
portfolios and risk types. Interest rate, foreign exchange, and spread risk are all carefully controlled on a daily
basis using a system of limits that remained in compliance during FY13.
Shortly after the fiscal year began, the European Central Bank announced their, not-yet-used, Outright
Monetary Transactions (OMT) program aimed at equalizing borrowing costs for private borrowers across the
European Union by providing support for short-dated sovereign government bonds. Risk premia receded across
financial markets in response. The decrease in risk premia was further supported by the United States when it
avoided the “fiscal cliff” and the Bank of Japan, which announced a much greater-than-expected ease in
monetary policy. The liquid asset portfolios benefitted from this improvement in the markets and remained fully
invested in spread risk throughout the fiscal year.
The overall level of market risk in IFC’s equity portfolio was quite elevated in FY13, due to large
fluctuations in global equity markets, foreign exchange rates and commodity prices. Equity valuations improved
steadily during the first half of FY13, both in local currency and, to a greater degree, in IFC’s reporting currency,
the US$, as most emerging market currencies appreciated moderately against the US$ in the first half of FY13.
This period was followed by sideways fluctuations in the third quarter of FY13 and the first half of the last
quarter of FY13, but the last seven weeks of FY13 virtually erased all gains from the first half of FY13, as
prospects of a less accommodative Federal Reserve and renewed concerns on global growth, dominated world
markets. It should also be noted that emerging market equities lagged most developed equity markets in FY13,
accelerating the trend that started in late 2010.
28
In response to such heightened volatility, the Corporation remained especially selective at entry and
managed its equity investment portfolio pro-actively through close monitoring, quarterly portfolio reviews and
continued oversight from the Corporate Equity Committee. Active portfolio management enabled the
Corporation to revolve its funds significantly in FY13, and maintain an acceptable level of profitability.
Liquidity risk
IFC’s investments are predominantly illiquid in nature due to the lack of capital flows, the infrequency of
transactions, and the lack of price transparency in many emerging markets. To offset this liquidity risk, strict
investment eligibility criteria for the Liquid Asset portfolios are defined in the Liquid Asset Management
Investment Guidelines. Examples of these criteria include minimum sizes for bond issuances, single bond issue
concentration limits and percentage of total bond issuance limits. Consequently, a significant portion of the liquid
assets is invested in highly liquid securities such as: (i) high quality foreign sovereign, sovereign-guaranteed and
supranational fixed income instruments; (ii) US Treasury or agency instruments; and (iii) money market mutual
funds. In the event of a liquidity crisis, these assets will be available to generate funds that are needed to support
IFC’s cash requirements.
IFC’s liquid assets maintained similar exposure to high credit quality counterparties, while credit spread risk
declined in FY13 due to improving credit conditions. Net interest rate risk of IFC’s Liquid Asset portfolios
remained concentrated in short-maturity obligations and the spread risk is well diversified by sector and
geography.
FY13 liquidity risk highlights
On June 30, 2013, IFC’s liquid assets portfolio stood at $31.2 billion ($30.4 billion on June 30, 2012).
Current levels of liquid assets also represented 309% of the sum of (i) 100% of committed but undisbursed
straight senior loans; (ii) 30% of committed guarantees; and (iii) 30% of committed client risk management
products (327% on June 30, 2012).
Funding risk
IFC’s primary objective with respect to managing funding risk is to maintain its triple-A credit ratings and,
thereby, maintain access to market funding as needed at the lowest possible cost.
The risk of higher funding costs is also reduced by IFC’s annual funding targets, the US$ benchmark bonds,
and the Discount Note Program. Accessing the capital markets for financing establishes investor confidence,
liquidity, price transparency, and a diversified investor base, all of which help to reduce financing cost. IFC’s
Discount Note Program provides swift access to funded liquidity, to complement traditional funding sources, and
to provide a natural funding source for short term financing programs.
FY13 funding risk highlights
During FY13, IFC raised $12.8 billion, net of derivatives ($11.9 billion in FY12 and $10.3 billion in FY11).
The outstanding balance under the Discount Note Program at June 30, 2013 was $1.3 billion ($1.4 billion —
June 30, 2012). During FY13, credit spreads for IFC’s new borrowings deteriorated to around Libor flat for a
5 year term issue, from Libor minus 10 basis points in FY12.
OPERATIONAL RISK
Consistent with “Internal Convergence of Capital Measurement and Capital Standards, A Revised
Framework” issued by the Basel Committee on Banking Supervision in June 2004, IFC defines operational risk
as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external
events.
IFC’s Operational Risk Management (ORM) program is based on a directive approved by the Corporate
Risk Committee during FY10. This directive establishes the approach and roles and responsibilities for
operational risk management in the Corporation.
29
IFC’s ORM approach is designed to ensure that operational risks are identified, assessed, and managed so as
to minimize potential adverse impacts and to enable Senior Management to determine which risks IFC
will: (i) manage internally, as part of its ongoing business; (ii) mitigate through contingency planning; or
(iii) transfer to third parties, whether by subcontracting, outsourcing, or insurance.
IFC seeks to mitigate the risks it manages internally by maintaining a comprehensive system of internal
controls that is designed not only to identify the parameters of various risks but also to monitor and control those
areas of particular concern.
IFC utilizes risk transfer, including insurance, at both the project and the institutional levels for mitigation of
low frequency and high severity operational risks. At both levels, IFC identifies and evaluates risks, determines
available contractual transfer and insurance options, implements the optimal structure, and tracks its
effectiveness over time. IFC also insures its corporate assets and operations against catastrophic losses where
commercially viable.
Other key components of IFC’s operational risk management approach include:
• Operational risk assessment and measurement based on market practices and tools.
• Adoption of the COSO5 control framework as the basis for its evaluation of the effectiveness of its
internal controls over financial reporting.
• Ongoing independent review of the effectiveness of IFC’s internal controls in selected key areas and
functions performed by the Internal Audit Vice Presidency of the World Bank Group.
• Promoting data integrity in the Corporation based on its data management policy.
• Ensuring that processes and controls are in place to manage the risks in new products and initiatives
before they are executed, through a New Initiative and Product Assessment Group with representation
from key business and support functions.
FY13 operational risk highlights
IFC is continuing a multiyear effort to develop and implement enhanced methodologies for identifying,
measuring, monitoring and managing operational risk in its key activities. IFC continued the program established
in FY12 for obtaining annual written assertions on operational risk management by Vice Presidents and
Directors. To support this, IFC also:
• Formalized a network of departmental Operational Risk Management Liaisons and provided training for
them in applying operational risk management tools to their business processes.
• Extended Risk and Control Self-Assessment to all departments.
• Continued rolling out other operational risk management methodologies and tools, including risk events
tracking, root cause analysis and key risk indicators.
• Conducted events to promote and raise awareness of operational risk management.
IFC also continues to focus on its preparedness to react to an emergency situation that could disrupt its
normal operations.
During FY13, IFC:
• Collaborated with the World Bank in updating the World Bank Group Business Continuity Management
policy to align with internationally recognized business continuity standards.
• Conducted emergency simulation exercises in Washington, in cooperation with the World Bank.
• Maintained Emergency Management Teams in all regions; and held emergency management workshops
and simulations in larger country offices in one region.
5
COSO refers to the Internal Control — 1992 Integrated Framework formulated by the Committee of
Sponsoring Organizations of the Treadway Commission, which was convened by the US Congress in
response to the well-publicized irregularities that occurred in the financial sector in the United States during
the late 1980s.
30
• Conducted exercises involving individual members of the Management Team, in anticipation of an
exercise for the whole Management Team.
• Leveraging Business Impact Analysis results, updated Business Continuity Plans for departments
responsible for critical business processes, and conducted a business continuity exercise for one critical
Treasury process.
• Continued to implement the information technology disaster recovery testing strategy established in FY12
by performing component and integration tests for most applications supporting critical business
processes.
• Began planning for a comprehensive update to IFC’s Business Impact Analysis in FY14.
CRITICAL ACCOUNTING POLICIES
Note A to IFC’s FY13 Consolidated Financial Statements contain a summary of IFC’s significant
accounting policies, including a discussion of recently adopted accounting standards and accounting and
financial reporting developments. Certain of these policies are considered to be “critical” to the portrayal of
IFC’s financial condition and results of operations, since they require management to make difficult, complex or
subjective judgments, some of which may relate to matters that are inherently uncertain.
These policies include:
• Determining the level of reserves against losses in the loan portfolio;
• Determining the level and nature of impairment for equity investments and debt securities carried at fair
value with changes in fair value being reported in other comprehensive income (“OCI”) and for equity
investments accounted for at cost less impairment (where impairment is determined with reference to fair
value);
• Determining the fair value of certain equity investments, debt securities, loans, liquid assets, borrowings
and derivatives, which have no quoted market prices and are accounted for at fair value; and
• Determining the future pension and postretirement benefit costs and obligations using actuarial
assumptions based on financial market interest rates, past experience, and management’s best estimate of
future benefit cost changes and economic conditions.
Many of IFC’s financial instruments are classified in accordance with the fair value hierarchy established by
accounting standards for fair value measurements and disclosures where the fair value and/or impairment is
estimated based on internally developed models or methodologies utilizing significant inputs that are nonobservable.
RESERVE AGAINST LOSSES ON LOANS
IFC considers a loan as impaired when, based on current information and events, it is probable that IFC will
be unable to collect all amounts due according to the loan’s contractual terms. The reserve against losses for
impaired loans reflects management’s judgment of the present value of expected future cash flows discounted at
the loan’s effective interest rate. The reserve against losses for loans also includes an estimate of probable losses
on loans inherent in the portfolio but not specifically identifiable. The reserve is established through periodic
charges to income in the form of a provision for losses on loans. Loans written off, as well as any subsequent
recoveries, are recorded through the reserve.
The assessment of the adequacy of reserves against losses for loans is highly dependent on management’s
judgment about factors such as its assessment of the financial capacity of borrowers, geographical concentration,
industry, regional and macroeconomic conditions, and historical trends. Due to the inherent limitation of any
particular estimation technique, management utilizes a capital pricing and risk framework to estimate the
probable losses on loans inherent in the portfolio but not specifically identifiable. This Board of
Directors-approved framework uses actual loan loss history and aligns the loan loss provisioning framework with
IFC’s capital adequacy framework.
31
The reserve against losses on loans is separately reported in the consolidated balance sheet as a reduction of
IFC’s total loans. Increases or decreases in the reserve level are reported in the income statement as provision for
losses or release of provision for losses on loans, and guarantees. The reserve against losses on loans relates only
to the Investment services segment of IFC (see Note T to the FY13 Consolidated Financial Statements for further
discussion of IFC’s business segments).
OTHER-THAN-TEMPORARY IMPAIRMENTS ON EQUITY INVESTMENTS AND DEBT SECURITIES
IFC assesses all equity investments accounted for at fair value through OCI and all equity investments
accounted for at cost less impairment for impairment each quarter. When impairment is identified and is deemed
to be other-than-temporary, the equity investment is written down to its impaired value, which becomes the new
cost basis in the equity investment. IFC generally presumes that all equity impairments are deemed to be otherthan-temporary. Impairment losses on equity investments accounted for at cost less impairment are not reversed
for subsequent recoveries in value of the equity investment until it is sold. Recoveries in value on equity
investments accounted for at fair value through OCI that have been the subject of an other-than-temporary
impairments are reported in OCI until sold.
IFC assesses all debt security investments accounted for at fair value through OCI for impairment each
quarter. When impairment is identified, the entire impairment is recognized in net income if certain conditions
are met (as detailed in Note A to IFC’s FY13 Consolidated Financial Statements). However, if IFC does not
intend to sell the debt security and it is not more likely than not that IFC will be required to sell the security, but
the security has suffered a credit loss, the credit-related impairment loss is recognized in net income and the noncredit related loss is recognized in OCI.
VALUATION OF FINANCIAL INSTRUMENTS WITH NO QUOTED MARKET PRICES
IFC reports at fair value all of its derivative instruments, all of its liquid asset trading securities and certain
borrowings, loans, equity investments and debt securities. In addition, various investment agreements contain
embedded or stand-alone derivatives that, for accounting purposes, are separately accounted as either derivative
assets or liabilities, including puts, caps, floors, and forwards. IFC classifies all financial instruments accounted
for at fair value based on the fair value hierarchy established by accounting standards for fair value
measurements and disclosures as described in more detail in Notes A and R to IFC’s FY13 Consolidated
Financial Statements.
Many of IFC’s financial instruments accounted for at fair value are valued based on unadjusted quoted
market prices or using models where the significant assumptions and inputs are market-observable. The fair
values of financial instruments valued using models where the significant assumptions and inputs are not marketobservable are generally estimated using complex pricing models of the net present value of estimated future
cash flows. Management makes numerous assumptions in developing pricing models, including an assessment
about the counterparty’s financial position and prospects, the appropriate discount rates, interest rates, and related
volatility and expected movement in foreign currency exchange rates. Changes in assumptions could have a
significant impact on the amounts reported as assets and liabilities and the related unrealized gains and losses
reported in the income statement and statement of OCI. The fair value computations affect both the Investment
services and Treasury segments of IFC (see Note T to the FY13 Consolidated Financial Statements for further
discussion of IFC’s business segments).
PENSION AND OTHER POSTRETIREMENT BENEFITS
IFC participates, along with IBRD and MIGA, in pension and postretirement benefit plans that cover
substantially all of their staff members. All costs, assets and liabilities associated with the plans are allocated
between IBRD, IFC and MIGA based upon their employees’ respective participation in the plans. The underlying
actuarial assumptions used to determine the projected benefit obligations, the fair value of plan assets and the
funded status associated with these plans are based on financial market interest rates, past experience, and
management’s best estimate of future benefit cost changes and economic conditions. For further details, please
refer to Note W to the FY13 Consolidated Financial Statements.
32
RESULTS OF OPERATIONS
OVERVIEW
The overall market environment has a significant influence on IFC’s financial performance.
The main elements of IFC’s net income and comprehensive income and influences on the level and
variability of net income and comprehensive income from year to year are:
Elements
Significant Influences
Net income:
Yield on interest earning assets
Market conditions including spread levels and degree
of competition. Nonaccruals and recoveries of
interest on loans formerly in nonaccrual status and
income from participation notes on individual loans
are also included in income from loans.
Realized and unrealized gains and losses on the
liquid asset portfolios, which are driven by external
factors such as: the interest rate environment; and
liquidity of certain asset classes within the liquid
asset portfolio.
Global climate for emerging markets equities,
fluctuations in currency and commodity markets and
company-specific performance for equity
investments. Performance of the equity portfolio
(principally realized capital gains, dividends, equity
impairments, gains on non-monetary exchanges and
unrealized gains and losses on equity investments).
Risk assessment of borrowers and probability of
default and loss given default.
Level of advisory services provided by IFC to its
clients, the level of expense from the staff retirement
and other benefits plans, and the approved
administrative and other budgets.
Principally, differences between changes in fair
values of borrowings, including IFC’s credit spread,
and associated derivative instruments and unrealized
gains associated with the investment portfolio
including puts, warrants and stock options which in
part are dependent on the global climate for emerging
markets. These securities are valued using internally
developed models or methodologies utilizing inputs
that may be observable or non-observable.
Level of the Board of Governors-approved grants to
IDA.
Liquid asset income
Income from the equity investment portfolio
Provisions for losses on loans and guarantees
Other income and expenses
Gains and losses on other non-trading financial
instruments accounted for at fair value
Grants to IDA
Other comprehensive income:
Unrealized gains and losses on listed equity
investments and debt securities accounted for as
available-for-sale
Global climate for emerging markets equities,
fluctuations in currency and commodity markets and
company-specific performance. Such equity
investments are valued using unadjusted quoted
market prices and debt securities are valued using
internally developed models or methodologies
utilizing inputs that may be observable or nonobservable.
Returns on pension plan assets and the key
assumptions that underlay projected benefit
obligations, including financial market interest rates,
staff expenses, past experience, and management’s
best estimate of future benefit cost changes and
economic conditions.
Unrecognized net actuarial gains and losses and
unrecognized prior service costs on benefit plans
33
The following paragraphs detail significant variances between FY13 and FY12, and FY12 and FY11,
covering the periods included in IFC’s FY13 Consolidated Financial Statements. Certain amounts in FY12 and
FY11 have been reclassified to conform to the current year’s presentation. Where applicable, the following
paragraphs reflect reclassified prior year comparative information. Such reclassifications had no effect on net
income or total assets.
FY13 VERSUS FY12
Net income
IFC reported income before net gains and losses on other non-trading financial instruments accounted for at
fair value and grants to IDA of $928 million in FY13, as compared to $1,877 million in FY12.
The decrease in income before net gains and losses on other non-trading financial instruments accounted for
at fair value and grants to IDA in FY13 when compared to FY12 was principally as a result of the following
(US$ millions):
Increase (decrease)
FY13 vs FY12
Realized capital gains on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions for losses on loans, guarantees and other receivables . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gains and losses on non-trading activities . . . . . . . . . . . . . . . . . . .
Advisory services expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses from pension and other postretirement benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from liquid asset trading activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairments on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (1,079)
(126)
(110)
(91)
(77)
154
187
251
(58)
Overall change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(949)
Net gains on other non-trading financial instruments accounted for at fair value totaled $422 million in
FY13, $641 million higher than net losses of $219 million in FY12. Accordingly, IFC has reported income
before grants to IDA of $1,350 million, $308 million lower than income before grants to IDA of $1,658 million
in FY12.
Grants to IDA totaled $340 million in FY13, as compared to $330 million in FY12. Net loss attributable to
noncontrolling interest totaled $8 million in FY13 as compared to $0 in FY12. Accordingly, net income
attributable to IFC totaled $1,018 million in FY13, as compared with a net income of $1,328 million in FY12.
A more detailed analysis of the components of IFC’s net income follows.
Income from loans and guarantees
IFC’s primary interest earning asset is its loan portfolio. Income from loans and guarantees for FY13 totaled
$1,059 million, compared with $938 million in FY12, an increase of $121 million.
The disbursed loan portfolio grew by $1,563 million, from $21,043 million at June 30, 2012 to $22,606
million at June 30, 2013. The weighted average contractual interest rate on loans at June 30, 2013 was 4.5%,
versus 4.7% at June 30, 2012. These factors combined resulted in $90 million higher interest income than in
FY12. Commitment and financial fees were $28 million higher than in FY12. Recoveries of interest on loans
removed from non-accrual status, net of reversals of income on loans placed in nonaccrual status were $26
million lower than in FY12. There were no gains on sale of loans in FY13 as compared to $2 million in FY12.
Income from IFC’s participation notes over and above minimum contractual interest and other income were $3
million lower than in FY12. Unrealized gains on loans accounted for at fair value and gains on non-monetary
exchanges were $34 million higher than in FY12.
34
Income from equity investments
Income from the equity investment portfolio decreased by $705 million from $1,457 million in FY12 to
$752 million in FY13.
IFC generated realized gains on sales of equity investments for FY13 of $921 million, as compared with
$2,000 million for FY12, a decrease of $1,079 million. IFC sells equity investments where IFC’s developmental
role was complete, and where pre-determined sales trigger levels had been met and, where applicable, lock ups
have expired.
Total realized gains on equity investments are concentrated — in FY13, 10 investments generated individual
capital gains in excess of $20 million for a total of $562 million, or 61%, of the FY13 realized gains, compared to
11 investments generating individual capital gains in excess of $20 million for a total of $1,821 million, or 91%,
of the FY12 realized gains.
Gains on non-monetary exchanges in FY13 totaled $6 million, as compared with $3 million in FY12.
Dividend income totaled $248 million, as compared with $274 million in FY12, a decrease of $26 million.
The decrease was largely due to a one time dividend from one investment in FY12 in the amount of $41 million
that did not recur in FY13. Dividend income in FY13 included returns from four unincorporated joint ventures
(UJVs) in the oil, gas and mining sectors accounted for under the cost recovery method, which totaled $36
million, as compared with $43 million from three such UJVs in FY12.
Other-than-temporary impairments on equity investments totaled $441 million in FY13 ($289 million on
equity investments accounted for as available-for-sale; and $152 million on equity investments accounted for at
cost less impairment), as compared with $692 million in FY12 ($420 million on equity investments accounted
for as available-for-sale; and $272 million on equity investments accounted for at cost less impairment). In FY13,
three investments generated individual other-than-temporary impairments in excess of $20 million for a total of
$90 million. In FY12, eight investments generated individual other-than-temporary impairments in excess of $20
million for a total of $298 million. Other-than temporary impairments on equity investments in FY13 were
concentrated in the last three months of FY13, reflecting the weaker performance of emerging markets equities in
general. Such impairments totaled $201 million in the last three months of FY13, as compared to $240 million in
the first nine months of FY13.
Unrealized gains on equity investments in FY13 totaled $26 million, as compared with unrealized losses of
$128 million in FY12. One investment accounted for $217 million of unrealized gains in FY13. Seven
investments in equity funds accounted for $162 million of the unrealized losses in FY13. Seven investments in
equity funds accounted for $146 million of the unrealized losses in FY12. Individual investments in such Funds
provided a significant component of such unrealized gains and losses.
Income from debt securities
Income from debt securities decreased to $5 million in FY13 from $81 million in FY12, a decrease of $76
million. The largest components of the decrease were higher other-than-temporary impairments ($19 million) and
unrealized losses on debt securities accounted for at fair value ($60 million) in FY13 when compared with FY12.
Realized gains on debt securities were $2 million lower in FY13 as compared to FY12.
Provision for losses on loans and guarantees and other receivables
The quality of IFC’s loan portfolio, as measured by average country risk ratings and average credit risk
ratings was substantially unchanged during FY13. By another measure, non-performing loans increased from
$859 million (4.1%) of the disbursed loan portfolio at June 30, 2012 to $1,272 million (5.6%) at June 30, 2013.
IFC recorded provision for losses on loans, guarantees and other receivables of $243 million in FY13 ($298
million of specific provisions for losses on loans, $49 million release of portfolio provisions for losses on loans,
and $6 million release of provision for losses on guarantees and other receivables) as compared to provisions for
losses of $117 million in FY12 ($76 million of specific provisions for losses on loans, $39 million of portfolio
provisions for losses on loans and $2 million of provision for losses on guarantees and other receivables).
35
On June 30, 2013, IFC’s total reserves against losses on loans were 7.2% of the disbursed loan portfolio
(6.6% at June 30, 2012).
Specific reserves against losses at June 30, 2013 of $741 million ($447 million at June 30, 2012) are held
against impaired loans of $1,403 million ($923 million at June 30, 2012), a coverage ratio of 53% (48%).
Income from liquid asset trading activities
The liquid assets portfolio, net of derivatives and securities lending activities, increased from $30.4 billion
at June 30, 2012, to $31.2 billion at June 30, 2013. Income from liquid asset trading activities totaled $500
million in FY13 ($313 million in FY12). In FY13 and FY12, all liquid asset portfolios outperformed their
respective benchmarks, except for the P4 portfolio (which has a Net Asset Value (NAV) of $769 million and
marginally underperformed).
Interest income in FY13 totaled $430 million. In addition, the portfolio of ABS and MBS experienced fair
value gains totaling $161 million in FY13. Holdings in other products, including US Treasuries, global
government bonds, high quality corporate bonds and derivatives generated $91 million of losses in FY13, a net
gain of $70 million.
The P1 portfolio generated a return of $292 million in FY13, or 1.4%. In FY12, the P1 portfolio generated a
return of $217 million, or 0.9%. The externally managed P3 portfolio, managed against the same variable rate
benchmark as the P1 portfolio, returned $17 million in FY13, or 1.9%, $3 million higher than the $14 million, or
1.6% return in FY12.
The P2 and externally-managed P4 portfolios returned $147 million (3.1%) and $2 million (0.3%) in FY13,
respectively, as compared to $62 million (1.2%) and $14 million (2.0%) in FY12, respectively.
IFC’s P0 portfolio earned $2 million in FY13, a return of 0.1%, as compared to $7 million (0.5%) in FY12.
The P6 local currency liquidity portfolio generated income of $42 million (4.5%) in FY13, $1 million less than
the $43 million (5.7%) in FY12.
At June 30, 2013, trading securities with a fair value of $85 million are classified as Level 3 securities ($150
million on June 30, 2012).
Charges on borrowings
IFC’s charges on borrowings increased by $39 million, from $181 million in FY12 to $220 million in FY13,
largely reflecting the increased level of borrowings partly set off by lower US dollar interest rate environment,
when comparing FY13 and FY12. During FY13, IFC bought back $0.4 billion of its market borrowings ($0.6
billion in FY12). Charges on borrowings of $220 million in FY13 ($181 million in FY12) are reported net of
gains on buybacks of $11 million ($19 million in FY12).
The weighted average rate of IFC’s borrowings outstanding from market sources, after the effects of
borrowing-related derivatives, and excluding short-term borrowings issued under the Discount Note Program,
declined during the year from 0.7% at June 30, 2012 to 0.4% at June 30, 2013. The size of the borrowings
portfolio (excluding the short-term Discount Note Program), net of borrowing-related derivatives and before fair
value adjustments, increased by $3.2 billion during FY13 from $40.7 billion at June 30, 2012, to $43.9 billion at
June 30, 2013.
Other income
Other income of $441 million for FY13 was $7 million lower than in FY12 ($448 million). Other income in
FY13 includes management fees and service fee reimbursements from AMC of $40 million ($28 million in
FY12) and income from advisory services of $239 million ($269 million in FY12). In FY13, income from
advisory services included $210 million contributed by donors ($189 million — FY12) and $29 million of fees
from clients and administrative fees from donors ($25 million — FY12).
36
Other expenses
Administrative expenses (the principal component of other expenses) increased by $47 million from $798
million in FY12 to $845 million in FY13, driven largely by a 6.7% increase in staffing and, to a lesser extent,
salary increases to existing staff. Administrative expenses include the grossing-up effect of certain revenues and
expenses attributable to IFC’s reimbursable program and expenses incurred in relation to workout situations
(Jeopardy Projects) ($26 million in FY13, as compared with $22 million in FY12).
IFC recorded expenses from pension and other postretirement benefit plans in FY13 of $173 million, as
compared with $96 million in FY12, an increase driven by actuarial assumptions related to the funding status of
the various benefit plans at June 30, 2012.
Advisory services expenses totaled $351 million in FY13 ($290 million in FY12). Advisory services
expenses included $210 million of funds contributed by donors that were utilized in the provision of advisory
services in FY13 ($189 million — FY12).
Net gains and losses on other non-trading financial instruments
As discussed in more detail in Note A to IFC’s FY13 Consolidated Financial Statements, IFC accounts for
certain financial instruments at fair value with unrealized gains and losses on such financial instruments being
reported in net income, namely: (i) all swapped market borrowings; and (ii) all equity investments in which IFC
has greater than 20% holdings and/or equity and fund investments which, in the absence of the Fair Value
Option, would be required to be accounted for under the equity method, and (iii) substantially all market
borrowings. All other non-trading derivatives, including stand-alone and embedded derivatives in the loan, equity
and debt security portfolios continue to be accounted for at fair value.
The resulting effects of fair value accounting for these non-trading financial instruments on net income in
FY13 and FY12 are summarized as follows (US$ millions):
FY13
Realized gains and losses on derivatives associated with investments . . . . . . . . . . . . . . . . . . . . .
Non-monetary gains on derivatives associated with investments . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains and losses on derivatives associated with investments . . . . . . . . . . . . . . . . . . .
Unrealized gains and losses on market borrowings and associated derivatives, net . . . . . . . . . . .
Net gains and losses on other non-trading financial instruments accounted for at fair
value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
35
2
353
32
$ 422
FY12
$
11
10
(34)
(206)
$ (219)
Changes in the fair value of IFC’s market borrowings and associated derivatives, net, includes the impact of
changes in IFC’s own credit spread when measured against US$ LIBOR. As credit spreads widen, unrealized
gains are recorded and when credit spreads narrow, unrealized losses are recorded (notwithstanding the impact of
other factors, such as changes in risk-free interest and foreign currency exchange rates). The magnitude and
direction (gain or loss) can be volatile from period to period but do not alter cash flow. IFC’s policy is to
generally match currency, amount and timing of cash flows on market borrowings with cash flows on associated
derivatives entered into contemporaneously.
In FY12, unsettled conditions in European sovereign debt markets and renewed signs of flagging economic
activity were accompanied by further interest rate declines from already low levels. Risk appetites in the capital
markets receded, as evidenced by some flight to quality along the credit spectrum. This led to better pricing for
triple-A IFC issues which in FY11 sat at around LIBOR flat, but moved back to 5 to 10 basis points below
LIBOR by the end of FY12 for US$ issuances at 5 year tenor. This development, along with movements in
foreign exchange basis swap rates, resulted in adverse after swap revaluations on market borrowings, net of
associated derivatives and accordingly, IFC reported unrealized losses in FY12 of $206 million.
In FY13, interest rate levels remained stable through the first nine months of the year, then, in the last three
months of FY13, bond markets weakened on the prospect of tighter liquidity conditions amid signs of
accelerating US economic activity. Benchmark 5 year US$ interest rates jumped around 50 basis points during
the last three months of FY13 causing large revaluation gains on IFC’s portfolio of medium to long term
37
borrowings, offset by losses on associated derivatives. Credit spreads for benchmark IFC USD issuance
deteriorated by around 10 basis points in FY13 contributing to overall unrealized gains on market borrowings
and associated derivatives of $32 million.
IFC reported net gains on derivatives associated with investments (principally put options, stock options,
conversion features, warrants and interest rate and currency swaps economically hedging the fixed rate and /or
non-US$ loan portfolio) of $390 million in FY13 (net losses of $13 million in FY12). Gains and losses are highly
concentrated, with five derivatives accounting for $153 million of gains and five derivatives accounting for $73
million of losses in FY13 (five derivatives accounting for $113 million of gains and five derivatives accounting
for $73 million of losses in FY12).
Grants to IDA
During FY13, IFC recorded a grant to IDA of $340 million, as compared with $330 million in FY12.
Other comprehensive income
Unrealized gains and losses on equity investments and debt securities
IFC’s investments in debt securities and equity investments that are listed in markets that provide readily
determinable fair values are classified as available-for-sale, with unrealized gains and losses on such investments
being reported in OCI until realized. When realized, the gain or loss is transferred to net income. Changes in
unrealized gains and losses on equity investments and debt securities reported in OCI are significantly impacted
by (i) the global environment for emerging markets; and (ii) the realization of gains on sales of such equity
investments and debt securities.
The net change in unrealized gains and losses on equity investments and debt securities in OCI can be
summarized as follows:
FY13
Net unrealized gains and losses on equity investments arising during the year:
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains and other-than-temporary impairments
included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gains and losses on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gains and losses on debt securities arising during the year:
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains, non-credit related portion of
impairments which were recognized in net income and other-than-temporary
impairments included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FY12
$ 757 $ 290
(396) (813)
24
$ 385
277
$ (246)
$ 194 $ 85
(201) (358)
29
14
Net unrealized gains and losses on debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
(259)
Total unrealized gains and losses on equity investments and debt securities . . . . . . . . .
$ 407
$ (505)
Unrecognized net actuarial gains and losses and unrecognized prior service costs on benefit plans
Changes in the funded status of pension and other postretirement benefit plans are recognized in OCI, to the
extent they are not recognized in net income under periodic benefit cost for the year.
During FY13, IFC experienced a gain of $201 million primarily due to $200 million of unrecognized net
actuarial gains, resulting from the increase in the discount rates used to determine the projected benefit
38
obligations and higher return on pension assets. The discount rate assumption used to determine the projected
benefit obligation for the largest benefit plan, the Staff Retirement Plan, increased from 3.9% at June 30, 2012 to
4.6% at June 30, 2013.
FY12 VERSUS FY11
Net income
IFC reported income before net gains and losses on other non-trading financial instruments accounted for at
fair value and grants to IDA of $1,877 million in FY12, as compared to $2,024 million in FY11.
The decrease in income before net gains and losses on other non-trading financial instruments accounted for
at fair value and grants to IDA in FY12 when compared to FY11 was principally as a result of (US$ millions):
Increase (decrease)
FY12 vs FY11
Unrealized losses on equity investments accounted for at fair value . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairments on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from liquid asset trading activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on non-monetary exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions for losses on loans, guarantees and other receivables . . . . . . . . . . . . . . . . . . . . . . . . .
Advisory services expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gains and losses on non-trading activities . . . . . . . . . . . . . . . . . . .
Realized capital gains on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (582)
(474)
(216)
(214)
(157)
132
178
1,263
(77)
Overall change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (147)
Net losses on other non-trading financial instruments accounted for at fair value totaled $219 million in
FY12 (net gains of $155 million in FY11), resulting in income before grants to IDA of $1,658 million in FY12,
as compared to $2,179 million in FY11. Grants to IDA totaled $330 million in FY12, as compared to $600
million in FY11. Accordingly, net income totaled $1,328 million in FY12, as compared with $1,579 million in
FY11.
A more detailed analysis of the components of IFC’s net income follows.
Income from loans and guarantees
IFC’s primary interest earning asset is its loan portfolio. Income from loans and guarantees for FY12 totaled
$938 million, compared with $877 million in FY11, an increase of $61 million.
The disbursed loan portfolio grew by $1,159 million, from $19,884 million at June 30, 2011 to $21,043
million at June 30, 2012. The weighted average contractual interest rate on loans at June 30, 2012 was 4.7%,
versus 4.6% at June 30, 2011. These factors resulted in $90 million higher interest income than in FY11.
Commitment and financial fees were $12 million higher than in FY11. Recoveries of interest on loans removed
from non-accrual status, net of reversals of income on loans placed in nonaccrual status were $14 million higher
than in FY11. Gain on sales of loan was $2 million as compared to no such gains in FY11. Income from IFC’s
participation notes over and above minimum contractual interest and other income were $10 million higher than
in FY11. Unrealized gains on loans accounted for at fair value and gains on non-monetary exchanges were
$67 million lower than in FY11.
Income from equity investments
Income from the equity investment portfolio decreased by $7 million from an income of $1,464 million in
FY11 to $1,457 million in FY12.
39
IFC generated record realized gains on sales of equity investments for FY12 of $2,000 million, as compared
with $737 million for FY11, an increase of $1,263 million. IFC sells equity investments where IFC’s
developmental role was complete, and where pre-determined sales trigger levels had been met and, where
applicable, lock ups have expired.
Total realized gains on equity investments are concentrated — in FY12, 11 investments generated individual
capital gains in excess of $20 million for a total of $1,821 million, or 91%, of the FY12 gains, compared to
10 investments generating individual capital gains in excess of $20 million for a total of $416 million, or 56%, of
the FY11 gains.
Gains on non-monetary exchanges in FY12 totaled $3 million, as compared with $217 million in FY11.
There were two large transactions that resulted in the recording of gains on non-monetary exchanges in FY11
that did not recur in FY12.
Dividend income totaled $274 million, as compared with $280 million in FY11. Consistent with FY11, a
significant amount of IFC’s dividend income in FY12 was due to returns on IFC’s joint ventures in the oil, gas
and mining sectors accounted for under the cost recovery method, which totaled $43 million in FY12, as
compared with $57 million in FY11.
Other-than-temporary impairments on equity investments totaled $692 million in FY12 ($420 million on
equity investments accounted for as available-for-sale; and $272 million on equity investments accounted for at
cost less impairment), as compared with $218 million in FY11 ($131 million on equity investments accounted
for as available-for-sale; and $87 million on equity investments accounted for at cost less impairment). In FY12,
eight investments generated individual other-than-temporary impairments in excess of $20 million for a total of
$298 million. In FY11, one investment generated an other-than-temporary impairment loss of $40 million. There
were no other investments that generated an other-than-temporary impairment loss in excess of $20 million.
Unrealized losses on equity investments that are accounted for at fair value through net income in FY12
totaled $128 million, as compared with gains of $454 million in FY11. Seven investments in equity funds
accounted for $146 million of the unrealized losses in FY12. Six investments in equity funds accounted for $199
million of the unrealized gains in FY11. Individual investments in such funds provided a significant component
of the unrealized gains and losses.
Income from debt securities
Income from debt securities increased to $81 million in FY12 from $46 million in FY11, an increase of $35
million. The largest components of the increase were higher interest income ($21 million) and higher unrealized
gains on debt securities accounted for at fair value ($23 million) in FY12 when compared with FY11. Realized
gains on debt securities were $14 million higher in FY12 as compared to FY11.
Provision for losses on loans and guarantees
The quality of IFC’s loan portfolio, as measured by average country risk ratings and average credit risk
ratings was substantially unchanged during FY12. By another measure, non-performing loans decreased from
$943 million (4.7%) of the disbursed loan portfolio at June 30, 2011 to $859 million (4.1%) at June 30, 2012.
IFC recorded provision for losses on loans and guarantees of $112 million in FY12 ($76 million specific
provisions on loans, $39 million portfolio provisions on loans, and $3 million release of provision for losses on
guarantees) as compared to release of provision of $40 million in FY11 ($16 million release in specific
provisions, and $24 million release in portfolio provisions).
On June 30, 2012, IFC’s total reserves against losses on loans were 6.6% of the disbursed loan portfolio
(6.6% at June 30, 2011).
Specific reserves against losses at June 30, 2012 of $447 million ($382 million at June 30, 2011) are held
against impaired loans of $923 million ($918 million at June 30, 2011), a coverage ratio of 48% (42%).
40
Income from liquid asset trading activities
Income from liquid asset trading activities comprises interest from time deposits and securities, net gains
and losses on trading activities, and a small currency effect. The liquid assets portfolio, net of derivatives and
securities lending activities, increased from $24.5 billion at June 30, 2011, to $29.7 billion at June 30, 2012.
Income from liquid asset trading activities totaled $313 million in FY12 ($529 million in FY11). In FY12
and FY11, all liquid asset portfolios except for the P7 portfolio (which has an NAV less than $10 million),
outperformed their respective benchmarks.
In addition to interest income and foreign currency transaction gains of $648 million, the portfolio of ABS
and MBS experienced fair value losses totaling $8 million in FY12. Holdings in other products, including US
Treasuries, global government bonds, high quality corporate bonds and derivatives generated $327 million of
losses in FY12.
At June 30, 2012, trading securities with a fair value of $150 million are classified as Level 3 securities
($210 million on June 30, 2011).
The P1 portfolio generated a return of $218 million in FY12, or 0.95%. In FY11, the P1 portfolio generated
a return of $330 million, or 2.29%. The externally managed P3 portfolio, managed against the same variable rate
benchmark as the P1 portfolio, returned $13 million in FY12, or 1.64%, $7 million higher than the $6 million, or
0.97% return in FY11.
The P2 and externally-managed P4 portfolios returned $60 million (1.15%) and $13 million (2.00%) in
FY12, respectively, as compared to $179 million (3.33%) and $9 million (1.87%) in FY11, respectively.
IFC’s P0 portfolio earned $9 million in FY12, a total return of 0.47%, as compared to $4 million (0.44%) in
FY11. The P7 portfolio earned less than $0.5 million (1.15%) in FY12 as compared to earning $1 million
(1.32%) in FY11.
Charges on borrowings
IFC’s charges on borrowings increased by $41 million, from $140 million in FY11 to $181 million in FY12,
largely reflecting the higher US dollar interest rate environment and increased level of borrowings, when
comparing FY12 and FY11. During FY12, IFC bought back $0.6 billion of its market borrowings ($0.3 billion in
FY11). Charges on borrowings of $181 million in FY12 ($140 million in FY11) are reported net of gains on
buybacks of $19 million ($10 million in FY11).
The weighted average rate of IFC’s borrowings outstanding from market sources, after the effects of
borrowing-related derivatives, and excluding short-term borrowings issued under the Discount Note Program,
rose during the year from 0.3% at June 30, 2011 to 0.7% at June 30, 2012. The size of the borrowings portfolio
(excluding the short-term Discount Note Program), net of borrowing-related derivatives and before fair value
adjustments, increased by $6.8 billion during FY12 from $33.9 billion at June 30, 2011, to $40.7 billion at
June 30, 2012.
Other income
Other income of $448 million for FY12 was $226 million higher than in FY11 ($222 million). Other income
in FY12 includes income from the P6 local currency liquidity portfolio of $43 million (reported in income from
liquid asset trading in FY13 and amounting to $44 million in FY11), management fees and service fee
reimbursements from AMC of $28 million ($28 million in FY11) and income from advisory services of $269
million ($0 in FY11). In FY12, income from advisory services included $189 million contributed by donors and
$25 million of fees from clients and administrative fees from donors.
Other expenses
Administrative expenses (the principal component of other expenses) increased by $98 million from $700
million in FY11 to $798 million in FY12, driven largely by a 9% increase in staffing and, to a lesser extent,
41
salary increases to existing staff. Administrative expenses include the grossing-up effect of certain revenues and
expenses attributable to IFC’s reimbursable program and Jeopardy Projects ($22 million in FY12, as compared
with $24 million in FY11). IFC recorded an expense from pension and other postretirement benefit plans in
FY12 of $96 million, as compared with $109 million in FY11, a decrease driven by actuarial assumptions.
Advisory services expenses totaled $290 million in FY12 ($153 million in FY11). Advisory services
expenses included $189 million of funds contributed by donors that were utilized in the provision of advisory
services.
Net gains and losses on other non-trading financial instruments
As discussed in more detail in Note A to IFC’s FY12 Consolidated Financial Statements, IFC accounts for
certain financial instruments at fair value with unrealized gains and losses on such financial instruments being
reported in net income, namely: (i) all swapped market borrowings; and (ii) all equity investments in which IFC
has greater than 20% holdings and/or equity and fund investments which, in the absence of the Fair Value
Option, would be required to be accounted for under the equity method, and (iii) substantially all market
borrowings. All other non-trading derivatives, including stand-alone and embedded derivatives in the loan, equity
and debt security portfolios continue to be accounted for at fair value.
The resulting effects of fair value accounting for these non-trading financial instruments on net income in
FY12 and FY11 are summarized as follows (US$ millions):
FY12
Realized gains and losses on derivatives associated with investments . . . . . . . . . . . . . . . . . . . . .
Non-monetary gains on derivatives associated with investments . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains and losses on derivatives associated with investments . . . . . . . . . . . . . . . . . . .
Unrealized gains and losses on market borrowings and associated derivatives, net . . . . . . . . . . .
Net gains and losses on other non-trading financial instruments accounted for at fair
value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
FY11
11 $ 63
10
22
(34)
(23)
(206)
93
$ (219) $ 155
Changes in the fair value of IFC’s market borrowings and associated derivatives, net includes the impact of
changes in IFC’s own credit spread when measured against US$ LIBOR. As credit spreads widen, unrealized
gains are recorded and when credit spreads narrow, unrealized losses are recorded (notwithstanding the impact of
other factors, such as changes in risk-free interest and foreign currency exchange rates). The magnitude and
direction (gain or loss) can be volatile from period to period but do not alter the cash flows. IFC’s policy is to
generally match currency, amount and timing of cash flows on market borrowings with cash flows on associated
derivatives entered into contemporaneously.
In FY11, the trend decline in global interest rate paused temporarily in the second quarter of the year and
interest rates remained stable at low levels subsequently. Credit spreads were little changed throughout FY11 and
resulting pricing was at around LIBOR flat for IFC’s benchmark US$ global bond offerings. In FY10, credit
spreads remained elevated relative to the levels that prevailed before FY09. As a result, IFC reported unrealized
gains for FY11 of $93 million, as compared to unrealized losses of $226 million in FY10.
In FY12, unsettled conditions in European sovereign debt markets and renewed signs of flagging economic
activity were accompanied by further interest rate declines from already low levels. Risk appetites in the capital
markets receded, as evidenced by some flight to quality along the credit spectrum. This led to better pricing for
AAA IFC issues which in FY11 sat at around LIBOR flat, but moved back to 5 to 10 basis points below LIBOR
by the end of FY12. This development, along with movements in foreign exchange basis swap rates, resulted in
adverse after swap revaluations on IFC’s financial statements and IFC reported unrealized losses for FY12 of
$206 million, as compared to unrealized gains of $93 million in FY11.
IFC reported net losses on derivatives associated with investments (principally put options, stock options,
conversion features, warrants and swaps associated with loans) of $13 million in FY12 (net gains of $62 million
42
in FY11). Gains and losses are highly concentrated, with five derivatives accounting for $113 million of gains
and five derivatives accounting for $73 million of losses in FY12 (five derivatives accounting for $140 million of
gains and five derivatives accounting for $58 million of losses in FY11).
Grants to IDA
During FY12, IFC recorded a grant to IDA of $330 million, as compared with $600 million in FY11.
Other comprehensive income
Unrealized gains and losses on equity investments and debt securities
IFC’s investments in debt securities and equity investments that are listed in markets that provide readily
determinable fair values at fair value are classified as available-for-sale, with unrealized gains and losses on such
investments being reported in OCI until realized. When realized, the gain or loss is transferred to net income.
Changes in unrealized gains and losses on equity investments and debt securities reported in OCI are
significantly impacted by (i) the global environment for emerging markets; and (ii) the realization of gains on
sales of such equity investments and debt securities.
The net change in unrealized gains and losses on equity investments and debt securities in OCI can be
summarized as follows:
FY12
FY11
Net unrealized gains and losses on equity investments arising during the year:
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 290 $ 697
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(813) (309)
Reclassification adjustment for realized gains and impairments included in net income . . .
277
(274)
Net unrealized gains and losses on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gains and losses on debt securities arising during the year:
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains, non credit-related portion of impairments
which were recognized in net income and impairments included in net income . . . . . . .
$ (246) $ 114
$
85 $ 234
(358)
(97)
14
4
Net unrealized gains and losses on debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (259) $ 141
Total unrealized gains and losses on equity investments and debt securities . . . . . . . . . . . .
$ (505) $ 255
Unrecognized net actuarial gains and losses and unrecognized prior service costs on benefit plans
Changes in the funded status of pension and other postretirement benefit plans are recognized in OCI, to the
extent they are not recognized in net income under periodic benefit cost for the year.
During FY12, IFC experienced a loss of $525 million, primarily due to the following factors:
Unrecognized net actuarial losses on benefits plans: $501 million of unrecognized net actuarial losses,
primarily due to the decrease in the discount rates used to determine the projected benefit obligations and lower
return on pension assets. The discount rate assumption used to determine the projected benefit obligation for the
largest benefit plan, the Staff Retirement Plan, decreased from 5.3% at June 30, 2011 to 3.9% at June 30, 2012.
Unrecognized net prior service cost on benefit plans: $24 million of unrecognized prior service cost,
primarily due to an amendment made to the pension plan. See notes to FY12 Consolidated Financial
Statements — Note W — Pension and Other Postretirement Benefits for further details.
43
GOVERNANCE AND CONTROL
SENIOR MANAGEMENT CHANGES
The following changes occurred in the Senior Management of IFC since June 30, 2012:
Dr. Jim Yong Kim became President, effective July 1, 2012.
Mr. Thierry Tanoh retired as Vice President, Sub-Saharan Africa, Latin America and the Caribbean, and
Western Europe, effective July 16, 2012.
Mr. Bernard Sheahan, Director, Global Infrastructure and Natural Resources, was appointed Acting Vice
President, Sub-Saharan Africa, Latin America and the Caribbean, and Western Europe, effective July 16, 2012
and ending on February 14, 2013.
Mr. Jin-Yong Cai became Executive Vice President and CEO, effective October 1, 2012.
Ms. Rachel Robbins retired as Vice President and General Counsel, effective October 31, 2012. Mr. David
Harris, Deputy General Counsel, was Acting Vice President and General Counsel, effective November 1, 2012
and ending on March 31, 2013.
Mr. Jean Philippe Prosper became Vice President, Sub-Saharan Africa, Latin America and the Caribbean,
effective February 15, 2013.
Mr. Dimitris Tsitsiragos’ title changed from Vice President, Eastern Europe, Central Asia, Middle East and
North Africa to Vice President, Europe, Central Asia, Middle East and North Africa, effective February 15, 2013.
Ms. Saadia Khairi’s title changed from Vice President, Risk, Finance and Strategy to Vice President, Risk
Management and Reporting, effective February 15, 2013.
Mr. Rashad Kaldany’s title changed from Vice President, Global Industries to Vice President and Chief
Operating Officer, effective February 15, 2013.
Mr. Ethiopis Tafara was appointed IFC’s Vice President and General Counsel, effective April 1, 2013.
Ms. Dorothy Berry retired as Vice President, Human Resources, Communications, and Administration,
effective June 30, 2013. The position of Vice President, Human Resources, Communications, and Administration
will not be filled. Effective July 1, 2013, Human Resource services to IFC will be provided by the World Bank
Group Integrated Services, and IFC Human Resources business partners, under the leadership of Sean McGrath.
Mr. Rashad Kaldany, Vice President and Chief Operating Officer retired from IFC on September 6, 2013
whereupon the position was not filled.
GENERAL GOVERNANCE
IFC’s decision-making structure consists of the Board of Governors, the Board of Directors, the President,
the Executive Vice President and CEO, other officers and staff. The Board of Governors is the highest decisionmaking authority. Governors are appointed by their member governments for a five-year term, which is
renewable. The Board of Governors may delegate authority to the Board of Directors to exercise any of its
powers, except those reserved to the Board of Governors under the Articles of Agreement.
BOARD MEMBERSHIP
In accordance with its Articles of Agreement, members of the Board of Directors are appointed or elected
every two years by their member governments. Currently, the Board of Directors is composed of 25 Directors.
These Directors are neither officers nor staff of IFC. The President is the only member of the Board of Directors
from management, serving as a non-voting member and as Chairman of the Board of Directors.
The Board of Directors has established several Committees including:
• Audit Committee
• Budget Committee
44
• Committee on Development Effectiveness
• Committee on Governance and Executive Directors’ Administrative Matters
• Ethics Committee
• Human Resources Committee
The Board of Directors and their Committees function in continuous session at the principal offices of the
IBRD, as business requires. Each Committee’s terms of reference establishes its respective roles and
responsibilities. As Committees do not vote on issues, their role is primarily to serve the Board of Directors in
discharging its responsibilities.
The Board of Directors considers proposals made by the President on the use of IFC’s net income: retained
earnings and designation of retained earnings and is responsible for the conduct of the general operations of IFC.
The Directors are also responsible for presenting to the Board of Governors, at the Annual meetings, audited
accounts, an administrative budget, and an annual report on operations and policies as well as other matters.
AUDIT COMMITTEE
Membership
The Audit Committee consists of eight Directors. Membership on the Audit Committee is determined by the
Board of Directors, based upon nominations by the Chairman of the Board of Directors, following informal
consultation with the Directors.
Key responsibilities
The Audit Committee is appointed by the Board of Directors to assist it in the oversight and assessment of
IFC’s finances and accounting, including the effectiveness of financial policies, the integrity of financial
statements, the system of internal controls regarding finance, accounting and ethics (including fraud and
corruption), and financial and operational risks. The Audit Committee also has the responsibility for reviewing
the performance and recommending to the Board of Directors the appointment of the external auditor, as well as
monitoring the independence of the external auditor. The Audit Committee participates in oversight of the
internal audit function and reviews the annual internal audit plan. In the execution of its role, the Audit
Committee discusses with management, the external auditors, and the internal auditors, financial issues and
policies which have a bearing on IFC’s financial position and risk-bearing capacity. The Committee also reviews
with the external auditor the financial statements prior to their publication and recommends the annual audited
financial statements for approval to the Board of Directors. The Audit Committee monitors the evolution of
developments in corporate governance and the role of audit committees on an ongoing basis and updated its
terms of reference in July 2009.
Executive sessions
Under the Audit Committee’s terms of reference, members of the Audit Committee may convene in
executive session at any time, without management present. It meets separately in executive session with the
external and internal auditors.
Access to resources and to management
Throughout the year, the Audit Committee receives a large volume of information, which supports the
execution of its duties. The Audit Committee meets both formally and informally throughout the year to discuss
relevant matters. The Audit Committee has complete access to management and reviews and discusses with
management topics contemplated in their Terms of Reference.
The Audit Committee has the capacity, under exceptional circumstances, to obtain advice and assistance
from outside legal, accounting or other advisors as deemed appropriate.
45
BUSINESS CONDUCT
IFC promotes a positive work environment where staff members understand their ethical obligations to the
institution, which are embodied in its Core Values and Principles of Staff Employment. In support of this
commitment, the institution has in place a code of conduct, entitled Living our Values (the Code). The Code
applies to all World Bank Group staff worldwide and is available on www.worldbank.org.
In addition to the Code, Staff and Administrative Manuals, guidance for staff is also provided through
programs, training materials, and other resources. Managers are responsible for ensuring that internal systems,
policies, and procedures are consistently aligned with the IFC’s business conduct framework.
There exists both an Ethics HelpLine and a Fraud and Corruption hotline. A third-party service offers
numerous methods of worldwide communication. Reporting channels include: phone, mail, email, or through
confidential submission through a website.
IFC has in place procedures for the receipt, retention and handling of recommendations and concerns
relating to business conduct identified during accounting, internal control and auditing processes.
Staff Rules clarify and codify the obligations of staff in reporting suspected fraud, corruption or other
misconduct that may threaten operations or governance of the Corporation. Additionally, these rules offer
protection from retaliation.
AUDITOR INDEPENDENCE
The appointment of the external auditor of IFC is governed by a set of Board of Director-approved
principles. Key features of those principles include:
• Prohibition of the external auditor from the provision of all non audit-related services.
• All audit-related services must be pre-approved on a case-by-case basis by the Board of Directors, upon
recommendation of the Audit Committee.
• Mandatory rebidding of the external audit contract every five years, with a limitation of two consecutive
terms and mandatory rotation thereafter.
External auditors are appointed to a five-year term of service. This is subject to annual reappointment based
on the recommendation of the Audit Committee and approval of a resolution by the Board of Directors. In FY14,
KPMG LLP (“KPMG”) will begin a second five-year term as IFC’s external auditor.
Communication between the external auditor and the Audit Committee is ongoing, as frequently as is
deemed necessary by either party. The Audit Committee meets periodically with the external auditor, and
individual members of the Audit Committee have independent access to the external auditor. IFC’s external
auditors also follow the communication requirements with audit committees set out under generally accepted
auditing standards in the United States of America.
INTERNAL CONTROL
Internal control over financial reporting
Management makes an annual assertion whether, as of June 30 of each fiscal year, its system of internal
control over its external financial reporting has met the criteria for effective internal control over external
financial reporting as described in the Internal Control-Integrated Framework issued in 1992 by the Committee
of Sponsoring Organizations of the Treadway Commission.
Concurrently, IFC’s external auditor provides an attestation report on whether management’s assertion
regarding the effectiveness of internal control over external financial reporting is fairly stated in all material
respects.
For each fiscal year, management performs an evaluation of internal control over external financial
reporting for the purpose of determining if there are any changes made in internal controls during the fiscal year
46
covered by the report that materially affect, or would be reasonably likely to materially affect IFC’s internal
control over external financial reporting. As of June 30, 2013, no such changes had occurred.
Disclosure Controls and Procedures
Disclosure controls and procedures are those processes which are designed to ensure that information
required to be disclosed is accumulated and communicated to management as appropriate, to allow timely
decisions regarding required disclosure by IFC. Management has undertaken an evaluation of the effectiveness of
such controls and procedures. Based on that evaluation, management has concluded that these controls and
procedures were effective as of June 30, 2013.
AUDIT FEES
For FY13 and FY12, KPMG served as IFC’s independent external auditors. The aggregate fees for
professional services rendered for IFC, including reimbursable expenses, by KPMG for FY13 and FY12 are as
follows: Fees earned by KPMG for audit and audit-related services rendered to IFC, AMC and funds managed by
AMC totaled $2.74 million ($2.52 million – FY12), comprising $2.37 million of audit services ($2.21
million – FY12) and $0.37 million of audit-related services ($0.31 million – FY12). Audit-related services
performed by KPMG are closely related to audit services and in many cases could only be provided by IFC’s
independent external auditors. Such audit-related services include accounting consultations, financial statement
translation services, comfort letters and other reporting in support of IFC’s borrowing activities, and certain
attestation services such as agreed upon procedures.
ORGANIZATION AND ADMINISTRATION OF IFC
MEMBERSHIP
IFC was organized in 1956 with an original membership of 56 countries, which has since grown to 184
member countries at June 30, 2013. Membership in IFC is open only to members of IBRD at such times and in
accordance with such terms and conditions as IFC shall prescribe.
Although any member may withdraw from membership in IFC by delivering notice thereof in writing, any
government which ceases to be a member remains liable for all its obligations to IFC. In the event of withdrawal,
IFC will arrange for the repurchase of that government’s capital stock in IFC. Also, a member may be suspended
by a decision of a majority of the Board of Governors exercising a majority of IFC’s total voting power if such
member fails to fulfill any of its obligations to IFC.
ADMINISTRATION
IFC’s administration is comprised of the Board of Governors, the Board of Directors, the President, the
Executive Vice President, other officers and staff.
All of the powers of IFC are vested in the Board of Governors which is composed of a Governor (and an
Alternate Governor) appointed by each member country of IFC. Each member country has 250 votes plus one
additional vote for each share of stock held by that member. Except as otherwise expressly provided in the
Articles of Agreement, all matters before IFC are decided by a majority of the votes cast. The Board of
Governors holds regular annual meetings, but has delegated to the Board of Directors authority to exercise all of
the powers of IFC except those reserved to the Board of Governors under the Articles of Agreement.
The Board of Directors is responsible for the conduct of the general operations of IFC. It is composed of
each Executive Director of IBRD who has been either (i) appointed by a member of IBRD which is also a
member of IFC, or (ii) elected in an election in which the votes of at least one member of IBRD which is also a
member of IFC shall have counted toward his or her election. Each Director is entitled to cast the number of
votes which the member by which he or she was appointed, or the member (or members) that voted for his or her
47
election, is entitled to cast. The Board of Directors presently consists of 25 Directors. Five Directors are
appointed by individual members and the remaining 20 are elected by the Board of Governors representing the
other members. The President of IBRD is ex officio Chairman of the Board of Directors of IFC.
The President is the chief of the operating staff of IFC and is appointed by the Board of Directors. Under the
direction and control of the Board of Directors, the President is responsible for the organization, appointment and
dismissal of the officers and staff. The authority to conduct the ordinary business of IFC is vested in the
Executive Vice President.
The following is a list of the principal officers of IFC as of November 15, 2013:
President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice President and CEO . . . . . . . . . . . . . . . . . . . . . . . . . .
Vice President, Financial and Private Sector Development . . . . . . . .
Vice President, Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vice President, Treasury and Syndications . . . . . . . . . . . . . . . . . . . .
Vice President, Risk Management and Portfolio . . . . . . . . . . . . . . . .
Vice President, Sub-Saharan Africa and Latin America and the
Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vice President, Business Advisory Services . . . . . . . . . . . . . . . . . . .
Vice President and General Counsel . . . . . . . . . . . . . . . . . . . . . . . . .
Vice President, Europe, Central Asia, Middle East and North
Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CEO, IFC Asset Management Company LLC (a wholly-owned
subsidiary of IFC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dr. Jim Yong Kim
Jin-Yong Cai
Janamitra Devan
Karin Finkelston
Jingdong Hua
Saadia Khairi
Jean Philippe Prosper
Nena Stoiljkovic
Ethiopis Tafara
Dimitris Tsitsiragos
Gavin E.R. Wilson
IFC is a legal entity separate and distinct from IBRD. The funds of IFC are kept separate and apart from
those of IBRD and obligations of IFC are not obligations of, or guaranteed by, IBRD.
THE ARTICLES OF AGREEMENT
The Articles of Agreement constitute IFC’s governing charter. They prescribe IFC’s purpose, capital
structure and organization, authorize the operations in which it may engage, prescribe limitations on the carrying
on of those operations and establish the status, privileges and immunities of IFC in its member countries. The
Articles of Agreement also contain provisions with respect to the admission of additional members, the increase
of the authorized capital stock of IFC, the terms and conditions under which IFC may invest its funds, the
distribution of the net income of IFC to its members, the withdrawal and suspension of members and the
suspension of operations of IFC.
Pursuant to its provisions, the Articles of Agreement may be amended only by a vote of three-fifths of the
Governors exercising 85% of the total voting power (except for certain provisions the amendment of which
requires the affirmative vote of all Governors). The Articles of Agreement further provide that questions of
interpretation of provisions of the Articles of Agreement arising between any member and IFC or between
members of IFC shall be decided by the Board of Directors. Its decisions may be referred by any member to the
Board of Governors, whose decision is final. Pending the result of such reference, IFC may act on the basis of the
decision of the Board of Directors.
Copies of the full text of the Articles of Agreement are available for inspection and distribution at IFC’s
head office in Washington, D.C. and are available at www.ifc.org.
48
LEGAL STATUS, IMMUNITIES AND PRIVILEGES
The Articles of Agreement contain provisions which accord to IFC legal status and certain immunities and
privileges in the territories of each of its members, including those summarized below.
IFC has full juridical personality with capacity to make contracts, to acquire and dispose of property and to
sue and be sued. Actions may be brought against IFC only in a court of competent jurisdiction in the territories of
a member in which IFC has an office, has appointed an agent to accept service of process, or has issued or
guaranteed securities, but no action may be brought against IFC by a member or persons acting for or deriving
claims from a member.
The Governors, Directors, Alternates and the officers and employees of IFC are immune from legal process
for acts performed by them in their official capacities.
The archives of IFC are inviolable and the property and assets of IFC are immune from seizure, attachment
or execution prior to delivery of final judgment against IFC. The property and assets of IFC are also immune
from search, requisition, confiscation, expropriation or any other form of seizure by executive or legislative
action.
IFC, its assets, property, income and its operations and transactions authorized by the Articles of
Agreement, are immune from all taxation and customs duties imposed by a member country. IFC is also immune
from liability for the collection or payment of any tax or duty.
Under the Articles of Agreement, securities issued or guaranteed by IFC and the interest or dividends
thereon are not subject to any tax (a) which discriminates against such securities solely because they are issued or
guaranteed by IFC or (b) if the sole jurisdictional basis for the tax is the place or currency in which such
securities are issued, made payable or paid, or the location of any office or place of business maintained by IFC.
IFC in its discretion may waive any of the privileges and immunities conferred under the Articles of
Agreement upon such conditions as it may determine.
MANAGEMENT’S DISCUSSION AND ANALYSIS
AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013
INTRODUCTION
This Management’s Discussion and Analysis should be read in conjunction with IFC’s consolidated
financial statements and management’s discussion and analysis issued for FY13. IFC undertakes no obligation to
update any forward-looking statements.
49
BASIS OF PREPARATION OF IFC’S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accounting and reporting policies of IFC conform to US GAAP. IFC’s accounting policies are
discussed in more detail in Note A to IFC’s Condensed Consolidated Financial Statements as of and for the three
months ended September 30, 2013 (FY14 Q1 Financial Statements).
SELECTED FINANCIAL DATA AND RATIOS
As of and for the three months ended
September 30, 2013 September 30, 2012
As of and
for the
year
ended
June 30,
2013
Investment Program (US$ millions)
IFC commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core Mobilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,659
443
$3,307
735
$18,349
6,504
Total commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,102
$4,042
$24,853
Income Statement (US$ millions)
Income before grants to IDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants to IDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 247
—
$ 465
—
$ 1,350
(340)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 247
$ 465
$ 1,010
Less: Net (gains) losses attributable to noncontrolling interests . . .
Net income attributable to IFC . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
$ 244
—
$ 465
8
$ 1,018
Financial Ratios6
Return on average assets (US GAAP-basis) . . . . . . . . . . . . . . . . .
Return on average capital (US GAAP-basis) . . . . . . . . . . . . . . . . .
Deployable strategic capital as a percentage of Total Resources
Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External funding liquidity level . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt to equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and liquid investments as a percentage of next three years’
estimated net cash requirements . . . . . . . . . . . . . . . . . . . . . . . .
1.2%
4.4%
2.4%
8.9%
1.3%
4.8%
7%
363%
2.8:1
10%
342%
2.7:1
8%
309%
2.6:1
83%
83%
77%
IFC’s debt-to-equity ratio was 2.8:1, well within the maximum of 4:1 required by policy approved by IFC’s
Board of Directors. The externally funded liquidity ratio was 363%, above the Board required minimum of 65%
and IFC’s overall liquidity as a percentage of the next three years’ estimated net cash needs stood at 83%, above
the minimum requirement of the Board of 45%.
OVERVIEW OF FINANCIAL RESULTS
IFC is an international organization, established in 1956, to further economic growth in its developing
member countries by promoting private sector development. IFC is a member of the World Bank Group, which
also comprises IBRD, IDA, MIGA, and ICSID. It is a legal entity separate and distinct from IBRD, IDA, MIGA,
and ICSID, with its own Articles of Agreement, share capital, financial structure, management, and staff.
Membership in IFC is open only to member countries of IBRD. As of September 30, 2013, IFC’s entire share
capital was held by 184 member countries.
IFC helps developing countries achieve sustainable growth by financing private sector investment,
mobilizing capital in international financial markets, and providing advisory services to businesses and
governments. IFC’s principal investment products are loans and equity investments, with smaller debt securities
and guarantee portfolios. IFC also plays an active and direct role in mobilizing additional funding from other
6
Returns are annualized
50
investors and lenders through a variety of means. Such means principally comprise Core Mobilization. Unlike
most other development 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 international
capital markets, while maintaining a small borrowing window with IBRD. Equity investments are funded from
net worth. For FY13, IFC had an authorized borrowing program of up to $10 billion, and up to $2 billion to allow
for possible prefunding during FY13 of the borrowing program for FY14. For FY14, IFC has an authorized
borrowing program of up to $13.5 billion, and, subject to completion of its FY14 program, up to $2.0 billion to
allow for possible prefunding during FY14 of the borrowing program for FY15.
IFC’s capital base and its assets and liabilities, other than its equity investments, are primarily denominated
in US dollars. IFC seeks to minimize foreign exchange and interest rate risks by closely matching the currency
and rate bases of its assets in various currencies with liabilities having the same characteristics. IFC generally
manages non-equity investment related and certain lending related residual currency and interest rate risks by
utilizing currency and interest rate swaps and other derivative instruments.
This Management’s Discussion and Analysis contains forward looking statements which may be identified
by such terms as “anticipates,” “believes,” “expects,” “intends,” “plans” or words of similar meaning. Such
statements involve a number of assumptions and estimates that are based on current expectations, which are
subject to risks and uncertainties beyond IFC’s control. Consequently, actual future results could differ materially
from those currently anticipated.
FINANCIAL PERFORMANCE SUMMARY
IFC’s net income is affected by a number of factors that can result in volatile financial performance. IFC’s
financial performance is detailed more fully in Results of Operations.
Three months ended September 30, 2013
IFC has reported income before net unrealized gains and losses on non-trading financial instruments
accounted for at fair value and grants to IDA of $325 million in the three months ended September 30, 2013
(“FY14 Q1”), as compared to $296 million in the three months ended September 30, 2012 (“FY13 Q1”). The
increase in income before net unrealized gains and losses on non-trading financial instruments and grants to IDA
in FY14 Q1 when compared to FY13 Q1 of $29 million was principally as a result of (US$ millions):
Increase (decrease)
FY14 Q1 vs FY13 Q1
Gains on equity investments and associated derivatives, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairments on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gains and losses on non-trading activities . . . . . . . . . . . . . . . . . .
Provision for losses on loans, guarantees and other receivables . . . . . . . . . . . . . . . . . . . . . . . .
Income from liquid asset trading activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 135
33
17
(42)
(143)
29
Overall change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 29
Net unrealized losses on non-trading financial instruments accounted for at fair value totaled $78 million in
FY14 Q1 ($169 million net unrealized gains in FY13 Q1) and there were no grants to IDA in FY14 Q1 and
FY13 Q1, resulting in net income of $247 million in FY14 Q1, as compared to $465 million in FY13 Q1. After
net gains attributable to noncontrolling interests of $3 million in FY14 Q1 ($0 in FY13 Q1), net income
attributable to IFC totaled $244 million in FY14 Q1 ($465 million in FY13 Q1).
51
CLIENT SERVICES
BUSINESS OVERVIEW
IFC fosters sustainable economic growth in developing countries by financing private sector investment,
mobilizing capital in the international financial markets, and providing advisory services to businesses and
governments.
IFC has five strategic focus areas:
• strengthening the focus on frontier markets
• addressing climate change and ensuring environmental and social sustainability
• addressing constraints to private sector growth in infrastructure, health, education, and the food-supply
chain
• developing local financial markets
• building long-term client relationships in emerging markets
For all new investments, IFC articulates the expected impact on sustainable development, and, as the
projects mature, IFC assesses the quality of the development benefits realized.
IFC’s strategic focus areas are aligned to advance the World Bank Group’s global priorities.
IFC has three businesses: Investment Services, Advisory Services, and Asset Management.
INVESTMENT SERVICES
IFC’s investments are normally made in its developing member countries. The Articles of Agreement
mandate that IFC shall invest in productive private enterprise. The requirement for private ownership does not
disqualify enterprises that are partly owned by the public sector if such enterprises are organized under local
commercial and corporate law, operate free of host government control in a market context and according to
profitability criteria, and/or are in the process of being totally or partially privatized.
IFC provides a range of financial products and services to its clients to promote sustainable enterprises,
encourage entrepreneurship, and mobilize resources that wouldn’t otherwise be available. IFC’s financing
products are tailored to meet the needs of each project. Investment services product lines include: loans, equity
investments, trade finance, loan participations, structured finance, client risk management services, and blended
finance.
IFC carefully supervises its projects to monitor project performance and compliance with contractual
obligations and with IFC’s internal policies and procedures.
ADVISORY SERVICES
Advisory services recognized as a key part of the Corporation’s mandate, have grown to become an
increasingly important tool for delivering on IFC’s mission. Advisory Services play a crucial role in helping
government clients create an effective enabling environment for private investment, while strengthening the
capacity and know-how of private sector clients — thereby extending IFC’s reach into challenging markets.
IFC’s Advisory Services are organized into four business lines:
• Access to finance — Works with financial intermediaries to expand access to financial services. Provides
advice on SMEs and micro/retail finance solutions, as well as enabling financial infrastructure.
• Investment climate — Works with governments to create an enabling environment to increase the role of
private sector growth and development. Provides advice on business regulation and taxation, investment
policies, as well as industry-specific investment climate reform.
52
• Public-private partnerships — to help governments design and implement PPPs in infrastructure and
other basic public services. Provides advice on preparing and structuring of PPP mandates.
• Sustainable business — Works with companies and their supply chains to promote adoption of, and
catalyze investment in, sound environmental, social and governance practices and technologies that create
a competitive edge.
Around half of IFC’s advisory projects work with government clients to help unlock investment
opportunities for IFC and others — as is the case when IFC assists governments to improve the investment
climate or to design and implement PPPs, complementing the work of IBRD and the International Monetary
Fund. The other half of advisory projects involves work with private sector clients to build capacity or
demonstrate the business case for desirable business practices. Investment Services and Advisory Services may
be offered either in tandem or sequentially. Examples include microfinance, SME banking, energy efficiency
financing, corporate governance, or supply chain development in the agricultural sector.
Advisory Services make a substantial contribution to IFC’s shared corporate priorities. Advisory Services
are often IFC’s first offering in new or challenging markets. Advisory Services have continuously strengthened
their alignment and deepened their synergies with investment operations, particularly with regards to Fragile &
Conflict Situations, Climate Change, SMEs, Agribusiness and Infrastructure, with gender as a cross-cutting
priority.
AMC
AMC, a wholly-owned subsidiary of IFC, invests third-party capital and IFC capital, enabling outside
investors to benefit from IFC’s expertise in achieving strong equity returns, as well as positive development
impact in the countries in which it invests in developing and frontier markets. Investors in funds managed by
AMC include sovereign wealth funds, national pension funds, multilateral and bilateral development institutions,
national development agencies and international financial institutions. AMC helps IFC mobilize additional
capital resources for investment in productive private enterprise in developing countries.
At September 30, 2013, AMC managed seven funds, with $6.1 billion under management:
• Equity Capitalization Fund;
• Sub-Debt Capitalization Fund;
• ALAC Fund;
• Africa Capitalization Fund;
• Russian Bank Cap Fund;
• Catalyst funds; and
• Global Infrastructure Fund.
The Equity Capitalization Fund and Sub-Debt Capitalization Fund are collectively referred to as the Global
Capitalization Fund.
The Global Capitalization Fund, established in FY09, helps strengthen systemically important banks in
emerging markets.
The ALAC Fund was established in FY10. The ALAC Fund invests in equity investments across a range of
sectors in Sub-Saharan Africa, Latin America, and the Caribbean.
The Africa Capitalization Fund was established in FY10 to capitalize systemically important commercial
banking institutions in northern and Sub-Saharan Africa.
The Russian Bank Cap Fund was established in FY12 to invest in mid-sized, commercial banks in Russia
that are either: (i) privately owned and controlled; or (ii) state-owned; or (iii) controlled and on a clear path to
privatization.
53
The Catalyst Funds were established in FY13 to make investments in selected climate- and resource
efficiency-focused private equity funds in emerging markets.
The Global Infrastructure Fund was established in FY13 to focus on making equity and equity-related
investments in the infrastructure sector in global emerging markets.
The activities of the funds managed by AMC as of and for the three months ended September 30, 2013 and
2012 can be summarized as follows (US$ millions unless otherwise indicated):
Russian
Equity
Sub-Debt
Africa
Bank
Global
Capitalization Capitalization ALAC Capitalization Cap Catalyst Infrastructure
Fund
Fund
Fund
Fund
Fund Funds
Fund
Total
Assets under management as of
September 30, 2013 . . . . . . .
From IFC . . . . . . . . . . . . . . .
From other investors . . . . . .
For the three months ended
September 30, 2013
Fund Commitments to
Investees:
From IFC . . . . . . . . . . . . . . .
From other investors . . . . . .
Disbursements from investors
to Fund:
From IFC . . . . . . . . . . . . . . .
From other investors . . . . . .
Disbursements made by
Fund . . . . . . . . . . . . . . . . . . .
Disbursements made by Fund
(number) . . . . . . . . . . . . . . .
$1,275
775
500
$1,725
225
1,500
$1,000
200
800
$182
—
182
$550
250
300
$347
75
272
$1,050
200
850
$6,129
1,725
4,404
—
—
—
—
10
38
—
—
2
2
8
27
11
45
31
112
1
1
—
3
3
11
—
1
5
6
2
6
1
8
12
36
4
—
11
—
4
—
—
19
1
—
2
—
1
—
—
4
Russian
Equity
Sub-Debt
Africa
Bank
Global
Capitalization Capitalization ALAC Capitalization Cap Catalyst Infrastructure
Fund
Fund
Fund
Fund
Fund Funds
Fund
Total
Assets under management as of
September 30, 2012 . . . . . . .
From IFC . . . . . . . . . . . . . . .
From other investors . . . . . .
For the three months ended
September 30, 2012
Fund Commitments to
Investees:
From IFC . . . . . . . . . . . . . . .
From other investors . . . . . .
Disbursements from investors
to Fund:
From IFC . . . . . . . . . . . . . . .
From other investors . . . . . .
Disbursements made by
Fund . . . . . . . . . . . . . . . . . . .
Disbursements made by Fund
(number) . . . . . . . . . . . . . . .
$1,275
775
500
$1,725
225
1,500
$1,000
200
800
$182
—
182
$275 $
125
150
—
—
—
106
68
—
—
15
61
—
73
—
—
28
18
—
1
12
47
—
51
48
—
57
1
—
5
54
$
—
—
—
$4,457
1,325
3,132
—
—
—
—
121
202
1
1
—
—
—
—
41
118
50
—
—
—
155
2
—
—
—
8
INVESTMENT PROGRAM
Commitments
In FY14 Q1, total commitments were $4,102 million, compared with $4,042 million in FY13 Q1, an
increase of 1.5%, of which IFC commitments totaled $3,659 million ($3,307 million — FY13 Q1) and Core
Mobilization totaled $443 million ($735 million — FY13 Q1).
FY14 Q1 and FY13 Q1 commitments and Core Mobilization comprised the following (US$ millions):
Total commitments7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FY 14 Q1
FY 13 Q1
$ 4,102
$ 4,042
IFC commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,608 $ 1,449
Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
378
490
Guarantees:
Global Trade Finance Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,575
1,267
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88
—
Client risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
101
Total IFC commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,659
$ 3,307
Core Mobilization
Loan participations, parallel loans, and other mobilization
Loan participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parallel loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other mobilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
230
18
—
$
120
22
11
Total loan participations, parallel loans and other mobilization . . . . . . . . . . . . . . . . .
$
248
$
153
$
—
38
—
2
45
$
68
61
73
—
—
Total AMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
85
$
202
Other initiatives
PPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure Crisis Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
110
—
$
300
80
Total other initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
110
$
380
Total Core Mobilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
443
$
735
AMC
Equity Capitalization Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ALAC Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Africa Capitalization Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Russian Bank Cap Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Infrastructure Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core Mobilization Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.12
0.22
Core mobilization
Core Mobilization is financing from entities other than IFC that becomes available to clients due to IFC’s
direct involvement in raising resources. lFC finances only a portion, usually not more than 25%, of the cost of
any project. All IFC-financed projects, therefore, require other financial partners. IFC mobilizes such private
7
Debt security commitments are included in loans and equity investments based on their predominant
characteristics.
55
sector finance from other entities through loan participations, parallel loans, partial credit guarantees,
securitizations, loan sales, and risk sharing facilities. In FY09, IFC launched AMC and a number of other
initiatives, each with a formally approved Core Mobilization component, and revised its mobilization resources
definition accordingly to include these in the measure. In FY12, IFC expanded the Core Mobilization definition
to account for third party financing made available for PPP projects due to IFC’s mandated lead advisor role to
national, local government or other government entity.
Core mobilization ratio
The Core Mobilization ratio is defined as:
Loan participations + parallel loans + sales of loans and other mobilization + non-IFC investment part of structured finance
which meets core mobilization criteria + non-IFC commitments in Initiatives
+ non-IFC investments committed in funds managed by AMC + PPP Mobilization
Commitments (IFC investments + IFC portion of structured finance + IFC commitments in new Initiatives
+ IFC investments committed in funds managed by AMC)
For each dollar that IFC committed, IFC mobilized (in the form of loan participations, parallel loans, other
mobilization, the non-IFC portion of structured finance and the non-IFC commitments in Initiatives, and the nonIFC investments committed in funds managed by AMC) $0.12 in FY14 Q1 ($0.22 in FY13 Q1).
Disbursements
IFC disbursed $2,346 million for its own account in FY14 Q1 ($2,235 million in FY13 Q1): $1,858 million
of loans ($1,757 million in FY13 Q1), $340 million of equity investments ($417 million in FY13 Q1), including
$1 million attributable to noncontrolling interest ($0 in FY13 Q1), and $148 million of debt securities
($61 million in FY13 Q1).
Investment portfolio
The carrying value of IFC’s investment portfolio was $35,928 million at September 30, 2013 ($34,677
million at June 30, 2013), comprising the loan portfolio of $21,775 million ($20,831 million at June 30, 2013),
the equity portfolio of $11,952 million ($11,695 million at June 30, 2013), and the debt security portfolio of
$2,201 million ($2,151 million at June 30, 2013).
The carrying value of IFC’s investment portfolio comprises: (i) the disbursed investment portfolio;
(ii) reserves against losses on loans; (iii) unamortized deferred loan origination fees, net and other; (iv) disbursed
amount allocated to a related financial instrument reported separately in other assets or derivative assets;
(v) unrealized gains and losses on equity investments held by consolidated variable interest entities;
(vi) unrealized gains and losses on investments accounted for at fair value as available-for-sale; and
(vii) unrealized gains and losses on investments.
Guarantees and partial credit guarantees
IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client obligations on bonds
and/or loans. IFC’s guarantee is available for debt instruments and trade obligations of clients and covers
commercial as well as noncommercial risks. IFC will provide local currency guarantees, but when a guarantee is
called, the client will generally be obligated to reimburse IFC in US dollar terms. Guarantee fees are consistent
with IFC’s loan pricing policies. Guarantees of $3,280 million were outstanding (i.e., not called) at
September 30, 2013 ($3,565 million at June 30, 2013).
LIQUID ASSETS
IFC invests its liquid assets portfolio generally in highly rated fixed and floating rate instruments issued by,
or unconditionally guaranteed by, governments, government agencies and instrumentalities, multilateral
organizations, and high quality corporate issuers; these include asset-backed securities (“ABS”) and mortgage56
backed securities (“MBS”), time deposits, and other unconditional obligations of banks and financial institutions.
Diversification in multiple dimensions ensures a favorable risk return profile. IFC manages the market risk
associated with these investments through a variety of hedging techniques including derivatives, principally
currency and interest rate swaps and financial futures.
IFC’s liquid assets are invested in eight separate portfolios, which are accounted for as trading portfolios.
The net asset value of the Liquid Assets Portfolio was at $34.8 billion at September 30, 2013 ($31.2 billion
at June 30, 2013). Sizeable additions to the portfolio from the investment of the net proceeds of market
borrowings plus returns made on the investment portfolio were partially offset by reduction due to investment
disbursements.
IFC has a flexible approach to managing the liquid assets portfolios by making investments on an aggregate
portfolio basis against its benchmark within specified risk parameters. In implementing these portfolio
management strategies, IFC utilizes derivative instruments, including futures and options, and takes positions in
various industry sectors and countries.
All liquid assets are managed according to an investment authority approved by the Board of Directors and
liquid asset investment guidelines approved by IFC’s Corporate Risk Committee, a subcommittee of IFC’s
Management Team.
FUNDING RESOURCES
BORROWINGS
The major source of IFC’s borrowings is the international capital markets. Under the Articles of Agreement,
IFC may borrow in the public markets of a member country only with approvals from that member, together with
the member in whose currency the borrowing is denominated. IFC’s medium and long-term borrowings (after the
effect of borrowing-related derivatives) totaled $5.9 billion during FY14 Q1 ($2.8 billion in FY13 Q1).
Market borrowings are generally swapped into floating-rate obligations denominated in US dollars. IFC’s
mandate to help develop domestic capital markets can result in raising local currency funds. Proceeds of such
borrowings were invested in such local currencies, on-lent to clients, and/or partially swapped into US dollars. At
September 30, 2013, $0.6 billion of non-US dollar-denominated market borrowings in Chinese renminbi, C.F.A.
francs, Dominican pesos, Nigerian naira, New Zambian kwacha and Russian rubles were used for such purposes
($0.5 billion at June 30, 2013).
CAPITAL AND RETAINED EARNINGS
As of September 30, 2013, total capital as reported in IFC’s condensed consolidated balance sheet amounted
to $22.52 billion, up from the June 30, 2013 level of $22.28 billion. At September 30, 2013, total IFC capital
comprised $2.40 billion of paid-in capital, substantially unchanged from June 30, 2013, $18.96 billion of retained
earnings ($18.72 billion at June 30, 2013), and $1.11 billion of accumulated other comprehensive income
($1.12 billion at June 30, 2013).
Noncontrolling interests totaled $0.05 billion at September 30, 2013 ($0.04 billion — June 30, 2013).
As of September 30, 2013, IFC’s authorized capital was $2.58 billion, of which $2.40 billion was subscribed
and paid-in at September 30, 2013, substantially unchanged from June 30, 2013.
Selective Capital Increase
On July 20, 2010, the Board of Directors recommended that the Board of Governors approve an increase in
the authorized share capital of IFC of $130 million, to $2,580 million, and through the issuance of $200 million
of shares (including $70 million of unallocated shares). The Board of Directors also recommended that the Board
of Governors approve an increase in Basic Votes aimed at enhancing the voice and participation of developing
and transition countries and requiring an amendment to IFC’s Articles of Agreement.
57
The resolution recommended by the Board of Directors was adopted by the Board of Governors on March 9,
2012. The amendment to the Articles of Agreement and the increase in the authorized share capital have become
effective on June 27, 2012. As of the same date, eligible members have been authorized to subscribe to their
allocated IFC shares. The subscription period will end on June 27, 2014 and payment of subscribed shares must
occur no later than June 27, 2015.
During the three months ended September 30, 2013, IFC received less than $0.5 million related to selective
capital increase ($0 for the three months ended September 30, 2012).
Designations of Retained Earnings
Beginning in FY04, IFC began a process of designating retained earnings to increase its support of advisory
services and, subsequently, for PBGs (FY05), grants to IDA (FY06), the Global Infrastructure Project
Development Fund (FY08), and IFC SME Ventures for IDA Countries (FY08). The levels and purposes of
retained earnings designations are set based on the Board of Directors-approved principles, which are applied
each year to assess IFC’s financial capacity and to determine the maximum levels of retained earnings
designations.
Amounts available to be designated are determined based on a Board of Directors-approved income-based
formula and, beginning in FY08, on a principles-based Board of Directors-approved financial distribution policy,
and are approved by the Board of Directors.
IFC recognizes designations of retained earnings for advisory services when the Board of Directors
approves it and recognizes designation of retained earnings for grants to IDA when it is noted with approval by
the Board of Governors.
Expenditures for the various approved designations are recorded as expenses in IFC’s condensed
consolidated income statement in the year in which they occur, and have the effect of reducing retained earnings
designated for this specific purpose.
Income available for designations in FY13 (a non-GAAP measure)8 totaled $1,060 million. Based on the
Board-approved distribution policy, the maximum amount available for designation was $251 million. On
August 7, 2013, the Board of Directors approved a designation of $251 million of IFC’s retained earnings for
grants to IDA. On October 11, 2013, the Board of Governors noted with approval the designation approved by
the Board of Directors.
At September 30, 2013 and June 30, 2013, retained earnings comprised the following (US$ millions):
Undesignated retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2013
June 30,
2013
$ 18,695
$ 18,435
184
30
199
31
48
48
Designated retained earnings
Advisory services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PBG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IFC SME Ventures for IDA countries and Global Infrastructure Project
Development Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total designated retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 18,957
8
262
$
278
$ 18,713
Income available for designations generally comprises net income excluding unrealized gains and losses on
investments and unrealized gains and losses on non-trading financial instruments, income from consolidated
VIEs, and expenses reported in net income related to prior year designations.
58
RESULTS OF OPERATIONS
OVERVIEW
The overall market environment has a significant influence on IFC’s financial performance. The main elements
of IFC’s net income and comprehensive income and influences on the level and variability of net income and
comprehensive income are:
Elements
Significant Influences
Net income:
Yield on interest earning assets
Market conditions including spread levels and degree of
competition. Nonaccruals and recoveries of interest on
loans formerly in nonaccrual status and income from
participation notes on individual loans are also included
in income from loans, realized gains and losses on
associated derivatives and guarantees.
Realized and unrealized gains and losses on the liquid
asset portfolios, which are driven by external factors
such as: the interest rate environment; and liquidity of
certain asset classes within the liquid asset portfolio.
Global climate for emerging markets equities,
fluctuations in currency and commodity markets and
company-specific performance for equity investments
and associated derivatives. Performance of equity
investments (principally realized gains and losses,
dividends, equity impairments and unrealized gains and
losses on equity investments) are in part dependent on the
global climate for emerging markets, as are gains and
loss on associated derivatives (including puts, warrants
and stock options).
Risk assessment of borrowers and probability of default
and loss given default.
Level of advisory services provided by IFC to its
clients, the level of expense from the staff retirement
and other benefits plans, and the approved
administrative and other budgets.
Principally, differences between changes in fair values
of borrowings, including IFC’s credit spread, and
associated derivative instruments and unrealized gains
associated with the loan and debt securities portfolio,
including interest rate and currency swaps that hedge
investment loans and debt securities, and loan
conversion options which in part are dependent on the
global climate for emerging markets. These securities
are valued using internally developed models or
methodologies utilizing inputs that may be observable
or non-observable.
Level of the Board of Governors-approved grants to
IDA.
Liquid asset income
Income from equity investments and associated
derivatives
Provisions for losses on loans and guarantees
Other income and expenses
Unrealized gains and losses on non-trading financial
instruments accounted for at fair value
Grants to IDA
Other comprehensive income:
Unrealized gains and losses on listed equity investments
and debt securities accounted for as available-for-sale
Unrecognized net actuarial gains and losses and
unrecognized prior service costs on benefit plans
59
Global climate for emerging markets equities, fluctuations
in currency and commodity markets and company-specific
performance. Such equity investments are valued using
unadjusted quoted market prices and debt securities are
valued using internally developed models or
methodologies utilizing inputs that may be observable or
non-observable.
Returns on pension plan assets and the key assumptions
that underlay projected benefit obligations, including
financial market interest rates, staff expenses, past
experience, and management’s best estimate of future
benefit cost changes and economic conditions.
The following paragraphs detail significant variances between FY14 Q1 and FY13 Q1, covering the periods
included in IFC’s FY14 Q1 Condensed Consolidated Financial Statements. Certain amounts in FY13 Q1 have
been changed to conform to the current year’s presentation. Such changes had no effect on net income or total
assets.
FY14 Q1 VERSUS FY13 Q1
Net Income
IFC has reported income before net unrealized gains and losses on non-trading financial instruments
accounted for at fair value and grants to IDA of $325 million in FY14 Q1, as compared to $296 million in
FY13 Q1. The increase in income before net unrealized gains and losses on non-trading financial instruments
accounted for at fair value and grants to IDA in FY14 Q1 when compared to FY13 Q1 was principally as a result
of (US$ millions):
Increase
(decrease) FY14
Q1 vs FY13 Q1
Gains on equity investments and associated derivatives, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairments on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency transaction gains and losses on non-trading activities . . . . . . . . . . . . . . . . . . . . .
Provisions for losses on loans, guarantees and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from liquid asset trading activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 135
33
17
(42)
(143)
29
Overall change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 29
Net unrealized losses on non-trading financial instruments accounted for at fair value totaled $78 million in
FY14 Q1 ($169 million net unrealized gains in FY13 Q1) and there were no grants to IDA in FY14 Q1 and
FY13 Q1, resulting in net income of $247 million in FY14 Q1, as compared to $465 million in FY13 Q1. After
the net gains attributable to noncontrolling interests of $3 million in FY14 Q1 ($0 in FY13 Q1), net income
attributable to IFC totaled $244 million in FY14 Q1 ($465 million in FY13 Q1).
Income from loans, realized gains and losses on associated derivatives and guarantees
IFC’s primary interest earning asset is its loan portfolio. Income from loans and guarantees for FY14 Q1
totaled $267 million, compared with $246 million in FY13 Q1, an increase of $21 million. There were no
realized gains on loans and associated derivative in FY14 Q1 ($1 million in FY13 Q1).
The disbursed loan portfolio grew by $1,679 million, from $21,919 million at September 30, 2012 to
$23,598 million at September 30, 2013 ($22,606 million at June 30, 2013). The weighted average contractual
interest rate on loans at September 30, 2013 remained unchanged at 4.5% (4.5% at June 30, 2013. These factors
resulted in $18 million higher interest income in FY14 Q1 than in FY13 Q1. Recoveries of interest on loans
removed from non-accrual status, net of reversals of income on loans placed in nonaccrual status were $4 million
lower than in FY13 Q1. Income from IFC’s participation notes over and above minimum contractual interest and
other income was $2 million lower than in FY13 Q1. Commitment fees and financial fees were $10 million
higher than in FY13 Q1. Realized gains on loans and associated derivatives were $1 million lower in FY14 Q1
than in FY13 Q1.
Income from equity investments and associated derivatives
Income from the equity investment portfolio, including associated derivatives, increased by $148 million
from $92 million in FY13 Q1 to $240 million in FY14 Q1.
IFC sells equity investments where IFC’s developmental role was complete, and where pre-determined sales
trigger levels had been met and, where applicable, lock ups have expired. Gains on equity investments and
associated derivatives comprise realized and unrealized gains on equity investments and associated derivatives.
60
IFC generated realized gains on equity investments and associated derivatives for FY14 Q1 of $176 million,
as compared with $115 million for FY13 Q1, an increase of $61 million. Total realized gains on equity
investments and associated derivatives are concentrated — in FY14 Q1, three investments generated individual
capital gains in excess of $20 million for a total of $137 million, or 78%, of the FY14 Q1 realized gains,
compared to two investments generating individual capital gains in excess of $20 million for a total of
$48 million, or 42%, of the FY13 Q1 realized gains. Net changes in unrealized gains on equity investments and
associated derivatives in FY14 Q1 totaled $48 million, as compared with net changes of $(26) million in
FY13 Q1.
Dividend income in FY14 Q1 totaled $74 million, as compared with $89 million in FY13 Q1, a decrease of
$15 million. Dividend income in FY14 Q1 included returns from three unincorporated joint ventures (UJVs) in
the oil, gas and mining sectors accounted for under the cost recovery method, which totaled $6 million, as
compared with $13 million from three such UJVs in FY13 Q1. One investee company paid a dividend of
$19 million in FY13 Q1.
Other-than-temporary impairments on equity investments totaled $50 million in FY14 Q1, as compared with
$83 million in FY13 Q1, a decrease of $33 million.
Income from debt securities and realized gains and losses on associated derivatives
Income from debt securities and realized gains and losses on associated derivatives increased to $9 million
in FY14 Q1 from a loss of $3 million in FY13 Q1, an increase of $12 million. The largest components of the
increase were lower other-than-temporary impairments ($22 million) offset by lower realized gains ($7 million)
in FY14 Q1 when compared with FY13 Q1.
Provision for losses on loans, guarantees and other receivables
The quality of loan portfolio as measured by credit risk ratings, deteriorated marginally at FY14 Q1-end
compared to FY13-end but has been broadly stable for the past eight quarters, The average weighted country risk
rating improved marginally at FY14 Q1-end relative to FY13-end.
Non-performing loans increased from $1,272 million at June 30, 2013 to $1,318 million at September 30,
2013, an increase of $46 million.
IFC has recorded a provision for losses on loans, guarantees and other receivables of $29 million in
FY14 Q1 (comprising: $49 million of specific provisions on loans; $19 million release of portfolio provisions on
loans; and $1 million release of provision on guarantees;) as compared to a release of provision of $13 million in
FY13 Q1 (comprising: $43 million specific provisions on loans; $53 million release of portfolio provisions on
loans; and $3 million release of provision on guarantees). On September 30, 2013, IFC’s total reserves against
losses on loans were $1,668 million ($1,628 million at June 30, 2013), an increase of $40 million.
Specific reserves against losses on loans at September 30, 2013 of $796 million ($741 million at June 30,
2013) are held against impaired loans of $1,418 million ($1,403 million at June 30, 2013), a coverage ratio of
56% (53% at June 30, 2013).
There were no significant loan modifications during the three months ended September 30, 2013 that are
considered troubled debt restructurings.
Income from liquid asset trading activities
Income from liquid asset trading activities comprises interest from time deposits and securities, net gains
and losses on trading activities, and a small currency translation effect. The liquid assets portfolio, net of
derivatives and securities lending activities, stood at $31.2 billion at June 30, 2013 and $34.8 billion at
September 30, 2013. The increase in the liquid assets portfolio, net of derivatives and securities lending activities
was largely attributable to the investment of the net proceeds of FY14 Q1 market borrowings plus returns made
61
on the investment portfolio partially offset by investment disbursements. During FY14 Q1, IFC’s financing
activities, net totaled $4.6 billion and IFC invested, net of repayments and proceeds from sales, $1.1 billion. At
September 30, 2013, the liquid asset portfolio is more heavily invested in short term cash or near cash
investments than at June 30, 2013.
Net income from liquid asset trading activities totaled $106 million in FY14 Q1 ($249 million income in
FY13 Q1).
Interest income totaled $105 million in FY14 Q1. In addition, the portfolio of ABS and MBS showed fair
value gains totaling $9 million in FY14 Q1 while holdings in other products, including US Treasuries, global
government bonds, high quality corporate bonds and derivatives generated a loss of $8 million in FY14 Q1.
At September 30, 2013, trading securities with a fair value of $43 million are classified as Level 3 securities
($85 million on June 30, 2013).
The principal liquid asset portfolio returns are as follows:
The P1 portfolio generated income of $66 million in FY14 Q1, or 0.3%. In FY13 Q1, the P1 portfolio
generated income of $174 million, or 0.8%. The externally managed P3 portfolio, managed against the same
variable rate benchmark as the P1 portfolio, returned $1 million in FY14 Q1, or 0.1%, $10 million lower than the
$11 million, or 1.3% in FY13 Q1.
The P2 and externally managed P4 portfolios returned $23 million, or 0.5%, and $1 million, or 0.2% in
FY14 Q1, respectively, as compared to $59 million, or 1.2% and $3 million, or 0.4% in FY13 Q1.
IFC’s P0 portfolio recorded an income of $3 million or 0.2% in FY14 Q1, compared to $1 million, or 0.1%
in FY13 Q1. The P7 portfolio generated a return of $2 million in FY14 Q1 as compared to a negligible return in
FY13 Q1.
The P6 local currency liquidity portfolio generated income of $10 million in FY14 Q1, $1 million lower
than the $11 million in FY13 Q1.
Charges on borrowings
IFC’s charges on borrowings decreased by $21 million, from $64 million in FY13 Q1 (net of $3 million
gains on extinguishment of borrowings) to $43 million in FY14 Q1 (net of $1 million gains on extinguishment of
borrowings), reflecting the decrease in average LIBOR rates offset by the increase in borrowings outstanding
between FY13 Q1 and FY14 Q1 as mentioned above.
Other income
Other income of $87 million for FY14 Q1 was $3 million higher than in FY13 Q1 ($84 million). Advisory
services income totaled $41 million in FY14 Q1 ($40 million in FY13 Q1) and management fees and service fee
reimbursements from AMC totaled $14 million in FY14 Q1 ($6 million in FY13 Q1).
Other expenses
Administrative expenses (the principal component of other expenses) increased by $11 million from
$209 million in FY13 Q1 to $220 million in FY14 Q1. Administrative expenses include the grossing-up effect of
certain revenues and expenses attributable to IFC’s reimbursable program and expenses incurred in relation to
workout situations (Jeopardy Projects) ($5 million in FY14 Q1, as compared with $4 million in FY13 Q1).
IFC recorded expenses from pension and other postretirement benefit plans in FY14 Q1 of $43 million,
unchanged from FY13 Q1. Advisory services expenses, excluding those included in Administrative expenses
totaled $55 million in FY14 Q1 ($57 million in FY13 Q1).
62
Net unrealized gains and losses on non-trading financial instruments
IFC accounts for certain financial instruments at fair value with unrealized gains and losses on such
financial instruments being reported in net income, namely: (i) all swapped market borrowings; and
(ii) unrealized gains and losses on certain loans, debt securities and associated derivatives and (iii) substantially
all market borrowings.
The resulting effects of fair value accounting for these non-trading financial instruments on net income in
FY14 Q1 and FY13 Q1 are summarized as follows (US$ millions):
FY14
Q1
FY13
Q1
Unrealized gains and losses on loans, debt securities and associated derivatives . . . . . . . . . . . . . .
Unrealized gains and losses on market borrowings and associated derivatives, net . . . . . . . . . . . .
$ (52) $ 109
(26)
60
Net unrealized gains and losses on non-trading financial instruments accounted for at fair
value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (78) $ 169
Changes in the fair value of IFC’s market borrowings and associated derivatives, net, includes the impact of
changes in IFC’s own credit spread when measured against US$ LIBOR swaps. As credit spreads widen,
unrealized gains are recorded and when credit spreads narrow, unrealized losses are recorded (notwithstanding
the impact of other factors, such as changes in risk-free interest and foreign currency exchange rates). The
magnitude and direction (gain or loss) can be volatile from period to period but do not alter cash flow. IFC’s
policy is to generally match currency, amount and timing of cash flows on market borrowings with cash flows on
associated derivatives entered into contemporaneously.
In FY14 Q1 revaluation losses were incurred on market borrowings, on balance, across funding currency
portfolios that were not fully offset by gains on related hedges. The after swap cost of borrowing in US dollars
became slightly more expensive in the short to medium term maturities and cheaper at longer maturities, with
respect to the US dollar benchmark. The cost of borrowing in Japanese yen was little changed since the previous
quarter end, while in Australian dollars, it became slightly cheaper to borrow with respect to the Australian
Dollar benchmark. As a result, IFC has reported $26 million of unrealized losses on market borrowings and
associated derivatives in FY14 Q1 ($60 million of unrealized gains in FY13 Q1).
IFC reported net unrealized losses on loans, debt securities and associated derivatives (principally
conversion features, warrants and interest rate and currency swaps economically hedging the fixed rate and/or
non-US$ loan portfolio) of $52 million in FY14 Q1 ($109 million net gains in FY13 Q1).
Grants to IDA
There were no grants to IDA during FY14 Q1 and FY13 Q1.
Other comprehensive income
Unrealized gains and losses on equity investments and debt securities
IFC’s investments in debt securities and equity investments that are listed in markets that provide readily
determinable fair values are classified as available-for-sale, with unrealized gains and losses on such investments
being reported in OCI until realized. When realized, the gain or loss is transferred to net income. Changes in
unrealized gains and losses on equity investments and debt securities reported in OCI are significantly impacted
by (i) the global environment for emerging markets; and (ii) the realization of gains on sales of such equity
investments and debt securities.
63
The net change in unrealized gains and losses on equity investments and debt securities in OCI can be
summarized as follows:
FY14
Q1
Net unrealized gains and losses on equity investments arising during the period:
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains and other-than-temporary impairments included in
net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gains and losses on equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gains and losses on debt securities arising during the period
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains, non-credit related portion of impairments which
were recognized in net income and other-than-temporary included in net income . . . . . . . . . . .
FY13
Q1
$ 294 $ 265
(212) (140)
(80)
$
2
(9)
$ 116
$ 23 $ 105
(50)
(81)
3
18
Net unrealized gains and losses on debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (24) $ 42
Total unrealized gains and losses on equity investments and debt securities . . . . . . . . . . . . . .
$ (22) $ 158
SENIOR MANAGEMENT CHANGES SINCE JUNE 30, 2013
The following changes occurred in the Senior Management of IFC since June 30, 2013:
Mr. Rashad Kaldany, Vice President and Chief Operating Officer retired from IFC on September 6, 2013
whereupon the position was not filled.
64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND INTERNAL CONTROL REPORTS
June 30, 2013
Page
Management’s financial reporting assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s report regarding effectiveness of internal control over external financial reporting . . . . . . . .
Independent auditors’ report on management’s assertion regarding effectiveness of internal control over
financial reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated balance sheets as of June 30, 2013 and June 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of income for each of the three years ended June 30, 2013 . . . . . . . . . . . . . . . . . . .
Consolidated statements of comprehensive income for each of the three years ended June 30, 2013 . . . . . .
Consolidated statements of changes in capital for each of the three years ended June 30, 2013 . . . . . . . . . . .
Consolidated statements of cash flows for each of the three years ended June 30, 2013 . . . . . . . . . . . . . . . .
Consolidated statement of capital stock and voting power as of June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . .
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
66
68
70
72
73
74
75
76
78
79
136
66
67
68
69
KPMG LLP
Suite 12000
1801 K Street, NW
Washington, DC 20006
Independent Auditors’ Report
President and Board of Directors
International Finance Corporation:
We have examined management’s assertion, included in the accompanying Management’s Report
Regarding Effectiveness of Internal Control Over External Financial Reporting, that the International
Finance Corporation (IFC) maintained effective internal control over financial reporting as of June 30,
2013, based on criteria established in the 1992 Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). IFC’s management is
responsible for maintaining effective internal control over financial reporting, and for its assertion on the
effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report Regarding Effectiveness of Internal Control Over External Financial Reporting. Our responsibility
is to express an opinion on management’s assertion based on our examination.
We conducted our examination in accordance with attestation standards established by the American
Institute of Certified Public Accountants. Those standards require that we plan and perform the
examination to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our examination included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
examination also included performing such other procedures as we considered necessary in the
circumstances. We believe that our examination provides a reasonable basis for our opinion.
An entity’s internal control over financial reporting is a process effected by those charged with governance,
management, and other personnel, designed to provide reasonable assurance regarding the preparation of
reliable financial statements in accordance with accounting principles generally accepted in the United
States of America. An entity’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the entity; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and that receipts and
expenditures of the entity are being made only in accordance with authorizations of management and those
charged with governance; and (3) provide reasonable assurance regarding prevention, or timely detection
and correction of unauthorized acquisition, use, or disposition of the entity’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and
correct misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, management’s assertion that IFC maintained effective internal control over financial
reporting as of June 30, 2013 is fairly stated, in all material respects, based on criteria established in the
1992 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
(“KPMG International”), a Swiss entity.
70
We also have audited, in accordance with auditing standards generally accepted in the United States of
America, the accompanying consolidated financial statements of IFC, which comprise of the consolidated
balance sheets as of June 30, 2013 and 2012, and the related consolidated statements of income, changes in
capital, and cash flows for each of the years in the three-year period ended June 30, 2013, and our report
dated August 7, 2013 expressed an unqualified opinion on those consolidated financial statements.
August 7, 2013
71
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
as of June 30, 2013 and June 30, 2012
(US$ millions)
2013
2012
Assets
Cash and due from banks ....................................................................................................... $
Time deposits ..........................................................................................................................
Trading securities - Notes C and R .........................................................................................
Securities purchased under resale agreements .......................................................................
616
5,889
30,349
337
$
1,328
5,719
28,868
964
Investments - Notes B, D, E, F, R and U
Loans
($493 - June 30, 2013 and $591 - June 30, 2012 at fair value;
$43 - June 30, 2013 and $60 - June 30, 2012 at lower of cost or fair value;
net of reserve against losses of $1,628 - June 30, 2013 and $1,381 - June 30, 2012)
- Notes D, E and R ..........................................................................................................
Equity investments
($8,576 - June 30, 2013 and $6,708 - June 30, 2012 at fair value) - Notes B, D and R....
Debt securities - Notes D, F and R ......................................................................................
20,831
19,496
11,695
2,151
9,774
2,168
Total investments .......................................................................................................
34,677
31,438
Derivative assets - Notes Q and R...........................................................................................
3,376
4,615
Receivables and other assets - Note J ....................................................................................
2,281
2,829
Total assets .................................................................................................................. $
77,525
$
75,761
Liabilities
Securities sold under repurchase agreements ..................................................................... $
5,736
$
6,397
Borrowings outstanding - Notes K and R .............................................................................
From market sources at amortized cost ..........................................................................
From market sources at fair value ...................................................................................
From International Bank for Reconstruction and Development at amortized cost ............
1,715
42,924
230
1,777
42,846
42
Total borrowings ........................................................................................................
44,869
44,665
Derivative liabilities - Notes Q and R ...................................................................................
2,310
1,261
Payables and other liabilities - Note L..................................................................................
2,335
2,858
Total liabilities ................................................................................................................
55,250
55,181
Capital
Capital stock, authorized (2,580,000 - June 30, 2013 and June 30, 2012)
shares of $1,000 par value each - Note M
Subscribed and paid-in ..............................................................................................
2,403
2,372
Accumulated other comprehensive income - Note O ...........................................................
1,121
513
Retained earnings - Note O .................................................................................................
18,713
17,695
Total IFC capital .........................................................................................................
22,237
20,580
Noncontrolling interests .......................................................................................................
38
-
Total capital ...............................................................................................................
22,275
20,580
Total liabilities and capital ......................................................................................... $
77,525
Liabilities and capital
The notes to the Consolidated Financial Statements are an integral part of these statements
72
$
75,761
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
for each of the three years ended June 30, 2013
(US$ millions)
2013
Income from investments
Income from loans and guarantees - Note E ........................................................... $
2012
1,059
$
2011
938
$
877
(Provision) release of provision for losses on loans, guarantees
and other receivables - Note E ...........................................................................
(243)
Income from equity investments - Note G ...............................................................
752
1,457
1,464
Income from debt securities - Note F ......................................................................
5
81
46
Total income from investments ...................................................................
1,573
2,359
2,427
Income from liquid asset trading activities - Note C ....................................................
500
313
529
Charges on borrowings - Note K ................................................................................
(220)
(181)
(140)
Income from investments and liquid asset trading activities,
after charges on borrowings ............................................................................
1,853
2,491
2,816
Other income
Service fees ...........................................................................................................
Advisory services income .......................................................................................
Other - Notes B and N ...........................................................................................
101
239
101
60
269
119
88
134
Total other income ..........................................................................................
441
448
222
Other expenses
Administrative expenses - Note X ..........................................................................
Advisory services expenses ...................................................................................
Expense from pension and other postretirement benefit plans - Note W ................
Other - Note B ........................................................................................................
(845)
(351)
(173)
(32)
(798)
(290)
(96)
(23)
(700)
(153)
(109)
(19)
Total other expenses .......................................................................................
(1,401)
(1,207)
(981)
(117)
Foreign currency transaction gains and losses on non-trading activities .....................
35
145
Income before net gains and losses on other non-trading financial
instruments accounted for at fair value and grants to IDA ...........................
928
1,877
40
(33)
2,024
Net gains and losses on other non-trading financial instruments accounted
for at fair value - Note P
Realized gains ........................................................................................................
Gains on non-monetary exchanges .......................................................................
Unrealized gains (losses) .......................................................................................
Total net gains (losses) on other non-trading financial instruments
accounted for at fair value ...........................................................................
35
2
385
11
10
(240)
63
22
70
422
(219)
155
Income before grants to IDA .................................................................................
1,350
Grants to IDA - Note O ...............................................................................................
Net income ............................................................................................................ $
Less: Net loss attributable to noncontrolling interests .................................................
Net income attributable to IFC ............................................................................. $
1,658
(340)
1,010
(330)
$
8
1,018
1,328
(600)
$
$
The notes to the Consolidated Financial Statements are an integral part of these statements
73
2,179
1,328
1,579
-
$
1,579
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for each of the three years ended June 30, 2013
(US$ millions)
2013
Net income attributable to IFC ................................................................................. $
2012
1,018
$
2011
1,328
$
1,579
Other comprehensive income (loss)
Unrealized gains and losses on debt securities
Net unrealized (losses) gains on available-for-sale debt securities arising
during the year ...................................................................................................
(7)
(273)
137
Add (less): reclassification adjustment for realized (gains) losses
included in net income............................................................................
(10)
(12)
2
Less: reclassification adjustment for gains on non-monetary exchanges
included in net income ............................................................................
(7)
(1)
-
Add: reclassification adjustment for other-than-temporary impairments
included in net income ............................................................................
46
27
2
Net unrealized gains (losses) on debt securities ........................................
22
(259)
141
361
(523)
388
Less: reclassification adjustment for realized gains included in net income .........
(265)
(143)
(405)
Add: reclassification adjustment for other-than-temporary impairments
included in net income ............................................................................
289
420
131
Net unrealized gains (losses) on equity investments .................................
385
(246)
114
Net unrecognized actuarial gains (losses) and unrecognized prior service
credits (costs) on benefit plans.......................................................................
201
(525)
86
Total other comprehensive income (loss) .........................................................
608
(1,030)
341
Unrealized gains and losses on equity investments
Net unrealized gains (losses) on available-for-sale equity investments arising
during the year ...................................................................................................
Total comprehensive income ................................................................... $
1 626
$
The notes to the Consolidated Financial Statements are an integral part of these statements
74
298
$
1 920
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
for each of the three years ended June 30, 2013
(US$ millions)
At June 30, 2010
Undesignated
Retained
earnings
$
14,307
Year ended
June 30, 2011
Net income
attributable to IFC
Other comprehensive
income attributable
to IFC
Designation of
retained earnings Note O
Expenditures against
designated retained
earnings - Note O
At June 30, 2011
1,579
$
Total IFC
capital
$ 18,359
1,579
1,579
1,579
341
341
-
-
-
756
(756)
-
-
-
335
$ 16,367
16,032
$
$
1,543
$
2,369
$
20,279
1,328
(399)
399
412
17,373
$
-
322
$ 17,695
1,018
$
513
$
2,372
$
-
$
20,279
1,328
(1,030)
(1,030)
-
-
3
3
-
-
-
(412)
$
1,328
3
20,580
1,018
608
31
$
Total
capital
$ 18,359
610
(1,030)
$
Noncontrolling
interests
$
-
(610)
1,328
Year ended
June 30, 2013
Net income
attributable to IFC
Other comprehensive
income attributable
to IFC
Payments received
for IFC capital stock
subscribed
Designation of
retained earnings Note O
Expenditures against
designated retained
earnings - Note O
Noncontrolling
interests issued
Net loss attributable
to noncontrolling
interests
At June 30, 2013
Capital
stock
$ 2,369
341
Year ended
June 30, 2012
Net income
attributable to IFC
Other comprehensive
loss attributable to
IFC
Designation of
retained earnings Note O
Payments received
for IFC capital stock
subscribed
Expenditures against
designated retained
earnings - Note O
At June 30, 2012
Designated
retained
earnings
$
481
Attributable to IFC
Accumulated
other
Total
comprehensive
retained
income earnings
Note O
$ 14,788 $
1,202
$
-
$
20,580
1,018
1,018
608
608
31
31
(420)
420
-
-
-
464
(464)
-
-
-
18,435
$
278
$ 18,713
$
1,121
$
2,403
$
46
46
-
(8)
(8)
22,237
The notes to the Consolidated Financial Statements are an integral part of these statements
75
-
$
38
$
22,275
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for each of the three years ended June 30, 2013
(US$ millions)
2013
Cash flows from investing activities
Loan disbursements .............................................................................................. $
Investments in equity securities ..............................................................................
Investments in debt securities ................................................................................
Loan repayments ...................................................................................................
Debt securities repayments ...................................................................................
Proceeds from sales of loans..................................................................................
Proceeds from sales of equity investments .............................................................
Proceeds from sales of debt securities ..................................................................
(6,940)
(2,549)
(523)
5,321
377
1,502
35
2012
$
(5,651)
(1,810)
(520)
3,733
231
10
2,452
56
2011
$
(4,519)
(1,884)
(312)
3,297
72
26
1,433
12
Net cash used in investing activities ..........................................................
(2,777)
(1,499)
(1,875)
Cash flows from financing activities
Medium and long-term borrowings
New issues.........................................................................................................
Retirement .........................................................................................................
Medium and long-term borrowings related derivatives, net .................................
Short-term borrowings, net .....................................................................................
Capital subscriptions ..............................................................................................
Noncontrolling interests issued ...............................................................................
12,718
(9,481)
401
(337)
31
46
11,636
(5,182)
329
(49)
3
-
9,882
(5,139)
410
43
-
3,378
6,737
5,196
1,018
(8)
1,010
1,328
1,328
1,579
1,579
Net cash provided by financing activities .................................................
Cash flows from operating activities
Net income attributable to IFC ................................................................................
Add: Net loss attributable to noncontrolling interests...............................................
Net income ............................................................................................................
Adjustments to reconcile net income to net cash used in operating activities:
Gains on non-monetary exchanges of loans.......................................................
Realized gains on debt securities and gains on non-monetary exchanges .........
Realized gains on equity investments and gains on non-monetary exchanges ...
Unrealized (gains) losses on loans accounted for at fair value............................
Unrealized losses (gains) on debt securities accounted for at fair value … .........
Unrealized (gains) losses on equity investments ................................................
Provision (release of provision) for losses on loans and guarantees ...................
Other-than-temporary impairments on debt securities ........................................
Other-than-temporary impairments on equity investments ..................................
Net discounts paid on retirement of borrowings………………………………….. ..
Net realized gains on extinguishment of borrowings ...........................................
Foreign currency transaction (gains) losses on non-trading activities .................
Net (gains) losses on other non-trading financial instruments
accounted for at fair value ..............................................................................
Change in accrued income on loans, time deposits and securities ....................
Change in payables and other liabilities ............................................................
Change in receivables and other assets .............................................................
Change in trading securities and securities purchased and sold under
resale and repurchase agreements ................................................................
(20)
(17)
(927)
(35)
39
(26)
243
46
441
(2)
(11)
(35)
(78)
(13)
(2,003)
57
(21)
128
117
27
692
(1)
(19)
(145)
(9)
(2)
(954)
(79)
2
(454)
(40)
2
218
(3)
(10)
33
(422)
18
(666)
696
219
(48)
1,171
(331)
(155)
51
354
138
(1,800)
(5,211)
(4,722)
Net cash used in operating activities .........................................................
(1,468)
(4,131)
(4,051)
Change in cash and cash equivalents .......................................................................
Effect of exchange rate changes on cash and cash equivalents ................................
Net change in cash and cash equivalents ..................................................................
Beginning cash and cash equivalents ........................................................................
(867)
325
(542)
7,047
1,107
473
1,580
5,467
(730)
234
(496)
5,963
Ending cash and cash equivalents ........................................................................ $
6,505
$
7,047
$
5,467
Composition of cash and cash equivalents
Cash and due from banks....................................................................................... $
Time deposits ........................................................................................................
616
5,889
$
1,328
5,719
$
642
4,825
Total cash and cash equivalents ........................................................................ $
6,505
$
7,047
$
5,467
The notes to the Consolidated Financial Statements are an integral part of these statements
76
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for each of the three years ended June 30, 2013
(US$ millions)
2013
2012
2011
Supplemental disclosure
Change in ending balances resulting from currency exchange rate fluctuations:
Loans outstanding ............................................................................................. $
Debt securities ..................................................................................................
Loan and debt security-related currency swaps .................................................
Borrowings .........................................................................................................
Borrowing-related currency swaps ....................................................................
Client risk management-related currency swaps ................................................
Charges on borrowings paid, net ............................................................................ $
Non-cash items:
Loan and debt securities conversion to equity, net ............................................. $
Increase in net assets due to exchange, recorded at fair value,
of equity investment for non-cash asset .......................................................... $
21
(19)
63
1,868
(1,876)
-
$
$
601
142
(699)
(2,358)
2,327
(6)
277
$
139
$
159
77
$
90
$
75
217
$
-
$
-
The notes to the Consolidated Financial Statements are an integral part of these statements
77
(675)
(221)
915
1,282
(1,275)
-
INTERNATIONAL FINANCE CORPORATION
CONSOLIDATED STATEMENT OF CAPITAL STOCK
AND VOTING POWER
as of June 30, 2013
(US$ thousands)
Members
Afghanistan .............................
Albania ....................................
Algeria .....................................
Angola .....................................
Antigua and Barbuda ..............
Argentina .................................
Armenia ...................................
Australia ..................................
Austria .....................................
Azerbaijan ...............................
Bahamas, The ………………...
Bahrain …………………………
Bangladesh ……………………
Barbados ………………………
Belarus ....................................
Belgium ...................................
Belize ......................................
Benin …………………………...
Bhutan ………………………….
Bolivia ………………………….
Bosnia and Herzegovina …….
Botswana ………………………
Brazil …………………………...
Bulgaria ………………………..
Burkina Faso ...........................
Burundi ....................................
Cambodia ................................
Cameroon ...............................
Canada ………………………...
Cape Verde ……………………
Central African Republic …….
Chad ……………………………
Chile ……………………………
China …………………………..
Colombia ………………………
Comoros ……………………….
Congo, Dem. Rep. of ………..
Congo, Republic of …………...
Costa Rica ..............................
Côte d'Ivoire ............................
Croatia ....................................
Cyprus ………………………….
Czech Republic ……………….
Denmark ……………………….
Djibouti …………………………
Dominica .................................
Dominican Republic ................
Ecuador ...................................
Egypt, Arab Republic of ..........
El Salvador ..............................
Equatorial Guinea ...................
Eritrea .....................................
Estonia ....................................
Ethiopia ………………………...
Fiji ………………………………
Finland …………………………
France ………………………….
Gabon ………………………….
Gambia, The …………………..
Georgia ………………………...
Germany ……………………….
Ghana ………………………….
Greece ....................................
Grenada ..................................
Guatemala ..............................
Guinea ....................................
Guinea-Bissau ........................
Guyana ………………………...
Haiti …………………………….
Honduras ………………………
Hungary ……………………….
Iceland …………………………
India …………………………….
Indonesia ………………………
Iran, Islamic Republic of ……..
Iraq ……………………………..
Ireland ………………………….
Israel ……………………………
Italy …………………………….
Jamaica ………………………..
Japan …………………………..
Jordan ………………………….
Kazakhstan ……………………
Kenya ………………………….
Kiribati …………………………
Korea, Republic of ……………
Kosovo …………………………
Kuwait ………………………….
Kyrgyz Republic ………………
Lao People's Dem. Rep. ……..
Latvia …………………………..
Lebanon ………………………..
Capital Stock
Amount
Percent
paid
of total
111
*
1,302
0.05
5,621
0.23
1,481
0.06
13
*
38,129
1.59
992
0.04
47,329
1.97
19,741
0.82
2,367
0.1
335
0.01
1,746
0.07
9,037
0.38
361
0.02
5,162
0.21
50,610
2.11
101
*
119
*
720
0.03
1,902
0.08
620
0.03
113
*
39,479
1.64
4,867
0.2
836
0.03
100
*
339
0.01
885
0.04
81,342
3.38
15
*
119
*
1,364
0.06
11,710
0.49
43,047
1.79
12,606
0.52
14
*
2,159
0.09
131
0.01
952
0.04
3,544
0.15
2,882
0.12
2,139
0.09
8,913
0.37
18,554
0.77
21
*
42
*
1,187
0.05
2,161
0.09
12,360
0.51
29
*
43
*
935
0.04
1,434
0.06
127
0.01
287
0.01
15,697
0.65
121,015
5.04
1,268
0.05
94
*
1,380
0.06
128,908
5.36
5,071
0.21
6,898
0.29
74
*
1,084
0.05
339
0.01
18
*
1,392
0.06
822
0.03
495
0.02
10,932
0.45
42
*
81,342
3.38
29,384
1.22
1,444
0.06
147
0.01
1,290
0.05
2,135
0.09
81,342
3.38
4,282
0.18
141,174
5.87
941
0.04
4,637
0.19
4,041
0.17
12
*
22,020
0.92
1,454
0.06
9,947
0.41
1,720
0.07
278
0.01
2,150
0.09
135
0.01
Voting Power
Number of
Percent
of total
votes
878
0.03
2,069
0.08
6,388
0.25
2,248
0.09
780
0.03
38,896
1.53
1,759
0.07
48,096
1.89
20,508
0.81
3,134
0.12
1,102
0.04
2,513
0.1
9,804
0.39
1,128
0.04
5,929
0.23
51,377
2.02
868
0.03
886
0.03
1,487
0.06
2,669
0.1
1,387
0.05
880
0.03
40,246
1.58
5,634
0.22
1,603
0.06
867
0.03
1,106
0.04
1,652
0.06
82,109
3.23
782
0.03
886
0.03
2,131
0.08
12,477
0.49
43,814
1.72
13,373
0.53
781
0.03
2,926
0.12
898
0.04
1,719
0.07
4,311
0.17
3,649
0.14
2,906
0.11
9,680
0.38
19,321
0.76
788
0.03
809
0.03
1,954
0.08
2,928
0.12
13,127
0.52
796
0.03
810
0.03
1,702
0.07
2,201
0.09
894
0.04
1,054
0.04
16,464
0.65
121,782
4.79
2,035
0.08
861
0.03
2,147
0.08
129,675
5.1
5,838
0.23
7,665
0.3
841
0.03
1,851
0.07
1,106
0.04
785
0.03
2,159
0.08
1,589
0.06
1,262
0.05
11,699
0.46
809
0.03
82,109
3.23
30,151
1.19
2,211
0.09
914
0.04
2,057
0.08
2,902
0.11
82,109
3.23
5,049
0.2
141,941
5.58
1,708
0.07
5,404
0.21
4,808
0.19
779
0.03
22,787
0.9
2,221
0.09
10,714
0.42
2,487
0.1
1,045
0.04
2,917
0.11
902
0.04
Members
Lesotho ………………………...
Liberia ………………………….
Libya ……………………………
Lithuania ……………………….
Luxembourg……………………
Macedonia, FYR of …………...
Madagascar …………………...
Malawi ………………………….
Malaysia ……………………….
Maldives ……………………….
Mali ……………………………..
Malta ……………………………
Marshall Islands ………………
Mauritania ……………………..
Mauritius ……………………….
Mexico ………………………….
Micronesia, Fed. States of……
Moldova ………………………..
Mongolia ……………………….
Montenegro ……………………
Morocco ………………………..
Mozambique …………………..
Myanmar ……………………….
Namibia ………………………..
Nepal …………………………...
Netherlands ……………………
New Zealand …………………..
Nicaragua ……………………...
Niger ……………………………
Nigeria ………………………….
Norway …………………………
Oman …………………………..
Pakistan ………………………..
Palau …………………………...
Panama ………………………..
Papua New Guinea …………..
Paraguay ………………………
Peru …………………………….
Philippines ……………………..
Poland ………………………….
Portugal ………………………..
Qatar …………………………...
Romania ……………………….
Russian Federation …………..
Rwanda ………………………..
Samoa ………………………….
Sao Tome and Principe ………
Saudi Arabia …………………..
Senegal ………………………..
Serbia …………………………..
Seychelles ……………………..
Sierra Leone …………………..
Singapore ……………………...
Slovak Republic ……………….
Slovenia ………………………..
Solomon Islands ………………
Somalia ………………………...
South Africa ……………………
South Sudan …………………..
Spain …………………………...
Sri Lanka ………………………
St. Kitts and Nevis ……………
St. Lucia ………………………..
Sudan …………………………..
Suriname ………………………
Swaziland ……………………...
Sweden ………………………...
Switzerland …………………….
Syrian Arab Republic …………
Tajikistan ………………………
Tanzania ……………………….
Thailand ………………………..
Timor-Leste ……………………
Togo ……………………………
Tonga …………………………..
Trinidad and Tobago …………
Tunisia …………………………
Turkey ………………………….
Turkmenistan ………………….
Uganda ………………………...
Ukraine …………………………
United Arab Emirates ………...
United Kingdom ……………….
United States ………………….
Uruguay ………………………..
Uzbekistan …………………….
Vanuatu ………………………..
Venezuela, Rep. Boliv. de …..
Vietnam ………………………..
Yemen, Republic of …………..
Zambia …………………………
Zimbabwe ……………………..
Total June 30, 2013
Total June 30, 2012
* Less than .005 percent
+ May differ from the sum of the individual percentages shown because of rounding
Capital Stock
Percent
Amount
paid
of total
71
*
83
*
55
*
2,341
0.1
2,139
0.09
536
0.02
432
0.02
1,822
0.08
15,222
0.63
16
*
451
0.02
1,615
0.07
663
0.03
214
0.01
1,665
0.07
27,589
1.15
744
0.03
1,192
0.05
144
0.01
1,035
0.04
9,632
0.4
322
0.01
666
0.03
404
0.02
822
0.03
56,131
2.34
3,583
0.15
715
0.03
147
0.01
21,643
0.9
17,599
0.73
1,187
0.05
19,380
0.81
25
*
1,007
0.04
1,147
0.05
436
0.02
6,898
0.29
13,653
0.57
7,236
0.3
8,324
0.35
1,650
0.07
2,661
0.11
81,342
3.38
306
0.01
35
*
439
0.02
30,062
1.25
2,299
0.1
1,803
0.08
27
*
223
0.01
177
0.01
4,457
0.19
1,585
0.07
37
*
83
*
17,418
0.72
1,880
0.08
37,026
1.54
7,135
0.3
638
0.03
74
*
111
*
620
0.03
684
0.03
26,876
1.12
44,063
1.83
194
0.01
1,212
0.05
1,003
0.04
11,201
0.47
777
0.03
808
0.03
34
*
4,112
0.17
3,566
0.15
14,545
0.61
810
0.03
735
0.03
9,505
0.4
4,033
0.17
121,015
5.04
569,379
23.69
3,569
0.15
3,873
0.16
55
*
27,588
1.15
446
0.02
715
0.03
1,286
0.05
2,120
0.09
2,403,217
100.00+
2,371,896
100.00+
The notes to the Consolidated Financial Statements are an integral part of these statements
78
Voting Power
Number of
Percent
votes
of total
838
0.03
850
0.03
822
0.03
3,108
0.12
2,906
0.11
1,303
0.05
1,199
0.05
2,589
0.1
15,989
0.63
783
0.03
1,218
0.05
2,382
0.09
1,430
0.06
981
0.04
2,432
0.1
28,356
1.11
1,511
0.06
1,959
0.08
911
0.04
1,802
0.07
10,399
0.41
1,089
0.04
1,433
0.06
1,171
0.05
1,589
0.06
56,898
2.24
4,350
0.17
1,482
0.06
914
0.04
22,410
0.88
18,366
0.72
1,954
0.08
20,147
0.79
792
0.03
1,774
0.07
1,914
0.08
1,203
0.05
7,665
0.3
14,420
0.57
8,003
0.31
9,091
0.36
2,417
0.09
3,428
0.13
82,109
3.23
1,073
0.04
802
0.03
1,206
0.05
30,829
1.21
3,066
0.12
2,570
0.1
794
0.03
990
0.04
944
0.04
5,224
0.21
2,352
0.09
804
0.03
850
0.03
18,185
0.71
2,647
0.1
37,793
1.49
7,902
0.31
1,405
0.06
841
0.03
878
0.03
1,387
0.05
1,451
0.06
27,643
1.09
44,830
1.76
961
0.04
1,979
0.08
1,770
0.07
11,968
0.47
1,544
0.06
1,575
0.06
801
0.03
4,879
0.19
4,333
0.17
15,312
0.6
1,577
0.06
1,502
0.06
10,272
0.4
4,800
0.19
121,782
4.79
570,146
22.41
4,336
0.17
4,640
0.18
822
0.03
28,355
1.11
1,213
0.05
1,482
0.06
2,053
0.08
2,887
0.11
2,544,345
100.00+
2,511,184
100.00+
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PURPOSE
The International Finance Corporation (IFC), an international organization, was established in 1956 to further economic development in its member
countries by encouraging the growth of private enterprise. IFC is a member of the World Bank Group, which also comprises the International Bank
for Reconstruction and Development (IBRD), the International Development Association (IDA), the Multilateral Investment Guarantee Agency
(MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). Each member is legally and financially independent.
Transactions with other World Bank Group members are disclosed in the notes that follow. IFC’s activities are closely coordinated with and
complement the overall development objectives of the other World Bank Group institutions. IFC, together with private investors, assists in financing
the establishment, improvement and expansion of private sector enterprises by making loans, equity investments and investments in debt securities
where sufficient private capital is not otherwise available on reasonable terms. IFC’s share capital is provided by its member countries. It raises
most of the funds for its investment activities through the issuance of notes, bonds and other debt securities in the international capital markets. IFC
also plays a catalytic role in mobilizing additional funding from other investors and lenders through parallel loans, loan participations, partial credit
guarantees, securitizations, loan sales, risk sharing facilities, and fund investments through the IFC Asset Management Company, LLC and other
IFC crisis initiatives. In addition to project finance and mobilization, IFC offers an array of financial and technical advisory services to private
businesses in the developing world to increase their chances of success. It also advises governments on how to create an environment hospitable
to the growth of private enterprise and foreign investment.
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES
The Consolidated Financial Statements include the financial statements of IFC and consolidated subsidiaries as detailed in Note B. The accounting
and reporting policies of IFC conform with accounting principles generally accepted in the United States of America (US GAAP). In the opinion of
management, the Consolidated Financial Statements reflect all adjustments necessary for the fair presentation of IFC’s financial position and results
of operation.
Consolidated Financial Statements presentation – IFC has reclassified certain amounts on the consolidated statement of cash flows for the year
ended June 30, 2012 to amend the presentation of certain foreign currency related remeasurements. The reclassification had the effect of reducing
"change in trading securities and securities purchased and sold under resale and repurchase agreements" and increasing "effect of exchange rate
changes on cash and cash equivalents" for the year ended June 30, 2012, each in the amount of $909 million. The reclassification had no impact on
the consolidated balance sheet or the consolidated income statement.
Advisory services – Beginning July 1, 2011, IFC adopted a new reporting basis for funds received from donors for IFC’s advisory services
business and reported advisory services business as a separate segment. See Notes T and V. Funding received for IFC advisory services from
governments and other donors are recognized as contribution revenue when the conditions on which they depend are substantially met. Advisory
services expenses are recognized in the period incurred. Advisory client fees and administration fees are recognized as income when earned.
Functional currency – IFC’s functional currency is the United States dollar (US dollars or $).
Use of estimates – The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial
Statements and the reported amounts of income and expense during the reporting periods. Actual results could differ from these estimates. A
significant degree of judgment has been used in the determination of: the reserve against losses on loans and impairment of debt securities and
equity investments; estimated fair values of financial instruments accounted for at fair value (including equity investments, debt securities, loans,
trading securities and derivative instruments); projected benefit obligations, fair value of pension and other postretirement benefit plan assets, and
net periodic pension income or expense. There are inherent risks and uncertainties related to IFC’s operations. The possibility exists that changing
economic conditions could have an adverse effect on the financial position of IFC.
IFC uses internal models to determine the fair values of derivative and other financial instruments and the aggregate level of the reserve against
losses on loans and impairment of equity investments. IFC undertakes continuous review and respecification of these models with the objective of
refining its estimates, consistent with evolving best practices appropriate to its operations. Changes in estimates resulting from refinements in the
assumptions and methodologies incorporated in the models are reflected in net income in the period in which the enhanced models are first applied.
Consolidation, non-controlling interests and variable interest entities – IFC consolidates:
i)
all majority-owned subsidiaries;
ii) limited partnerships in which it is the general partner, unless the presumption of control is overcome by certain management participation or
other rights held by minority shareholders/limited partners; and
iii) variable interest entities (VIEs) for which IFC is deemed to be the VIE's primary beneficiary (together, consolidated subsidiaries).
Significant intercompany accounts and transactions are eliminated in consolidation.
Equity interests in consolidated subsidiaries held by third parties are referred to as non-controlling interests. Such interests and the amount of
consolidated net income/loss attributable to those interests are identified within IFC's consolidated balance sheet and consolidated income
statement as "non-controlling interest" and "net income attributable to non-controlling interest", respectively.
79
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An entity is a VIE if:
i)
its equity is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties;
ii) its equity investors do not have decision-making rights about the entity's operations; or
iii) if its equity investors do not absorb the expected losses or receive the expected returns of the entity proportionally to their voting rights.
A variable interest is a contractual, ownership or other interest whose value changes as the fair value of the VIE's net assets change. IFC's variable
interests in VIEs arise from financial instruments, service contracts, guarantees, leases or other monetary interests in those entities.
IFC is considered to be the primary beneficiary of a VIE if it has the power to direct the VIE's activities that most significantly impact its economic
performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE unless:
i)
the entity has the attributes of an investment company or for which it is industry practice to account for their assets at fair value through
earnings;
ii) IFC has an explicit or implicit obligation to fund losses of the entity that could be potentially significant to that entity; and
iii) the entity is a securitization vehicle, an asset-backed financing entity, or an entity that was formerly considered a qualifying special purpose
entity, as well as entities that are required to comply with or operate in accordance with requirements that are similar to those included in Rule
2a-7 of the Investment Company Act of 1940.
In those cases, IFC is considered to be the entity's primary beneficiary if it will absorb the majority of the VIE's expected losses or expected residual
returns.
IFC has a number of investments in VIEs that it manages and supervises in a manner consistent with other portfolio investments.
Fair Value Option and Fair Value Measurements – IFC has adopted the Financial Accounting Standards Board’s (FASB) Accounting Standards
Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) and the Fair Value Option subsections of ASC Topic 825,
Financial Instruments (ASC 825 or the Fair Value Option). ASC 820 defines fair value, establishes a framework for measuring fair value and a fair
value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels and applies to all items
measured at fair value, including items for which impairment measures are based on fair value. ASC 825 permits the measurement of eligible
financial assets, financial liabilities and firm commitments at fair value on an instrument-by-instrument basis, that are not otherwise permitted to be
accounted for at fair value under other accounting standards. The election to use the Fair Value Option is available when an entity first recognizes a
financial asset or liability or upon entering into a firm commitment.
The Fair Value Option
IFC has elected the Fair Value Option for the following financial assets and financial liabilities existing at the time of adoption of ASC 825 and
subsequently entered into:
i)
investees in which IFC has significant influence:
a) direct investments in securities issued by the investee and, if IFC would have otherwise been required to apply equity method accounting,
all other financial interests in the investee (e.g., loans)
b) investments in Limited Liability Partnerships (LLPs), Limited Liability Companies (LLCs) and other investment fund structures that
maintain specific ownership accounts and loans or guarantees to such;
ii) direct equity investments representing 20 percent or more ownership but in which IFC does not have significant influence;
iii) certain hybrid instruments in the investment portfolio; and
iv) all market borrowings, except for such borrowings having no associated derivative instruments.
Beginning July 1, 2010, IFC has elected the Fair Value Option for all new equity interests in funds.
All borrowings for which the Fair Value Option has been elected are associated with existing derivative instruments used to create an economic
hedge. Measuring at fair value those borrowings for which the Fair Value Option has been elected mitigates the earnings volatility caused by
measuring the borrowings and related derivative differently (in the absence of a designated accounting hedge) without having to apply ASC Topic
815’s, Derivatives and Hedging (ASC 815) complex hedge accounting requirements. The Fair Value Option was not elected for all borrowings from
IBRD and all other market borrowings because such borrowings fund assets with similar characteristics.
Measuring at fair value those equity investments that would otherwise require equity method accounting simplifies the accounting and renders a
carrying amount on the consolidated balance sheet based on a measure (fair value) that IFC considers superior to equity method accounting. For
the investments that otherwise would require equity method accounting for which the Fair Value Option is elected, ASC 825 requires the Fair Value
Option to also be applied to all eligible financial interests in the same entity. IFC has disbursed loans to certain of such investees; therefore, the Fair
Value Option is also applied to those loans. IFC elected the Fair Value Option for equity investments with 20% or more ownership where it does not
have significant influence so that the same measurement method (fair value) will be applied to all equity investments with more than 20%
ownership.
Equity securities held by consolidated subsidiaries that are investment companies
Pursuant to ASC Topic 946, Financial Services - Investment Companies (ASC 946) and ASC Topic 810, Consolidation, equity securities held by
consolidated subsidiaries that are investment companies are accounted for at fair value, with unrealized gains and losses reported in earnings.
80
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability (i.e., an exit price) in an orderly transaction
between independent, knowledgeable and willing market participants at the measurement date assuming the transaction occurs in the entity’s
principal (or most advantageous) market. Fair value must be based on assumptions market participants would use (inputs) in determining the price
and measured assuming that market participants act in their economic best interest, therefore, their fair values are determined based on a
transaction to sell or transfer the asset or liability on a standalone basis. Under ASC 820, fair value measurements are not adjusted for transaction
costs.
Notwithstanding the following paragraph, pursuant to ASC Topic 320, Investments - Debt and Equity Securities (ASC 320), IFC reports equity
investments that are listed in markets that provide readily determinable fair values at fair value, with unrealized gains and losses being reported in
other comprehensive income.
The fair value hierarchy established by ASC 820 gives the highest priority to unadjusted quoted prices in active markets for identical unrestricted
assets and liabilities (Level 1), the next highest priority to observable market based inputs or unobservable inputs that are corroborated by market
data from independent sources (Level 2) and the lowest priority to unobservable inputs that are not corroborated by market data (Level 3). Fair
value measurements are required to maximize the use of available observable inputs.
Level 1 primarily consists of financial instruments whose values are based on unadjusted quoted market prices. It includes IFC’s equity investments,
which are listed in markets that provide readily determinable fair values, government issues and money market funds in the liquid assets portfolio,
and market borrowings that are listed on exchanges.
Level 2 includes financial instruments that are valued using models and other valuation methodologies. These models consider various
assumptions and inputs, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity and current market and
contractual pricing for the underlying asset, as well as other relevant economic measures. Substantially all of these inputs are observable in the
market place, can be derived from observable data or are supported by observable levels at which market transactions are executed. Financial
instruments categorized as Level 2 include non-exchange-traded derivatives such as interest rate swaps, cross-currency swaps, certain assetbacked securities, as well as the majority of trading securities in the liquid asset portfolio, and the portion of IFC’s borrowings accounted for at fair
value not included in Level 1.
Level 3 consists of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing significant
inputs that are non-observable. It also includes financial instruments whose fair value is estimated based on price information from independent
sources that cannot be corroborated by observable market data. Level 3 includes equity investments that are not listed in markets that provide
readily determinable fair values, all loans for which IFC has elected the Fair Value Option, all of IFC’s debt securities in the investment portfolio, and
certain hard-to-price securities in the liquid assets portfolio.
IFC estimates the fair value of its investments in private equity funds that do not have readily determinable fair value based on the funds’ net asset
values (NAVs) per share as a practical expedient to the extent that a fund reports its investment assets at fair value and has all the attributes of an
investment company, pursuant to ASC 946. If the NAV is not as of IFC’s measurement date, IFC adjusts the most recent NAV, as necessary, to
estimate a NAV for the investment that is calculated in a manner consistent with the fair value measurement principles established by ASC 820.
Remeasurement of foreign currency transactions – Assets and liabilities not denominated in US dollars, other than disbursed equity
investments, are expressed in US dollars at the exchange rates prevailing at June 30, 2013 and June 30, 2012. Disbursed equity investments, other
than those accounted for at fair value, are expressed in US dollars at the prevailing exchange rates at the time of disbursement. Income and
expenses are recorded based on the rates of exchange prevailing at the time of the transaction. Transaction gains and losses are credited or
charged to income.
Loans – IFC originates loans to facilitate project finance, restructuring, refinancing, corporate finance, and/or other developmental objectives. Loans
are recorded as assets when disbursed. Loans are generally carried at the principal amounts outstanding adjusted for net unamortized loan
origination costs and fees. It is IFC’s practice to obtain collateral security such as, but not limited to, mortgages and third-party guarantees.
Certain loans are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on loans
accounted for at fair value under the Fair Value Option are reported in income from loans and guarantees on the consolidated income statement.
Certain loans originated by IFC contain income participation, prepayment and conversion features. These features are bifurcated and separately
accounted for in accordance with ASC 815 if IFC has not elected the Fair Value Option for the loan host contracts and the features meet the
definition of a derivative, and are not considered to be clearly and closely related to their host loan contracts. Otherwise, these features are
accounted for as part of their host loan contracts in accordance with IFC’s accounting policies for loans as indicated herein.
Loans held for sale are carried at the lower of cost or fair value. The excess, if any, of amortized cost over fair value is accounted for as a valuation
allowance. Changes in the valuation allowance are recognized in net income as they occur.
Revenue recognition on loans – Interest income and commitment fees on loans are recorded as income on an accrual basis. Loan origination
fees and direct loan origination costs are deferred and amortized over the estimated life of the originated loan; such amortization is determined
using the interest method unless the loan is a revolving credit facility in which case amortization is determined using the straight-line method.
Prepayment fees are recorded as income when received in freely convertible currencies.
81
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IFC does not recognize income on loans where collectability is in doubt or payments of interest or principal are past due more than 60 days unless
management anticipates that collection of interest will occur in the near future. Any interest accrued on a loan placed in nonaccrual status is
reversed out of income and is thereafter recognized as income only when the actual payment is received. Interest not previously recognized but
capitalized as part of a debt restructuring is recorded as deferred income, included in the consolidated balance sheet in payables and other
liabilities, and credited to income only when the related principal is received. Such capitalized interest is considered in the computation of the
reserve against losses on loans in the consolidated balance sheet.
Reserve against losses on loans – IFC recognizes impairment on loans not carried at fair value in the consolidated balance sheet through the
reserve against losses on loans, recording a provision or release of provision for losses on loans in net income, which increases or decreases the
reserve against losses on loans. Individually impaired loans are measured based on the present value of expected future cash flows to be received,
observable market prices, or for loans that are dependent on collateral for repayment, the estimated fair value of the collateral.
The reserve against losses on loans reflects management’s estimates of both identified probable losses on individual loans (specific reserves) and
probable losses inherent in the portfolio but not specifically identifiable (portfolio reserves). The determination of identified probable losses
represents management’s judgment of the creditworthiness of the borrower. Reserves against losses are established through a review of individual
loans undertaken on a quarterly basis. IFC considers a loan as impaired when, based on current information and events, it is probable that IFC will
be unable to collect all amounts due according to the loan’s contractual terms. Information and events, with respect to the borrower and/or the
economic and political environment in which it operates, considered in determining that a loan is impaired include, but not limited to, the borrower’s
financial difficulties, breach of contract, bankruptcy/reorganization, credit rating downgrade as well as geopolitical conflict, financial/economic crisis,
commodity price decline, adverse local government action and natural disaster. Unidentified probable losses are the losses incurred at the reporting
date that have not yet been specifically identified. The risks inherent in the portfolio that are considered in determining unidentified probable losses
are those proven to exist by past experience and include: country systemic risk; the risk of correlation or contagion of losses between markets;
uninsured and uninsurable risks; nonperformance under guarantees and support agreements; and opacity of, or misrepresentation in, financial
statements. There were no changes, during the periods presented herein, to IFC’s accounting policies and methodologies used to estimate its
reserve against loan losses.
For purposes of providing certain disclosures about IFC’s entire reserve against losses on loans, IFC considers its entire loan portfolio to comprise
one portfolio segment. A portfolio segment is the level at which the method for estimating the reserve against losses on loans is developed and
documented.
Loans are written-off when IFC has exhausted all possible means of recovery, by reducing the reserve against losses on loans. Such reductions in
the reserve are partially offset by recoveries, if any, associated with previously written-off loans.
Equity investments – IFC invests primarily for developmental impact; IFC does not seek to take operational, controlling, or strategic equity
positions within its investees. Equity investments are acquired through direct ownership of equity instruments of investees, as a limited partner in
LLPs and LLCs, and/or as an investor in private equity funds.
Revenue recognition on equity investments – Equity investments, which are listed in markets that provide readily determinable fair values, are
accounted for as available-for-sale securities at fair value with unrealized gains and losses being reported in other comprehensive income in
accordance with ASC 320. As noted above under “Fair Value Option and Fair Value Measurements”, direct equity investments and investments in
LLPs and LLCs that maintain ownership accounts in which IFC has significant influence, direct equity investments representing 20 percent or more
ownership but in which IFC does not have significant influence and, beginning July 1, 2010, all new equity interests in funds are accounted for at fair
value under the Fair Value Option. Direct equity investments in which IFC does not have significant influence and which are not listed in markets
that provide readily determinable fair values are carried at cost, less impairment. Notwithstanding the foregoing, equity securities held by
consolidated subsidiaries that are investment companies are accounted for at fair value, with unrealized gains and losses reported in earnings.
IFC’s investments in certain private equity funds in which IFC is deemed to have a controlling financial interest, as are fully consolidated by IFC, as
the presumption of control by the fund manager or the general partner has been overcome. Certain equity investments, for which recovery of
invested capital is uncertain, are accounted for under the cost recovery method, such that receipts of freely convertible currencies are first applied to
recovery of invested capital and then to income from equity investments. The cost recovery method is principally applied to IFC's investments in its
oil and gas unincorporated joint ventures (UJVs). IFC’s share of conditional asset retirement obligations related to investments in UJVs are recorded
when the fair value of the obligations can be reasonably estimated. The obligations are capitalized and systematically amortized over the estimated
economic useful lives.
Unrealized gains and losses on equity investments accounted for at fair value under the Fair Value Option are reported in income from equity
investments on the consolidated income statement. Unrealized gains and losses on equity investments listed in markets that provide readily
determinable fair values which are accounted for as available-for-sale are reported in other comprehensive income. Realized gains on the sale or
redemption of equity investments are measured against the average cost of the investments sold and are generally recorded as income from equity
investments when received. Capital losses are recognized when incurred.
82
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Profit participations received on equity investments are recorded when received in freely convertible currencies. Dividends received on equity
investments through June 30, 2011 were recorded as income when received in freely convertible currencies. Beginning July 1, 2011, dividends on
listed equity investments are recorded on the ex dividend date - dividends on unlisted equity investments are recorded upon receipt of notice of
declaration. Realized gains on the sale or redemption of equity investments are measured against the average cost of the investments sold and,
through June 30, 2011, were recorded as income in income from equity investments when received in freely convertible currencies. Beginning July
1, 2011, realized gains on listed equity investments are recorded upon trade date - realized gains on unlisted equity investments are recorded upon
incurring the obligation to deliver the applicable shares. Losses are recognized when incurred.
IFC enters into put and call option and warrant agreements in connection with certain equity investments; these are accounted for in accordance
with ASC 815 to the extent they meet the definition of a derivative.
Gains and losses on nonmonetary exchanges – Nonmonetary transactions typically arise through: (1) the exchange of nonmonetary assets by
exercising a conversion option that results in the exchange of one financial instrument (i.e., loan, equity, or debt security) for another financial
instrument (i.e., debt securities or equity shares); or (2) a nonreciprocal transfer where IFC receives a nonmonetary asset for which no assets are
relinquished in exchange. Generally, accounting for exchanges of nonmonetary assets should be based on the fair values of the assets involved.
Thus, the amount initially recorded for a nonmonetary asset received in exchange for another nonmonetary asset is the fair value of the asset
received. The difference between the fair value of the asset received and the recorded amount of the asset surrendered (immediately prior to the
exchange transaction) is recorded as a gain or loss on non-monetary exchanges in the income statement.
Impairment of equity investments – Equity investments accounted for at cost, less impairment and available-for-sale are assessed for impairment
each quarter. When impairment is identified, it is generally deemed to be other than temporary, and the equity investment is written down to the
impaired value, which becomes the new cost basis in the equity investment. Such other than temporary impairments are recognized in net income.
Subsequent increases in the fair value of available-for-sale equity investments are included in other comprehensive income - subsequent decreases
in fair value, if not other than temporary impairment, also are included in other comprehensive income.
Debt securities – Debt securities in the investment portfolio are classified as available-for-sale and carried at fair value on the consolidated balance
sheet with unrealized gains and losses included in accumulated other comprehensive income until realized. Realized gains on sales of debt
securities and interest on debt securities is included in income from debt securities on the consolidated income statement.
Certain debt securities are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on debt
securities accounted for at fair value under the Fair Value Option are reported in income from debt securities on the consolidated income statement.
IFC invests in certain debt securities with conversion features; these features are accounted for in accordance with ASC 815 to the extent they meet
the definition of a derivative.
Impairment of debt securities – In determining whether an unrealized loss on debt securities is other-than-temporary, IFC considers all relevant
information including the length of time and the extent to which fair value has been less than amortized cost, whether IFC intends to sell the debt
security or whether it is more likely than not that IFC will be required to sell the debt security, the payment structure of the obligation and the ability
of the issuer to make scheduled interest or principal payments, any changes to the ratings of a security, and relevant adverse conditions specifically
related to the security, an industry or geographic sector.
Debt securities in the investment portfolio are assessed for impairment each quarter. When impairment is identified, the entire impairment is
recognized in net income if (1) IFC intends to sell the security, or (2) it is more likely than not that IFC will be required to sell the security before
recovery. However, if IFC does not intend to sell the security and it is not more likely than not that IFC will be required to sell the security but the
security has suffered a credit loss, the impairment charge will be separated into the credit loss component, which is recognized in net income, and
the remainder which is recorded in other comprehensive income. The impaired value becomes the new amortized cost basis of the debt security.
Subsequent increases and decreases - if not an additional other-than-temporary impairment - in the fair value of debt securities are included in other
comprehensive income.
The difference between the new amortized cost basis of debt securities for which an other-than-temporary impairment has been recognized in net
income and the cash flows expected to be collected is accreted to interest income using the effective yield method. Significant subsequent
increases in the expected or actual cash flows previously expected are recognized as a prospective adjustment of the yield.
Guarantees – IFC extends financial guarantee facilities to its clients to provide credit enhancement for their debt securities and trade obligations.
IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client obligations on bonds or loans. Under the terms of IFC's
guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client (i.e., failure to pay when
payment is due). Guarantees are regarded as issued when IFC commits to the guarantee. Guarantees are regarded as outstanding when the
underlying financial obligation of the client is incurred, and this date is considered to be the “inception” of the guarantee. Guarantees are regarded
as called when IFC’s obligation under the guarantee has been invoked. There are two liabilities associated with the guarantees: (i) the stand-ready
obligation to perform and (ii) the contingent liability. The fair value of the stand-ready obligation to perform is recognized at the inception of the
guarantee unless a contingent liability exists at that time or is expected to exist in the near term. The contingent liability associated with the financial
guarantee is recognized when it is probable the guarantee will be called and when the amount of guarantee called can be reasonably estimated. All
liabilities associated with guarantees are included in payables and other liabilities, and the receivables are included in other assets on the
consolidated balance sheet. When the guarantees are called, the amount disbursed is recorded as a new loan, and specific reserves against
losses are established, based on the estimated probable loss. Guarantee fees are recorded in income as the stand-ready obligation to perform is
fulfilled. Commitment fees on guarantees are recorded as income on an accrual basis.
83
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Designations of retained earnings – IFC establishes funding mechanisms for specific Board approved purposes through designations of retained
earnings. Designations of retained earnings for grants to IDA are recorded as a transfer from undesignated retained earnings to designated
retained earnings when the designation is approved by the Board of Governors. All other designations are recorded as a transfer from
undesignated retained earnings to designated retained earnings when the designation is noted with approval by the Board of Directors. Total
designations of retained earnings are determined based on IFC’s annual income before expenditures against designated retained earnings and net
gains and losses on other non-trading financial instruments accounted for at fair value in excess of $150 million, and contemplating the financial
capacity and strategic priorities of IFC.
Expenditures resulting from such designations are recorded as expenses in IFC’s consolidated income statement in the year in which they are
incurred, also having the effect of reducing the respective designated retained earnings for such purposes. Expenditures are deemed to have been
incurred when IFC has ceded control of the funds to the recipient. If the recipient is deemed to be controlled by IFC, the expenditure is deemed to
have been incurred only when the recipient disburses the funds to a non-related party. On occasion, recipients who are deemed to be controlled by
IFC make investments. In such cases, IFC includes those assets on its consolidated balance sheet until the recipient disposes of or transfers the
asset or IFC is deemed to no longer be in control of the recipient. These investments have had no material impact on IFC’s financial position, results
of operations, or cash flows. Investments resulting from such designations are recorded on IFC’s consolidated balance sheet in the year in which
they occur, also having the effect of reducing the respective designated retained earnings for such purposes.
Liquid asset portfolio – The liquid asset portfolio, as defined by IFC, consists of: time deposits and securities; related derivative instruments;
securities purchased under resale agreements, securities sold under repurchase agreements; receivables from sales of securities and payables for
purchases of securities; and related accrued income and charges. IFC’s liquid funds are invested in government, agency and governmentsponsored agency obligations, time deposits and asset-backed, including mortgage-backed, securities. Government and agency obligations include
positions in high quality fixed rate bonds, notes, bills, and other obligations issued or unconditionally guaranteed by governments of countries or
other official entities including government agencies and instrumentalities or by multilateral organizations. Asset-backed and mortgage-backed
securities include agency and non-agency residential mortgage-backed securities, commercial mortgage-backed securities, consumer, auto and
student loans-backed securities, commercial real estate collateralized debt obligations and collateralized loan obligations.
Securities and related derivative instruments within IFC’s liquid asset portfolio are classified as trading and are carried at fair value with any changes
in fair value reported in income from liquid asset trading activities. Interest on securities and amortization of premiums and accretion of discounts
are also reported in income from liquid asset trading activities. Gains and losses realized on the sale of trading securities are computed on a
specific security basis.
IFC classifies cash and due from banks and time deposits (collectively, cash and cash equivalents) as cash and as cash equivalents in the
consolidated statement of cash flows because they are generally readily convertible to known amounts of cash within 90 days of acquisition
generally when the original maturities for such instruments are under 90 days or in some cases are under 180 days.
Repurchase and resale agreements – Repurchase agreements are contracts under which a party sells securities and simultaneously agrees to
repurchase the same securities at a specified future date at a fixed price. Resale agreements are contracts under which a party purchases
securities and simultaneously agrees to resell the same securities at a specified future date at a fixed price.
It is IFC’s policy to take possession of securities purchased under resale agreements, which are primarily liquid government securities. The market
value of these securities is monitored and, within parameters defined in the agreements, additional collateral is obtained when their value declines.
IFC also monitors its exposure with respect to securities sold under repurchase agreements and, in accordance with the terms of the agreements,
requests the return of excess securities held by the counterparty when their value increases.
Repurchase and resale agreements are accounted for as collateralized financing transactions and recorded at the amount at which the securities
were acquired or sold plus accrued interest.
Borrowings – To diversify its access to funding, and reduce its borrowing costs, IFC borrows in a variety of currencies and uses a number of
borrowing structures, including foreign exchange rate-linked, inverse floating rate and zero coupon notes. Generally, IFC simultaneously converts
such borrowings into variable rate US dollar borrowings through the use of currency and interest rate swap transactions. Under certain outstanding
borrowing agreements, IFC is not permitted to mortgage or allow a lien to be placed on its assets (other than purchase money security interests)
without extending equivalent security to the holders of such borrowings.
Substantially all borrowings are carried at fair value under the Fair Value Option with changes in fair value reported in net gains and losses on other
non-trading financial instruments accounted for at fair value in the consolidated income statement.
Interest on borrowings and amortization of premiums and accretion of discounts are reported in charges on borrowings.
Risk management and use of derivative instruments – IFC enters into transactions in various derivative instruments for financial risk
management purposes in connection with its principal business activities, including lending, investing in debt securities and equity investments,
client risk management, borrowing, liquid asset portfolio management and asset and liability management. There are no derivatives designated as
accounting hedges.
84
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All derivative instruments are recorded on the consolidated balance sheet at fair value as derivative assets or derivative liabilities. Where they are
not clearly and closely related to the host contract, certain derivative instruments embedded in loans, debt securities and equity investments are
bifurcated from the host contract and recorded at fair value as derivative assets and liabilities. The fair value at inception of such embedded
derivatives is excluded from the carrying amount of the host contracts on the consolidated balance sheet. Changes in fair values of derivative
instruments used in the liquid asset portfolio are recorded in income from liquid asset trading activities. Changes in fair values of derivative
instruments other than those in the liquid asset portfolio are recorded in net gains and losses on other non-trading financial instruments accounted
for at fair value. The risk management policy for each of IFC’s principal business activities and the accounting policies particular to them are
described below.
Lending activities IFC’s policy is to closely match the currency, interest rate basis, and maturity of its loans and borrowings. Derivative instruments
are used to convert the cash flows from fixed rate US dollar or non-US dollar loans into variable rate US dollars. IFC has elected not to designate
any hedging relationships for any of its lending-related derivatives.
Client risk management activities IFC enters into derivatives transactions with its clients to help them hedge their own currency, interest rate, or
commodity risk, which, in turn, improves the overall quality of IFC’s loan portfolio. To hedge the market risks that arise from these transactions with
clients, IFC enters into offsetting derivative transactions with matching terms with authorized market counterparties. Changes in fair value of all
derivatives associated with these activities are reported in net income in net gains and losses on other non-trading financial instruments accounted
for at fair value.
Borrowing activities IFC issues debt securities in various capital markets with the objectives of minimizing its borrowing costs, diversifying funding
sources, and developing member countries’ capital markets, sometimes using complex structures. These structures include borrowings payable in
multiple currencies, or borrowings with principal and/or interest determined by reference to a specified index such as a stock market index, a
reference interest rate, a commodity index, or one or more foreign exchange rates. IFC uses derivative instruments with matching terms, primarily
currency and interest rate swaps, to convert such borrowings into variable rate US dollar obligations, consistent with IFC’s matched funding policy.
IFC elected to carry at fair value, under the Fair Value Option, all market borrowings for which a derivative instrument is used to create an economic
hedge. Changes in the fair value of such borrowings and the associated derivatives are reported in net gains and losses on other non-trading
financial instruments accounted for at fair value in the consolidated income statement.
Liquid asset portfolio management activities IFC manages the interest rate, currency and other market risks associated with certain of the time
deposits and securities in its liquid asset portfolio by entering into derivative transactions to convert the cash flows from those instruments into
variable rate US dollars, consistent with IFC’s matched funding policy. The derivative instruments used include short-term, over-the-counter foreign
exchange forwards (covered forwards), interest rate and currency swaps, and exchange-traded interest rate futures and options. As the entire liquid
asset portfolio is classified as a trading portfolio, all securities (including derivatives) are carried at fair value with changes in fair value reported in
income from liquid asset trading activities. No derivatives in the liquid asset portfolio have been designated as hedging instruments under ASC 815.
Asset and liability management In addition to the risk managed in the context of its business activities detailed above, IFC faces residual market
risk in its overall asset and liability management. Residual currency risk is managed by monitoring the aggregate position in each lending currency
and reducing the net excess asset or liability position through sales or purchases of currency. Interest rate risk arising from mismatches due to
write-downs, prepayments and re-schedulings, and residual reset date mismatches is monitored by measuring the sensitivity of the present value of
assets and liabilities in each currency to each basis point change in interest rates.
IFC monitors the credit risk associated with these activities by careful assessment and monitoring of prospective and actual clients and
counterparties. In respect of liquid assets and derivatives transactions, credit risk is managed by establishing exposure limits based on the credit
rating and size of the individual counterparty. In addition, IFC has entered into master agreements governing derivative transactions that contain
close-out and netting provisions and collateral arrangements. Under these agreements, if IFC’s credit exposure to a counterparty, on a mark-tomarket basis, exceeds a specified level, the counterparty must post collateral to cover the excess, generally in the form of liquid government
securities or cash. IFC does not offset the fair value amounts of derivatives and obligations to return cash collateral associated with these masternetting agreements.
Loan participations – IFC mobilizes funds from commercial banks and other financial institutions (Participants) by facilitating loan participations,
without recourse. These loan participations are administered and serviced by IFC on behalf of the Participants. The disbursed and outstanding
balances of loan participations that meet the applicable accounting criteria are accounted for as sales and are not included in IFC’s consolidated
balance sheet. All other loan participations are accounted for as secured borrowings and are included in loans on IFC’s consolidated balance sheet,
with the related secured borrowings included in payables and other liabilities on IFC’s consolidated balance sheet.
Pension and other postretirement benefits – IBRD has a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and
a Post-Employment Benefits Plan (PEBP) that cover substantially all of its staff members as well as the staff of IFC and of MIGA.
The SRP provides regular pension benefits and includes a cash balance plan. The RSBP provides certain health and life insurance benefits to
eligible retirees. The PEBP provides pension benefits administered outside the SRP. All costs associated with these plans are allocated between
IBRD, IFC, and MIGA based upon their employees’ respective participation in the plans. In addition, IFC and MIGA reimburse IBRD for their share
of any contributions made to these plans by IBRD.
The net periodic pension and other postretirement benefit income or expense allocated to IFC is included in income or expense from pension and
other postretirement benefit plans in the consolidated income statement. IFC includes a receivable from IBRD in receivables and other assets,
representing prepaid pension and other postretirement benefit costs.
85
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently adopted accounting standards – In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (ASU 201105). ASU 2011-05 revises the manner in which entities must present comprehensive income in their financial statements by requiring either (1) a
continuous statement of comprehensive income or (2) two separate but consecutive statements of income and comprehensive income, respectively.
ASU 2011-05 does not change the items that must be reported in other comprehensive income, does not require any additional disclosures and is
effective for fiscal years ending after December 15, 2011 (which was the year ended June 30, 2012 for IFC) and interim and annual periods
thereafter. IFC currently presents two separate but consecutive consolidated statements of income and comprehensive income, respectively. ASU
2011-05 is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2011 (which was
the year ended June 30, 2012 for IFC).
Accounting and financial reporting developments – In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act)
became law. The Act seeks to reform the U.S. financial regulatory system by introducing new regulators and extending regulation over new
markets, entities, and activities. The implementation of the Act is dependent on the development of various rules to clarify and interpret its
requirements. Pending the development of these rules, no impact on IFC has been determined as of June 30, 2013. IFC continues to evaluate the
potential future implications of the Act.
In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities (ASU 2011-11), and ASU 2011-12, Deferral
of the Effective date for Amendments to the Presentation of reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-11 contains new disclosure requirements regarding the reporting entity’s
rights of setoff and related arrangements associated with its financial instruments and derivatives. The new disclosures will also provide information
about both gross and net exposures. ASU 2011-11 is effective for annual reporting periods, and interim periods within those annual periods,
beginning on or after January 1, 2013 (which is the year ending June 30, 2014 for IFC), and must be applied retroactively.
In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (ASU 2013-01). ASU
2013-01 clarifies that instruments within ASC 2011-11’s scope are limited to derivatives, repurchase and reverse repurchase (resale) agreements
and securities lending transactions that are either offset in accordance with ASC 210-20-45 or ASC 815-10-45 or subject to a master netting
arrangement or similar agreement.
In February 2013, the FASB issued ASU 2013-02, Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 201302). ASU 2013-02 requires disclosure of information about changes in AOCI balances by component and significant items reclassified out of AOCI.
It does not amend any existing reporting requirements for measuring net income or other comprehensive income. ASU 2013-02 is effective for
annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2012 (which is the year ending June 30,
2014 for IFC).
In June 2013, the FASB issued ASU 2013-08, Investment Companies (Topic 946); Amendments to the Scope, Measurement and Disclosure
Requirements (ASU 2013-08). Among other things, ASU 2013-08 amends the criteria for an entity to qualify as an investment company under ASC
Topic 946, introduces new disclosure requirements applicable to investment companies, and amends the measurement criteria for certain
investments by an investment company in another investment company. ASU 2013-08 is applicable for annual reporting periods and interim
periods within those annual periods, beginning after December 15, 2013 (which is the year ending June 30, 2015 for IFC). IFC is currently
evaluating the impact of ASU 2013-08.
In addition, during the year ended June 30, 2013, the FASB issued and/or approved various other ASUs. IFC analyzed and implemented the new
guidance, as appropriate, with no material impact on the financial position, results of operations or cash flows of IFC.
86
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B – SCOPE OF CONSOLIDATION
IFC Asset Management Company, LLC (AMC) and AMC Funds
IFC through its wholly owned subsidiary, AMC, seeks to mobilize capital from outside IFC’s traditional investor pool and to manage third-party
capital. AMC is consolidated into IFC’s financial statements. At June 30, 2013, IFC has provided $2 million of capital to AMC ($2 million - June
30, 2012).
As a result of the consolidation of AMC, IFC’s consolidated balance sheet at June 30, 2013 includes $18 million in cash, receivables and other
assets ($12 million - June 30, 2012), less than $0.5 million in equity investments (less than $0.5 million - June 30, 2012) and $1 million in
payables and other liabilities ($2 million - June 30, 2012). Other income in IFC’s consolidated income statement includes $40 million during the
year ended June 30, 2013 ($28 million - year ended June 30, 2012 and $28 million - year ended June 30, 2011) and other expenses includes $11
million during the year ended June 30, 2013 ($10 million - year ended June 30, 2012 and $5 million - year ended June 30, 2011).
At June 30, 2013, AMC managed seven funds (collectively referred to as the AMC Funds). All AMC Funds are investment companies and are
required to report their investment assets at fair value through net income. IFC’s ownership interests in these AMC Funds are shown in the
following table:
AMC Fund
IFC’s ownership interest
IFC Capitalization (Equity) Fund, L.P.
61%
IFC Capitalization (Subordinated Debt) Fund, L.P.
13%
IFC African, Latin American and Caribbean Fund, LP
20%
Africa Capitalization Fund, Ltd.
-
IFC Russian Bank Capitalization Fund, LP
45%
IFC Catalyst Funds(*)
27%(*)
IFC Global Infrastructure Fund, LP
20%
(*)
The ownership interest of 27% reflects IFC’s ownership interest taking into consideration the overall commitments for the IFC Catalyst Fund, which is comprised of IFC Catalyst Fund, LP and
IFC Catalyst Fund (UK), LP (collectively, IFC Catalyst Fund). IFC does not have an ownership interest in the IFC Catalyst Fund (UK), LP.
IFC’s investments in AMC Funds, except for IFC Russian Bank Capitalization Fund, LP (RBCF), are accounted for at fair value under the Fair
Value Option.
RBCF, created in June 2012, is consolidated into IFC’s financial statements because of the presumption of control by IFC as owner of the general
partner of RBCF.
As a result of consolidating RBCF, IFC’s consolidated balance sheet at June 30, 2013 includes $74 million of equity investments ($0 - June 30,
2012), and noncontrolling interests of $38 million ($0 - June 30, 2012). These noncontrolling interests meet the ASC's definition of mandatorily
redeemable financial instruments because the terms of the underlying partnership agreement provide for a termination date at which time its
remaining assets are to be sold, its liabilities settled and the remaining net proceeds distributed to the noncontrolling interest holders and IFC.
RBCF's termination date is 2021 with a possible extension to 2023. As RBCF is considered an investment company, its investment securities
(equity investments) are measured at fair value in IFC's consolidated balance sheet; therefore, the settlement value or estimate of cash that would
be due and payable to settle these noncontrolling interests, assuming an orderly liquidation of RBCF on June 30, 2013, approximates the $38
million of noncontrolling interests reflected on IFC's consolidated balance sheet at June 30, 2013.
Other Consolidated entities
In October 2009, IFC created a special purpose vehicle, Hilal Sukuk Company, to facilitate a $100 million Sukuk under IFC’s borrowings program.
The Sukuk is scheduled to mature in November 2014. Hilal Sukuk Company is a VIE and has been consolidated into these Consolidated
Financial Statements, albeit with no material impact. The collective impact of this and other entities consolidated into these Consolidated Financial
Statements under the VIE or voting interest model is insignificant.
87
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C – LIQUID ASSET PORTFOLIO
Income from liquid asset trading activities
Income from the liquid asset trading activities for the years ended June 30, 2013, June 30, 2012 and June 30, 2011 comprises (US$ millions):
2013
Interest income
$
Net gains and losses on trading activities:
Realized losses
Unrealized gains (losses)
Net gains (losses) on trading activities
Total income from liquid asset trading activities
$
2012
430
$
2011
670
$
473
(103)
173
(70)
(287)
(76)
132
70
(357)
56
500
$
313
$
529
Net gains and losses on trading activities comprises net gains on asset-backed and mortgage-backed securities of $161 million in the year ended
June 30, 2013 ($8 million losses - year ended June 30, 2012; $159 million gains - year ended June 30, 2011) and net losses on other trading
securities of $91 million in the year ended June 30, 2013 ($349 million losses - year ended June 30, 2012; $103 million losses - year ended June
30, 2011).
The annualized rate of return on the trading liquid asset portfolio, calculated as total income from the liquid asset trading activities divided by fair
value average daily balance of total trading securities, during the year ended June 30, 2013, was 1.6% (1.2% - year ended June 30, 2012; 2.1% year ended June 30, 2011). After the effect of associated derivative instruments, the liquid asset portfolio generally reprices within one year.
Composition of liquid asset portfolio
The composition of IFC’s liquid asset portfolio included in the consolidated balance sheet captions is as follows (US$ millions):
June 30, 2013
Assets
Cash and due from banks
Time deposits
Trading securities
Securities purchased under resale agreements
Derivative assets
Receivables and other assets:
Receivables from unsettled security trades
Accrued interest income on time deposits and securities
Accrued income on derivative instruments
Total assets
$
Liabilities
Securities sold under repurchase agreements
Derivative liabilities
Payables and other liabilities:
Payables for unsettled security trades
Accrued charges on derivative instruments
Total liabilities
Total net liquid asset portfolio
$
65
5,889
30,349
337
376
June 30, 2012
$
883
5,038
28,868
964
264
236
135
21
37,408
691
123
20
36,851
5,736
210
6,397
223
179
46
6,171
477
33
7,130
31,237
$
29,721
The liquid asset portfolio is denominated primarily in US dollars; investments in other currencies, net of the effect of associated derivative
instruments that convert non-US dollar securities into US dollar securities, represent 2.7% of the portfolio at June 30, 2013 (2.7% - June 30, 2012).
Collateral
The estimated fair value of securities held by IFC at June 30, 2013 as collateral in connection with derivatives transactions and purchase and resale
agreements that may be sold or repledged was $1,029 million ($3,387 million - June 30, 2012). Collateral given by IFC to counterparties in
connection with repurchase agreements that may be sold or repledged by the counterparty approximates the amounts classified as Securities sold
under repurchase agreements. At June 30, 2013, trading securities with a carrying amount (fair value) of $205 million ($210 million - June 30, 2012)
were pledged in connection with borrowings under a short-term discount note program, the carrying amount of which was $1,317 million ($1,400
million - June 30, 2012).
88
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trading securities
Trading securities comprises:
Government, agency and government-sponsored agency obligations
Asset-backed securities
Corporate securities
Money market funds
Total trading securities
Government, agency and government-sponsored agency obligations
Asset-backed securities
Corporate securities
Money market funds
Total trading securities
Year ended
June 30, 2013
Fair value average
daily balance
(US$ million)
$
14,927
8,569
6,464
463
At June 30, 2013
Weighted average
Fair value
contractual
(US$ millions)
maturity (years)
$
14,047
2.1
9,076
17.9
6,458
2.6
768
n/a
$
$
30,423
30,349
Year ended
June 30, 2012
Fair value average
daily balance
(US$ million)
$
11,367
7,419
6,634
463
At June 30, 2012
Weighted average
contractual
Fair value
maturity (years)
(US$ millions)
$
13,684
1.6
8,252
18.6
6,823
2.2
109
n/a
$
$
25,883
28,868
The expected maturity of the asset-backed securities may be significantly shorter than the contractual maturity, as reported above, due to
prepayment features.
NOTE D – INVESTMENTS
The carrying amount of investments at June 30, 2013 and June 30, 2012 comprises (US$ millions):
June 30, 2013
Loans
Loans at amortized cost
Less: Reserve against losses on loans
$
Net loans
Loans held for sale at lower of amortized cost or fair value
Loans accounted for at fair value under the Fair Value Option
(outstanding principal balance $474 - June 30, 2013, $607 - June 30, 2012)
Total loans
Equity investments
Equity investments at cost less impairment*
Equity investments accounted for at fair value as available-for-sale
(cost $2,397 - June 30, 2013, $1,783 - June 30, 2012)
Equity investments accounted for at fair value
(cost $3,697 - June 30, 2013, $2,636 - June 30, 2012)
Total equity investments
Debt securities
Debt securities accounted for at fair value as available-for-sale
(amortized cost $1,889 - June 30, 2013, $1,916 - June 30, 2012)
Debt securities accounted for at fair value under the Fair Value Option
(amortized cost $237 - June 30, 2013, $210 - June 30, 2012)
Total debt securities
Total carrying amount of investments
$
21,923
(1,628)
June 30, 2012
$
20,226
(1,381)
20,295
43
18,845
60
493
591
20,831
19,496
3,119
3,066
4,230
3,231
4,346
3,477
11,695
9,774
1,911
1,916
240
252
2,151
2,168
34,677
$
31,438
* Equity investments at cost less impairment at June 30, 2013 includes unrealized gains of $2 million ($2 million - June 30, 2012) related to equity investments accounted
for as available-for-sale in previous periods and for which readily determinable fair vales are no longer available.
89
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The distribution of the investment portfolio by industry sector and by geographical region and a reconciliation of total disbursed portfolio to carrying
amount of investments is as follows (US$ millions):
June 30, 2013
Equity
Debt
investments securities
Sector
Loans
Manufacturing, agribusiness and services
$
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America
and Caribbean
Other
Total manufacturing, agribusiness
and services
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America
and Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America
and Caribbean
Other
Total infrastructure and natural
resources
Total disbursed investment portfolio
$
Reserve against losses on loans
Unamortized deferred loan origination
fees, net and other
Disbursed amount allocated to a related
financial instrument reported separately
in other assets or derivative assets
Adjustments to disbursed investment
portfolio
Unrealized losses on equity investments
held by consolidated VIEs
Unrealized gains on investments
accounted for at fair value as availablefor-sale
Unrealized gains (losses) on investments
Carrying amount of investments
2,020 $
3,297
503 $
634
2,105
1,018
Total
Loans
264 $
76
2,787
4,007
1,946 $
3,131
385 $
599
473
100
36
-
8,440
1,710
1,842
2,337
2,532
3,766
2,614
1,118
1,947
615
390
-
37
-
2,374
615
376
10,526
7,639
1,374
274
9,287
1,381
1,815
125
755
3,348
4,907
1,218
2,660
1,098
1,564
274
552
2,590
4,776
2,061
302
1,797
872
437
164
4,295
1,338
1,796
382
1,526
546
682
128
4,004
1,056
6,542
5,865
1,481
13,888
6,056
4,734
1,636
12,426
1,702
2,314
430
399
66
66
2,198
2,779
1,742
2,273
401
356
55
10
2,198
2,639
3,194
414
622
183
69
12
3,885
609
3,078
255
448
234
130
5
3,656
494
7,624
1,634
213
9,471
7,348
1,439
200
8,987
2,070 $
33,885
2,110 $
30,700
22,606 $
9,209 $
$
Total
201 $
36
$
21,043 $
7,547 $
(1,628)
(1,628)
(1,381)
(1,381)
(139)
(139)
(120)
(120)
(35)
(37)
-
(72)
(38)
(64)
(3)
(105)
8
44
-
52
8
3
(12)
(1)
(3)
19
$
June 30, 2012
Equity
Debt
investments securities
20,831 $
(3)
1,833
649
11,695 $
90
78
3
1,911
671
2,151 $
34,677
(1)
(16)
$
19,496 $
1,448
841
9,774 $
(1)
31
42
1,479
867
2,168 $
31,438
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – LOANS AND GUARANTEES
Loans
Income from loans and guarantees for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, comprise the following (US$
millions):
2013
Interest income
Commitment fees
Other financial fees
Gains on sale of loans
Gains on non-monetary exchanges
Unrealized gains (losses) on loans accounted for at fair value
under the Fair Value Option
$
2012
879
35
90
20
$
35
Income from loans and guarantees
$
2011
818
29
68
2
78
$
704
33
52
9
(57)
1,059
$
938
79
$
877
The currency composition and average contractual rate of the disbursed loan portfolio are summarized below:
June 30, 2013
Average
Amount
contractual
(US$ millions)
rate (%)
$
3.9
16,711
4.0
2,959
472
5.4
10.0
417
7.9
417
273
7.2
8.9
245
9.1
233
207
10.8
8.3
198
8.3
83
48
12.1
17.4
40
US dollar
Euro
Chinese renminbi
Indian rupee
Mexican peso
Philippine pesos
Brazilian real
South African rand
Russian ruble
Indonesian rupiah
Colombian pesos
Turkish lira
Vietnamese dong
Other currencies
OECD currencies
Non-OECD currencies
$
Total disbursed loan portfolio
39
264
3.2
8.9
22,606
4.5
June 30, 2012
Average
Amount
contractual
(US$ millions)
rate (%)
4.2
$
15,635
4.4
2,831
5.1
337
9.8
390
2.9
367
7.9
308
8.9
157
9.2
165
11.3
224
9.5
145
10.1
117
13.1
52
14.3
52
$
53
210
3.4
7.0
21,043
4.7
After the effect of interest rate swaps and currency swaps, IFC’s loans are principally denominated in variable rate US dollars.
Loans in all currencies are repayable during the years ending June 30, 2014 through June 30, 2018 and thereafter, as follows (US$ millions):
Fixed rate loans
Variable rate loans
Total disbursed loan portfolio
$
2014
994
4,210
$
2015
576
2,711
$
2016
774
2,920
$
2017
368
2,129
$
2018
662
1,814
$
5,204
$
3,287
$
3,694
$
2,497
$
2,476
Thereafter
$
1,294
4,154
$
Total
4,668
17,938
$
$
22,606
5,448
At June 30, 2013, 21% of the disbursed loan portfolio consisted of fixed rate loans (21% - June 30, 2012), while the remainder was at variable rates.
At June 30, 2013, the disbursed loan portfolio included $86 million of loans serving as collateral under secured borrowing arrangements ($100
million - June 30, 2012). IFC’s disbursed variable rate loans generally reprice within one year.
During the year ended June 30, 2013, IFC received mortgage loans with an initial carrying amount of $0 ($6 million - year ended June 30, 2012) in
conjunction with the settlement of borrowers obligation to IFC. These loans are classified as held-for-sale.
91
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reserve against losses on loans and provision for losses on loans
Changes in the reserve against losses on loans for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, as well as the related
recorded investment in loans, evaluated for impairment individually (specific reserves) and on a pool basis (portfolio reserves) respectively, are
summarized below (US$ millions):
Beginning balance
Provision (release of provision for) losses on loans, net
Write-offs
Foreign currency transaction adjustments
Other adjustments*
$
Year ended June 30, 2013
Specific
Portfolio
reserves
reserves
447
$
934
$
298
(49)
(13)
(2)
2
11
-
Total
reserves
1,381
249
(13)
11
Ending balance
$
741
$
887
$
1,628
Related recorded investment in loans
at June 30, 2013 evaluated for impairment**
Recorded investment in loans with specific reserves
$
$
21,923
1,403
$
20,520
$
21,923
Year ended June 30, 2012
Specific
Portfolio
reserves
reserves
382
$
925
$
76
39
(13)
2
(5)
(30)
5
-
Total
reserves
1,307
115
(13)
2
(35)
5
Beginning balance
Provision for losses on loans, net
Write-offs
Recoveries of previously written off loans
Foreign currency transaction adjustments
Other adjustments*
$
Ending balance
$
447
$
934
$
1,381
Related recorded investment in loans
at June 30, 2012 evaluated for impairment**
Recorded investment in loans with specific reserves
$
$
20,226
923
$
19,303
$
20,226
Year ended June 30, 2011
Specific
Portfolio
reserves
reserves
432
$
917
$
(16)
(24)
(56)
4
10
32
8
-
Total
reserves
1,349
(40)
(56)
4
42
8
Beginning balance
Release of provision for losses on loans, net
Write-offs
Recoveries of previously written off loans
Foreign currency transaction adjustments
Other adjustments*
$
Ending balance
$
382
$
925
$
1,307
Related recorded investment in loans
at June 30, 2011 evaluated for impairment**
Recorded investment in loans with specific reserves
$
$
19,038
918
$
18,120
$
19,038
*Other adjustments comprise reserves against interest capitalized as part of a debt restructuring.
**IFC individually evaluates all loans for impairment. Portfolio reserves are established for losses incurred, but not specifically identifiable, on loans for which no
specific reserve is established.
92
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reserve for losses on guarantees and other receivables and provision for losses on guarantees and other receivables
Changes in the reserve against losses on guarantees for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, are summarized below
(US$ millions):
2013
2012
2011
Beginning balance
$
21
$
24
$
24
Release of provision for losses on guarantees
(4)
(3)
-
Ending balance
$
17
$
21
$
24
Changes in the reserve against losses on other receivables for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, are summarized
below (US$ millions):
2013
2012
2011
Beginning balance
$
5
$
$
(Release of) provision for losses on other receivables
(2)
5
-
Ending balance
$
3
$
5
$
-
Impaired loans
The average recorded investment during the year ended June 30, 2013, in loans at amortized cost that are impaired was $1,352 million ($908
million - year ended June 30, 2012). The recorded investment in loans at amortized cost that are impaired at June 30, 2013 was $1,403 million
($923 million - June 30, 2012).
Loans at amortized cost that are impaired with specific reserves are summarized by industry sector and geographic region as follows (US$ millions):
Unpaid
principal
balance
Recorded
investment
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
$
165
508
398
$
171
517
460
June 30, 2013
Related
specific
reserve
$
116
297
189
Average
recorded
investment
$
162
515
333
Interest
income
recognized
$
2
10
13
Total manufacturing, agribusiness and services
1,071
1,148
602
1,010
25
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
15
17
7
17
24
32
3
7
7
18
22
7
1
1
1
39
73
17
47
3
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
Other
72
188
33
72
188
33
35
76
11
72
187
36
4
2
Total infrastructure and natural resources
293
293
122
295
6
Total financial markets
Total
$
IFC had no impaired loans at June 30, 2013 with no specific reserves.
93
1,403
$
1,514
$
741
$
1,352
$
34
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recorded
investment
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
$
June 30, 2012
Related
specific
reserve
Unpaid
principal
balance
100
436
181
$
106
444
244
$
Average
recorded
investment
72
235
46
$
101
440
163
Interest
income
recognized
$
12
5
Total manufacturing, agribusiness and services
717
794
353
704
17
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
22
40
7
24
46
32
5
18
7
19
48
7
2
3
1
69
102
30
74
6
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
73
14
50
73
14
51
25
6
33
70
14
46
3
3
Total infrastructure and natural resources
137
138
64
130
6
Total financial markets
Total
$
923
$
1,034
$
447
$
908
$
29
IFC had no impaired loans at June 30, 2012 with no specific reserves.
Nonaccruing loans
Loans on which the accrual of interest has been discontinued amounted to $1,272 million at June 30, 2013 ($859 million - June 30, 2012). The
interest income on such loans for the years ended June 30, 2013 and June 30, 2012 is summarized as follows (US$ millions):
Interest income not recognized on nonaccruing loans
Interest income recognized on loans in nonaccrual status
related to current and prior years, on a cash basis
2013
90
$
$
2012
47
38
$
21
2011
61
22
The recorded investment in nonaccruing loans at amortized cost is summarized by industry sector and geographic region as follow (US$ millions):
June 30, 2013
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
Total disbursed loans at amortized cost
Manufacturing,
agribusiness
and services
$
148
460
388
$
996
$
15
4
-
$
64
129
Total recorded
investment in
nonaccruing
loans
$
227
464
517
$
19
$
193
$
Infrastructure
and natural
resources
Financial
markets
1,208
June 30, 2012
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
Total disbursed loans at amortized cost
Manufacturing,
agribusiness
and services
$
82
467
142
$
691
94
$
9
-
$
8
14
32
Total recorded
investment in
nonaccruing
loans
$
90
490
174
$
9
$
54
$
Infrastructure
and natural
resources
Financial
markets
754
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Past due loans
An age analysis, based on contractual terms, of IFC’s loans at amortized cost by industry sector and geographic region follows (US$ millions):
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total manufacturing, agribusiness and
services
$
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total infrastructure and natural resources
Total disbursed loans
at amortized cost
$
June 30, 2013
90 days
or greater
Total
past due
past due
60-89
days
past due
30-59
days
past due
10
$
-
$
141
399
$
Total
loans
Current
141
409
$
1,820
2,803
$
1,961
3,212
31
-
35
-
146
-
212
-
1,860
1,017
2,072
1,017
41
35
686
762
7,500
8,262
1
-
4
5
1,837
2,290
1,837
2,295
-
1
-
1
1,946
216
1,946
217
1
1
4
6
6,289
6,295
-
4
-
64
-
68
-
1,627
2,306
1,695
2,306
-
-
130
-
130
-
2,996
413
3,126
413
-
4
194
198
7,342
7,540
42
$
40
Unamortized deferred loan origination fees, net
and other
Disbursed amount allocated to a related
financial instrument reported separately
in other assets or derivative assets
Recorded investment in loans
at amortized cost
$
884
$
966
$
21,131
$
22,097
(139)
(35)
$
At June 30, 2013, there are no loans 90 days or greater past due still accruing.
95
21,923
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total manufacturing, agribusiness
and services
$
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total infrastructure and natural
resources
Total disbursed loans
at amortized cost
$
June 30, 2012
90 days
or greater
Total
past due
past due
60-89
days
past due
30-59
days
past due
18
-
$
26
$
73
397
$
Total
loans
Current
91
423
$
1,821
2,600
$
1,912
3,023
-
40
-
63
-
103
-
1,824
615
1,927
615
18
66
533
617
6,860
7,477
-
-
4
4
1,198
2,576
1,198
2,580
-
-
-
-
1,712
330
1,712
330
-
-
4
4
5,816
5,820
-
-
14
14
1,548
2,250
1,548
2,264
-
-
32
-
32
-
2,988
255
3,020
255
-
-
46
46
7,041
7,087
18
$
66
Unamortized deferred loan origination fees,
net and other
Disbursed amount allocated to a related
financial instrument reported separately
in other assets or derivative assets
Recorded investment in loans
at amortized cost
$
583
$
667
$
19,717
$
20,384
(120)
(38)
$
At June 30, 2012, there are no loans 90 days or greater past due still accruing.
96
20,226
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loan Credit Quality Indicators
IFC utilizes a rating system to classify loans according to credit worthiness and risk. Each loan is categorized as very good, good, average, watch,
substandard, doubtful or loss.
A description of each category (credit quality indicator), in terms of the attributes of the borrower, the business environment in which the borrower
operates or the loan itself, follows:
Credit quality
indicator
Description
Very good
Excellent debt service capacity; superior management; market leader; very favorable operating environment; may also have
strong collateral and/or guaranteed arrangements.
Good
Strong debt service capacity: good liquidity; stable performance, very strong management, high market share; minimal
probability of financial deterioration.
Average
Satisfactory balance sheet ratios, average liquidity; good debt service capacity; good management; average size and market
share.
Watch
Tight liquidity; financial performance below expectations; higher than average leverage ratio; week management in certain
aspects; uncompetitive products and operations; unfavorable or unstable macroeconomic factors.
Substandard
Poor financial performance; difficulty servicing debt; inadequate net worth and debt service capacity; loan not fully secured:
partial past due amounts of interest and/or principal; well-defined weaknesses may adversely impact collection but no loss of
principal is expected.
Doubtful
Bad financial performance; serious liquidity and debt service capacity issues: large and increasing past due amounts: partial loss
is very likely.
Loss
Close to or already in bankruptcy; serious regional geopolitical issues/conflicts; default and total loss highly likely.
97
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of IFC’s loans at amortized cost by credit quality indicator updated effective June 30, 2013 and June 30, 2012 respectively, as well as
by industry sector and geographic region follows (US$ millions):
June 30, 2013
Very good
Manufacturing, agribusiness
and services
Asia
$
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America
and Caribbean Europe
Other
Total manufacturing, agribusiness
and services
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America
and Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America
and Caribbean
Other
Total infrastructure and natural
resources
Total disbursed loans
at amortized cost
$
Good
- $
9
Average
Watch
Substandard
420 $
369
830 $
986
440 $
994
86 $
400
25
-
184
826
998
164
344
24
208
3
34
1,799
2,978
1,802
41
-
713
530
813
1,280
-
870
-
41
Doubtful
Loss
51 $
86
Total
134 $
368
1,961
3,212
248
-
65
-
2,072
1,017
697
385
567
8,262
242
289
12
165
16
27
4
1,837
2,295
911
1
148
216
10
-
7
-
-
1,946
217
2,113
3,005
895
187
50
4
6,295
-
291
245
589
825
664
924
79
290
8
22
64
-
1,695
2,306
-
232
35
1,072
49
1,472
123
238
206
43
-
69
-
3,126
413
-
803
2,535
3,183
813
73
133
7,540
75 $
4,715 $
8,518 $
5,880 $
1,697 $
508 $
704 $
Unamortized deferred loan origination
fees, net and other
Disbursed amount allocated
to a related financial instrument
reported separately in other assets
or derivative assets
22,097
(139)
(35)
Recorded investment in loans
at amortized cost
$
98
21,923
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Very good
Manufacturing, agribusiness and
services
Asia
$
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America
and Caribbean Europe
Other
Total manufacturing,
agribusiness and services
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America
and Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America
and Caribbean
Other
Total infrastructure and natural
resources
Total disbursed loans
at amortized cost
$
Good
Average
- $
-
381 $
312
-
218
336
-
Substandard
Doubtful
Loss
461 $
904
187 $
302
81 $
231
933
279
531
-
110
-
1,247
3,097
1,896
-
649
425
283
1,440
-
338
-
-
Total
9 $
182
1,912
3,023
114
-
21
-
1,927
615
599
426
212
7,477
244
387
267
22
57
4
1,198
2,580
1,181
-
176
330
10
-
7
-
-
1,712
330
1,412
2,904
1,137
277
86
4
5,820
-
257
243
553
779
630
1,066
35
31
41
143
32
2
1,548
2,264
-
301
44
1,015
102
1,383
109
226
-
54
-
41
-
3,020
255
-
845
2,449
3,188
292
238
75
7,087
8,450 $
6,221 $
291 $
20,384
- $
3,504 $
793 $
1,092
Watch
1,168 $
750 $
Unamortized deferred loan origination
fees, net and other
Disbursed amount allocated to
a related financial instrument
reported separately in other assets
or derivative assets
(120)
(38)
Recorded investment in loans
at amortized cost
$
20,226
Loan modifications during the year ended June 30, 2013 considered troubled debt restructurings were not significant. There were no loans that
defaulted during the year ended June 30, 2013 that had been modified in a troubled debt restructuring within 12 months prior to the date of
default.
Guarantees
IFC extends financial guarantee facilities to its clients to provide full or partial credit enhancement for their debt securities and trade obligations.
Under the terms of IFC’s guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client,
where default is defined as failure to pay when payment is due. Guarantees entered into by IFC generally have maturities consistent with those of
the loan portfolio. Guarantees signed at June 30, 2013 totaled $4,933 million ($4,507 million - June 30, 2012). Guarantees of $3,565 million that
were outstanding (i.e., not called) at June 30, 2013 ($3,420 million - June 30, 2012), were not included in loans on IFC’s consolidated balance
sheet. The outstanding amount represents the maximum amount of undiscounted future payments that IFC could be required to make under
these guarantees.
99
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F – DEBT SECURITIES
Income from debt securities for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, comprise the following (US$ millions):
2013
Interest income
Dividends
Realized gains (losses) on sales of debt securities
Gains on non-monetary exchanges
Other-than-temporary impairments
Unrealized (losses) gains on debt securities accounted for at fair value
under the Fair Value Option
$
2012
59
14
10
7
(46)
$
2011
60
14
12
1
(27)
(39)
Total income from debt securities
$
5
$
21
$
39
9
(2)
4
(2)
(2)
81
$
46
Debt securities accounted for as available-for-sale at June 30, 2013 and June 30, 2012 comprise (US$ millions):
Corporate debt securities
Preferred shares
Asset-backed securities
Other debt securities
Total
June 30, 2013
Unrealized
Amortized
cost
Fair value
gains
losses
$
1,381 $
6 $
(17) $
1,370
438
43
(10)
471
67
67
3
3
June 30, 2012
Unrealized
Amortized
cost
Fair value
gains
losses
$
1,425 $
- $
(26) $
1,399
483
41
(15)
509
6
6
2
2
$
$
1,889 $
49 $
(27) $
1,911
1,916 $
41 $
(41) $
1,916
Unrealized losses on debt securities accounted for as available-for-sale at June 30, 2013 are summarized below (US$ millions):
Corporate debt securities
Preferred shares
Total
$
$
Less than 12 months
Fair
Unrealized
value
losses
224
$
(5)
23
(2)
247
$
(7)
$
$
12 months or greater
Fair
Unrealized
value
losses
173
$
(12)
106
(8)
279
$
(20)
Total
Fair
value
$
397
129
Unrealized
losses
$
(17)
(10)
$
526
$
(27)
Unrealized losses on debt securities accounted for as available-for-sale at June 30, 2012 are summarized below (US$ millions):
Corporate debt securities
Preferred shares
Total
$
$
Less than 12 months
Fair
Unrealized
value
losses
127
$
(3)
179
(15)
306
$
(18)
$
$
12 months or greater
Fair
Unrealized
value
losses
339
$
(23)
-
339
$
(23)
Total
Fair
value
$
466
179
Unrealized
losses
$
(26)
(15)
$
645
$
(41)
Corporate debt securities comprise investments in bonds and notes. Unrealized losses associated with corporate debt securities are primarily
attributable to movements in the credit default swap spread curve applicable to the issuer. Based upon IFC’s assessment of expected credit
losses, IFC has determined that the issuer is expected to make all contractual principal and interest payments. Accordingly, IFC expects to
recover the cost basis of these securities.
Preferred shares comprise investments in preferred equity investments that are redeemable at the option of IFC or mandatorily redeemable by the
issuer. Unrealized losses associated with preferred shares are primarily driven by changes in discount rates associated with changes in credit
spreads or interest rates, minor changes in exchange rates and comparable market valuations in the applicable sector. Based upon IFC’s
assessment of the expected credit losses, IFC expects to recover the cost basis of these securities.
100
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt securities with contractual maturities that are accounted for as available-for-sale have contractual maturities during the years ending June
30, 2014 through June 30, 2018 and thereafter, as follows (US$ millions):
Corporate debt securities
Asset-backed securities
Preferred shares
Total disbursed portfolio of debt
securities with contractual maturities
$
$
2014
207
2
209
$
$
2015
201
2
203
$
$
2016
136
67
203
$
$
2017
100
2
102
$
$
2018
319
1
320
Thereafter
$
345
12
44
$
$
401
Total
1,308
86
44
$
1,438
The expected maturity of asset-backed securities may differ from the contractual maturity, as reported above, due to prepayment features. In
addition, IFC has $505 million of redeemable preferred shares and other debt securities with undefined maturities ($489 million - June 30, 2012).
The currency composition and average contractual rate of debt securities with contractual maturities that are accounted for as available-for-sale are
summarized below:
June 30, 2013
June 30, 2012
Average
Average
Amount
contractual
Amount
contractual
(US$ millions)
rate (%)
(US$ millions)
rate (%)
US dollar
$
816
3.5
$
541
3.5
Brazilian real
261
7.4
511
10.2
Euro
100
3.3
69
2.6
South African rand
100
5.6
121
6.1
Turkish lira
88
7.9
25
8.1
Other non-OECD currencies
73
5.3
169
6.7
Total disbursed portfolio of debt securities with
$
1,436
contractual maturities
$
1,438
4.7
6.5
After the effect of interest rate swaps and currency swaps, IFC’s debt securities with contractual maturities that are accounted for as available-forsale are principally denominated in variable rate US dollars.
NOTE G – EQUITY INVESTMENTS
Income from equity investments for the years ended June 30, 2013, June 30, 2012 and June 30, 2011 comprises the following (US$ millions):
2013
Realized gains on equity sales, net
Gains on non-monetary exchanges
Dividends and profit participations
Custody, fees and other
Other-than-temporary impairments:
Equity investments at cost less impairment
Equity investments available-for-sale
$
Total other-than-temporary impairments
Unrealized gains (losses) on equity investments
Total income from equity investments
$
921
6
248
(8)
$
2012
2,000
3
274
-
2011
$
737
217
280
(6)
(152)
(289)
(272)
(420)
(87)
(131)
(441)
26
(692)
(128)
(218)
454
752
$
1,457
$
1,464
Dividends and profit participations include $36 million at June 30, 2013 ($43 million - year ended June 30, 2012; $57 million - year ended June 30,
2011) of receipts received in freely convertible currency, net of cash disbursements, in respect of investments accounted for under the cost
recovery method, for which cost has been fully recovered.
Equity investments include several private equity funds that invest primarily in emerging markets across a range of sectors and that are accounted
for at fair value under the Fair Value Option. These investments cannot be redeemed. Instead distributions are received through the liquidation of
the underlying assets of the funds. IFC estimates that the underlying assets of the funds will be liquidated over five to eight years. The fair values
of all these funds have been determined using the net asset value of IFC’s ownership interest in partners’ capital and totaled $2,687 million as of
June 30, 2013 ($2,181 million - June 30, 2012).
101
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H – INVESTMENT TRANSACTIONS COMMITTED BUT NOT DISBURSED OR UTILIZED
Loan, equity and debt security commitments signed but not yet disbursed, and guarantee and client risk management facilities signed but not yet
utilized are summarized below (US$ millions):
June 30, 2013
Investment transactions committed but not disbursed:
Loans, equity investments and debt securities
Investment transactions committed but not utilized:
Guarantees
Client risk management facilities
$
10,358
June 30, 2012
$
1,368
290
Total investment transactions committed but not disbursed or utilized
$
12,016
9,641
1,087
250
$
10,978
The disbursements of investment transactions committed but not disbursed or utilized are generally subject to fulfillment of conditions of
disbursement.
NOTE I – LOAN PARTICIPATIONS
Loan participations signed as commitments for which disbursement has not yet been made and loan participations disbursed and outstanding which
are serviced by IFC for participants are as follows (US$ millions):
Loan participations signed as commitments but not disbursed
Loan participations disbursed and outstanding which are serviced by IFC
$
$
June 30, 2013
1,961
6,621
$
$
June 30, 2012
1,880
6,463
NOTE J – RECEIVABLES AND OTHER ASSETS
Receivables and other assets are summarized below (US$ millions):
Receivables from unsettled security trades
Accrued interest income on time deposits and securities
Accrued income on derivative instruments
Accrued interest income on loans
Headquarters building:
Land
Building
Less: Accumulated building depreciation
$
Headquarters building, net
Deferred charges and other assets
Total receivables and other assets
$
102
June 30, 2013
236
135
440
207
$
June 30, 2012
691
126
507
229
89
233
(122)
89
225
(106)
200
1,063
208
1,068
2,281
$
2,829
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K – BORROWINGS
Market borrowings and associated derivatives
IFC's borrowings outstanding from market sources and currency and interest rate swaps, net of unamortized issue premiums and discounts, are
summarized below:
Market borrowings
US dollar
Amount
Weighted
average
(US$
rate (%)
millions)
1.9
$
25,148
8,136
2,684
1,616
1,367
1,318
692
498
4.8
2.6
4.3
7.5
6.3
6.3
3.8
Pound sterling
Chinese renminbi
Mexican peso
Euro
447
432
320
277
2.9
3.0
4.8
7.2
Canadian dollar
Norwegian kroner
Hong Kong dollar
Nigerian naira
Costa Rican colones
C.F.A. franc
South Korean won
New Ghanaian cedi
Dominican pesos
183
166
128
74
60
40
39
11
9
2.8
3.3
5.1
10.2
7.9
4.3
1.8
14.9
10.5
Australian dollar
Japanese yen
New Zealand dollar
Turkish lira
Brazilian real
South African rand
Russian ruble
43,645
Principal at face value
Borrowings under the shortterm Discount Note Program
Unamortized discounts, net
Total market borrowings
Fair value adjustments
Carrying amount of market
borrowings
June 30, 2013
Interest rate swaps
notional principal
Currency swaps
payable (receivable)
payable (receivable)
Notional
amount
Amount
Weighted
Weighted
average
average
(US$
(US$
rate (%)
rate (%)
millions)
millions)
$
18,400
(0.2)
$
37,767
0.4
(37,987)
(1.4)
(8,136)
(4.8)
(2,684)
(2.6)
(1,616)
(4.3)
(1,367)
(7.5)
(1,318)
(6.3)
(692)
(6.3)
(406)
(3.8)
30
6.4
(447)
(2.9)
(81)
(1.9)
(320)
(4.8)
(269)
(7.4)
8
0.4
(8)
(0.3)
(183)
(2.8)
(166)
(3.3)
(128)
(5.1)
(49)
(10.2)
(60)
(7.9)
(39)
(1.8)
(11)
(14.9)
-
$
458
1,316
44,961
(499)
44,462
177
$
44,639
103
$
(220)
Net currency obligation
Amount
Weighted
average
(US$
rate (%)
millions)
$
43,328
0.3
$
122
4.6
351
8
3.2
0.4
25
40
9
10.2
4.3
10.5
43,883
0.4
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Market borrowings
US dollar
Amount
Weighted
average
(US $
rate (%)
millions)
2.3
$
22,573
Australian dollar
Japanese yen
Turkish lira
New Zealand dollar
Brazilian real
Canadian dollar
South African rand
Pound sterling
Chinese renminbi
Norwegian kroner
Euro
Singapore dollar
Hong Kong dollar
Mexican peso
Swiss franc
Costa Rican colones
South Korean won
C.F.A. franc
Russian ruble
5.4
2.1
8.9
5.9
8.4
4.6
6.9
3.1
3.2
3.4
6.6
158
128
124
111
60
39
38
30
1.1
5.1
6.0
4.6
7.9
1.8
4.3
5.8
42,900
Principal at face value
Borrowings under the shortterm Discount Note Program
Unamortized discounts, net
Total market borrowings
Fair value adjustments
Carrying amount of market
borrowings
9,048
3,831
1,801
1,264
913
780
629
490
339
277
267
June 30, 2012
Interest rate swaps
notional principal
Currency swaps
payable (receivable)
payable (receivable)
Notional
amount
Amount
Weighted
Weighted
average
average
(US $
(US $
rate (%)
rate (%)
millions)
millions)
$
17,946
(0.5)
$
35,208
0.7
(35,454)
(1.7)
(9,048)
(5.4)
(3,831)
(2.1)
(1,801)
(8.9)
(1,264)
(5.9)
(913)
(8.4)
(780)
(4.6)
(629)
(6.9)
(490)
(3.1)
(277)
(3.4)
(259)
(6.8)
8
1.0
(8)
(0.8)
(158)
(1.1)
(128)
(5.1)
(124)
(6.0)
(111)
(4.6)
(60)
(7.9)
(39)
(1.8)
(30)
(5.8)
30
6.5
$
(1,966)
$
(246)
Net currency obligation
Amount
Weighted
average
(US $
rate (%)
millions)
$
40,273
0.6
$
339
8
38
30
3.2
1.0
4.3
6.5
40,688
0.7
1,400
44,300
(640)
43,660
963
$
44,623
The net currency obligations in C.F.A. francs, Chinese renminbi, Dominican pesos, Nigerian naira, and Russian rubles at June 30, 2013 have
generally been invested and/or onlent to the clients in such currencies.
The weighted average remaining maturity of IFC’s borrowings from market sources was 4.1 years at June 30, 2013 (5.5 years - June 30, 2012).
Charges on borrowings for the year ended June 30, 2013 include $4 million of interest expense on secured borrowings ($5 million - year ended
June 30, 2012; $4 million - year ended June 30, 2011) and is net of $11 million of gains on buybacks of market borrowings ($19 million - June 30,
2012; $10 million - year ended June 30, 2011).
The net nominal amount payable from currency swaps of $458 million and the net notional amount receivable from interest rate swaps of $220
million at June 30, 2013 (receivable of $1,966 million from currency swaps and of $246 million from interest rate swaps - June 30, 2012), shown in
the above table, are represented by currency and interest rate swap assets at fair value of $1,503 million and currency and interest rate swap
liabilities at fair value of $1,823 million ($3,369 million and $627 million - June 30, 2012), included in derivative assets and derivative liabilities,
respectively, on the consolidated balance sheet.
Short-term market borrowings
IFC’s short-term Discount Note Program has maturities ranging from overnight to one year. The amount outstanding under the program at June
30, 2013 is $1,316 million ($1,400 million - June 30, 2012). Charges on borrowings for the year ended June 30, 2013, include $2 million in
respect of this program ($1 million - June 30, 2012; $3 million - June 30, 2011).
104
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Borrowings from IBRD
Borrowings outstanding from IBRD and currency are summarized below:
Saudi Arabian riyal
US dollar
Total borrowings outstanding from IBRD
June 30, 2013
Weighted
Principal
average
amount
cost (%)
(US$ millions)
$
34
4.0
196
0.2
June 30, 2012
Weighted
Principal
average
amount
cost (%)
(US$ millions)
$
42
4.0
-
$
$
230
42
The weighted average remaining maturity of borrowings from IBRD was 3.8 years at June 30, 2013 (2.7 years - June 30, 2012). Charges on
borrowings for the year ended June 30, 2013, includes $2 million ($2 million - year ended June 30, 2012; $2 million - year ended June 30, 2011)
in respect of borrowings from IBRD.
Maturity of borrowings
The principal amounts repayable on borrowings outstanding in all currencies, gross of any premiums or discounts, during the years ending June
30, 2014, through June 30, 2018, and thereafter are summarized below (US$ millions):
Borrowings from market sources
Borrowings under the short-term
Discount Note Program
Borrowings from IBRD
$
Total borrowings, gross
Unamortized discounts, net
Fair value adjustments
$
2014
9,264
$
1,316
8
10,588
2015
7,053
$
8
$
7,061
2016
6,236
$
2017
7,027
8
$
6,244
$
8
$
7,035
$
2018
8,191
Thereafter
$
5,874
198
-
8,389
$
5,874
Carrying amount of borrowings
$
Total
43,645
1,316
230
$
45,191
(499)
177
$
44,869
After the effect of interest rate and currency swaps, IFC’s borrowings generally reprice within one year.
NOTE L – PAYABLES AND OTHER LIABILITIES
Payables and other liabilities are summarized below (US$ millions):
Accrued charges on borrowings
Accrued charges on derivative instruments
Payables for unsettled security trades
Secured borrowings
Liabilities under retirement benefit plans
Accounts payable, accrued expenses and other liabilities
Deferred income
$
Total payables and other liabilities
$
June 30, 2013
395
153
179
86
183
1,225
114
2,335
$
$
June 30, 2012
491
180
477
100
338
1,162
110
2,858
NOTE M – CAPITAL TRANSACTIONS
On July 20, 2010, the Board of Directors recommended that the Board of Governors approve an increase in the authorized share capital of IFC of
$130 million, to $2,580 million, and the issuance of $200 million of shares (including $70 million of unallocated shares). The resolution
recommended by the Board of Directors was adopted by the Board of Governors on March 9, 2012. The amendment to the Articles of Agreement
and the increase in the authorized share capital have become effective on June 27, 2012.
During the year ended June 30, 2013, 31,321 shares, at a par value of $1,000 each, were subscribed and paid by member countries (2,500
shares at a par value of $1,000 each - year ended June 30, 2012; 0 shares at a par value of $1,000 each - year ended June 30, 2011).
105
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under IFC’s Articles of Agreement, in the event a member withdraws from IFC, IFC and the member may negotiate on the repurchase of the
member’s capital stock on such terms as may be appropriate under the circumstances. Such agreement may provide, among other things, for a
final settlement of all obligations of the member to IFC. If such an agreement is not made within six months after the member withdraws or such
other time as IFC and the member may agree, the repurchase price of the member’s capital stock shall be the value thereof shown by the books
of IFC on the day when the member withdraws. The repurchase of capital stock is subject to certain conditions including payments in installments,
at such times and in such available currency or currencies as IFC reasonably determines, taking into account the financial position of IFC. IFC’s
Articles of Agreement also provide for the withdrawing member to repay losses on loans and equity investments in excess of reserves provided on
the date of withdrawal.
NOTE N – OTHER INCOME
Other income for the year ended June 30, 2013, predominantly comprises $25 million of fees collected from clients ($20 million - year ended June
30, 2012; $24 million - year ended June 30, 2011), $41 million of income from consolidated entities ($28 million - year ended June 30, 2012; $29
million - year ended June 30, 2011) and income under other reimbursable arrangements of $8 million ($10 million - year ended June 30, 2012; $6
million - year ended June 30, 2011).
NOTE O – RETAINED EARNINGS DESIGNATIONS AND RELATED EXPENDITURES AND ACCUMULATED OTHER COMPREHENSIVE
INCOME
Designated retained earnings
The components of designated retained earnings and related expenditures are summarized below (US$ millions):
Grants to
IDA
At June 30, 2010
$
Year ended June 30, 2011
Designations of retained
earnings
Expenditures against
designated retained
earnings
At June 30, 2011
$
Year ended June 30, 2012
Designations of retained
earnings
Expenditures against
designated retained
earnings
At June 30, 2012
$
Year ended June 30, 2013
Designations of retained
earnings
Expenditures against
designated retained
earnings
At June 30, 2013
$
Advisory
services
-
$
313
Performancebased grants
$
Global
Infrastructure
Project
Development
Fund
SME
Ventures
for IDA
countries
101
$
37
$
Total
designated
retained
earnings
30
$
481
600
10
-
-
-
610
(600)
(106)
(47)
(3)
-
(756)
-
$
217
$
54
$
34
$
30
$
335
330
69
-
-
-
399
(330)
(67)
(13)
(2)
-
(412)
-
$
219
$
41
$
32
$
30
$
322
340
80
-
-
-
420
(340)
(100)
(10)
(4)
(10)
(464)
-
$
199
$
31
$
28
$
20
$
278
On August 9, 2012, the Board of Directors approved a designation of $340 million of IFC’s retained earnings for grants to IDA and $80 million of
IFC’s retained earnings for advisory services. On October 12, 2012, the Board of Governors noted with approval the designations approved by the
Board of Directors. IFC recognizes designation of retained earnings for advisory services when the Board of Directors approves it and recognizes
designation of retained earnings for grants to IDA when it is noted with approval by the Board of Governors.
On January 15, 2013, IFC recognized expenditures against grants to IDA on signing of a grant agreement between IDA and IFC concerning the
transfer to IDA and use of funds corresponding to designation of retained earnings for grants to IDA approved by the Board of Directors on August
9, 2012 and noted with approval by the Board of Governors on October 12, 2012.
106
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive income
The components of accumulated other comprehensive income at June 30, 2013 and June 30, 2012 are summarized as follows (US$ millions):
Net unrealized gains on available-for-sale debt securities
Net unrealized gains on available-for-sale equity investments
Unrecognized net actuarial losses and unrecognized prior service costs on benefit plans
Total accumulated other comprehensive income
$
June 30, 2013
22
1,835
(736)
$
June 30, 2012
1,121
$
1,450
(937)
$
513
NOTE P – NET GAINS AND LOSSES ON OTHER NON-TRADING FINANCIAL INSTRUMENTS ACCOUNTED FOR AT FAIR VALUE
Net gains and losses on other non-trading financial instruments accounted for at fair value for the years ended June 30, 2013, June 30, 2012 and
June 30, 2011, comprises (US$ millions):
2013
Net realized gains and losses on derivatives associated with investments:
Realized (losses) gains on derivatives associated with loans
Realized gains on derivatives associated with debt securities
Realized gains on derivatives associated with equity investments
$
2012
(30)
25
40
$
2011
(1)
12
$
4
11
48
35
11
63
2
-
(1)
11
-
8
14
2
10
22
279
134
(60)
(99)
(14)
79
(68)
(30)
75
353
(34)
(23)
31
755
(59)
(1,148)
(44)
187
786
(754)
(1,207)
1,001
143
(50)
Net unrealized gains (losses) on market borrowings and associated derivatives
32
(206)
93
Total net unrealized gains (losses) on other non-trading financial instruments
385
(240)
70
Total net realized gains on derivatives associated with investments
Net gains and losses on non-monetary exchanges of derivatives associated
with investments:
Gains (losses) on non-monetary exchanges of derivatives associated with loans
Gains on non-monetary exchanges of derivatives associated with debt securities
Gains on non-monetary exchanges of derivatives associated with equity investments
Total net non-monetary gains on derivatives associated with investments
Net unrealized gains and losses on other non-trading financial instruments:
Unrealized gains and losses on derivatives associated with investments:
Unrealized gains (losses) on derivatives associated with loans
Unrealized gains (losses) on derivatives associated with debt securities
Unrealized (losses) gains on derivatives associated with equity investments
Total unrealized gains (losses) on derivatives associated with investments
Unrealized gains and losses on market borrowings accounted for at fair value:
Credit spread component
Interest rate, foreign exchange and other components
Total unrealized gains (losses) on market borrowings
Unrealized (losses) gains on derivatives associated with market borrowings
Net gains (losses) on other non-trading financial instruments accounted
for at fair value
$
422
$
(219)
$
155
As discussed in Note A, “Summary of significant accounting and related policies”, market borrowings with associated derivatives are accounted
for at fair value under the Fair Value Option. Differences arise between the movement in the fair value of market borrowings and the fair value of
the associated derivatives primarily due to the different credit characteristics. The change in fair value reported in “Net unrealized gains (losses)
on market borrowings and associated derivatives” includes the impact of changes in IFC's own credit spread. As credit spreads widen, unrealized
gains are recorded and when such credit spreads narrow, unrealized losses are recorded (notwithstanding the impact of other factors, such as
changes in risk-free interest and foreign currency exchange rates). The magnitude and direction (gain or loss) can be volatile from period to period
but do not alter the cash flows on the market borrowings.
107
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE Q – DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
As discussed in Note A, “Summary of significant accounting and related policies”, IFC enters into transactions in various derivative instruments for
financial risk management purposes in connection with its principal business activities, including lending, investing in debt securities, equity
investments, client risk management, borrowing, liquid asset management and asset and liability management. None of these derivative
instruments are designated as hedging instruments under ASC Topic 815. Note A describes how and why IFC uses derivative instruments. The
fair value of derivative instrument assets and liabilities by risk type at June 30, 2013 and June 30, 2012 is summarized as follows (US$ millions):
June 30, 2013
Fair value
Consolidated balance sheet location
Derivative assets
Interest rate
Foreign exchange
Interest rate and currency
Equity
Other derivative
Total derivative assets
Derivative liabilities
Interest rate
Foreign exchange
Interest rate and currency
Equity and other
Total derivative liabilities
June 30, 2012
Fair value
$
684
124
1,787
780
1
$
905
174
3,116
418
2
$
3,376
$
4,615
$
446
41
1,823
-
$
410
68
782
1
$
2,310
$
1,261
The effect of derivative instruments contracts on the consolidated income statement for the years ended June 30, 2013, June 30, 2012 and June
30, 2011 is summarized as follows (US$ millions):
Derivative risk category
Interest rate
Foreign exchange
Interest rate and currency
Equity
Other derivative contracts
Income statement location
Income from loans and guarantees
Income from liquid asset trading activities
Charges on borrowings
Other income
Net gains and losses on other non-trading financial
instruments accounted for at fair value
2013
$
2012
(48)
(237)
373
9
$
2011
(39)
(282)
440
2
$
(50)
(238)
464
11
(365)
267
(38)
134
(179)
75
(22)
46
(33)
14
26
(11)
(157)
(29)
164
910
(187)
(61)
(74)
940
(198)
(79)
(32)
943
(2,829)
512
993
(105)
(7)
660
-
(81)
(5)
Net gains and losses on other non-trading financial
instruments accounted for at fair value
93
40
135
Net gains and losses on other non-trading financial
instruments accounted for at fair value
(1)
(5)
7
Foreign currency transaction gains and losses
on non-trading activities
Income from liquid asset trading activities
Net gains and losses on other non-trading financial
instruments accounted for at fair value
Income from loans and guarantees
Income from debt securities
Income from liquid asset trading activities
Charges on borrowings
Foreign currency transaction gains and losses
on non-trading activities
Net gains and losses on other non-trading financial
instruments accounted for at fair value
Other income
Total
$
(2,260)
The income related to each derivative instrument category includes realized and unrealized gains and losses.
108
$
2,292
$
1,834
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2013, the outstanding volume, measured by US$ equivalent notional, of interest rate contracts was $55,400 million ($51,147 million June 30, 2012), foreign exchange contracts was $10,853 million ($11,605 million - June 30, 2012) and interest rate and currency contracts was
$31,765 million ($28,730 million - June 30, 2012). At June 30, 2013, there were 263 equity risk and other contracts related to IFC’s loan and
equity investment portfolio recognized as derivatives assets or liabilities under ASC Topic 815 (221 equity risk and other contracts - June 30,
2012).
IFC enters into interest rate and currency derivative instruments under standard industry contracts that contain credit risk-linked contingent
features with respect to collateral requirements. Should IFC’s credit rating be downgraded from the current AAA, the credit support annexes of
these standard swap agreements detail, by swap counterparty, the collateral requirements IFC must satisfy in this event. The aggregate fair value
of derivatives containing a credit risk-linked contingent feature in a net liability position was $724 million at June 30, 2013 ($105 million - June 30,
2012). At June 30, 2013, IFC had no collateral posted under these agreements. If IFC was downgraded from the current AAA to AA+ or less, then
collateral in the amount of $233 million would be required to be posted against net liability positions with counterparties at June 30, 2013 ($6
million - June 30, 2012).
As of June 30, 2013, IFC had $245 million ($183 million - June 30, 2012) of outstanding obligations to return cash collateral under master netting
agreements.
NOTE R – FAIR VALUE MEASUREMENTS
Many of IFC’s financial instruments are not actively traded in any market. Accordingly, estimates and present value calculations of future cash flows
are used to estimate the fair values. Determining future cash flows for fair value estimation is subjective and imprecise, and minor changes in
assumptions or methodologies may materially affect the estimated values. The excess or deficit resulting from the difference between the carrying
amounts and the fair values presented does not necessarily reflect the values which will ultimately be realized, since IFC generally holds loans,
borrowings and other financial instruments with contractual maturities, with the aim of realizing their contractual cash flows.
The estimated fair values reflect the interest rate environments as of June 30, 2013 and June 30, 2012. In different interest rate environments, the
fair value of IFC’s financial assets and liabilities could differ significantly, especially the fair value of certain fixed rate financial instruments.
Reasonable comparability of fair values among financial institutions is not likely, because of the wide range of permitted valuation techniques and
numerous estimates that must be made in the absence of secondary market prices. This lack of objective pricing standards introduces a greater
degree of subjectivity and volatility to these derived or estimated fair values. Therefore, while disclosure of estimated fair values of financial
instruments is required, readers are cautioned in using these data for purposes of evaluating the financial condition of IFC. The fair values of the
individual financial instruments do not represent the fair value of IFC taken as a whole.
IFC’s financial instruments measured at fair value have been classified as Level 1, Level 2 or Level 3 based on the fair value hierarchy in ASC 820,
as described in Note A.
i)
Level 1 primarily consists of financial instruments whose values are based on unadjusted quoted market prices.
ii) Level 2 financial instruments are valued using models and other valuation methodologies and substantially all of the inputs are observable in
the market place, can be derived from observable data or are supported by observable levels at which market transactions are executed.
iii) Level 3 consists of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing inputs
that are non-observable. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair
value measurement.
All of IFC’s financial instruments in its liquid assets portfolio are managed according to an investment authority approved by the Board of Directors
and investment guidelines approved by IFC’s Corporate Risk Committee (CRC), a subcommittee of IFC’s Management Team. Third party
independent vendor prices are used to price the vast majority of the liquid assets. The vendor prices are evaluated by IFC's Treasury department
and IFC’s Integrated Risk department, maintains oversight for the pricing of liquid assets.
IFC’s regional and industry departments are primarily responsible for fair valuing IFC’s investment portfolio (equity investments, debt securities, loan
investments and related derivatives). IFC’s Portfolio Valuation Unit and Loss Provisioning Unit in the Accounting and Financial Operations
department, provide oversight over the fair valuation process by monitoring and reviewing the fair values of IFC’s investment portfolio. IFC’s
Valuation Oversight Subcommittee, which is a subcommittee of CRC, reviews significant valuation principles and the reasonableness of high
exposure valuations quarterly.
IFC's borrowings are fair valued by the Quantitative Analysis Group in IFC’s Treasury department under the oversight of the Integrated Risk
department.
109
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The methodologies used and key assumptions made to estimate fair values as of June 30, 2013, and June 30, 2012, are summarized below.
Liquid assets - The primary pricing source for the liquid assets is valuations obtained from external pricing services (vendor prices). The most
liquid securities in the liquid asset portfolio are exchange traded futures, options, and US Treasuries. For exchange traded futures and options,
exchange quoted prices are obtained and these are classified as Level 1 in accordance with ASC 820. Liquid assets valued using quoted market
prices are also classified as Level 1. Securities valued using vendor prices for which there is evidence of high market trade activity may also be
classified as Level 1. US Treasuries are valued using index prices and also classified as Level 1. The remaining liquid assets valued using vendor
prices are classified as Level 2 or Level 3 based on the results of IFC’s evaluation of the vendor's pricing methodologies. Most vendor prices use
some form of matrix pricing methodology to derive the inputs for projecting cash flows or to derive prices. When vendor prices are not available,
liquid assets are valued internally by IFC using yield-pricing approach or comparables model approach and these are classified as Level 2 or Level
3 depending on the degree that the inputs are observable in the market.
The critical factors in valuing liquid assets in both Level 2 and Level 3 are the estimation of cash flows and yield. Other significant inputs for valuing
corporate securities, quasi-government securities and sovereign or sovereign-guaranteed securities include reported trades, broker/dealer quotes,
benchmark securities, option adjusted spread curve, volatilities, and other reference data. In addition to these inputs, valuation models for
securitized or collateralized securities use collateral performance inputs, such as weighted average coupon rate, weighted average maturity,
conditional prepayment rate, constant default rate, vintage, and credit enhancements.
Loans and debt securities - Loans and debt securities in IFC’s investment portfolio that do not have available market prices are primarily valued
using discounted cash flow approaches. All loans measured at fair value are classified as Level 3. Certain loans contain embedded conversion
and/or income participation features. If not bifurcated as standalone derivatives, these features are considered in determining the loans’ fair value
based on the quoted market prices or other calculated values of the equity investments into which the loans are convertible and the discounted cash
flows of the income participation features. The valuation techniques and significant unobservable inputs for loans and debt securities classified as
Level 3 as of June 30, 2013 and June 30, 2012 are presented below:
Debt securities - preferred shares
June 30, 2013
Fair value
(US$
millions)
Valuation technique
Discounted cash flows
$
267
Relative valuations
130
Net asset value
148
Recent transactions
33
Other techniques
7
Total preferred shares
Loans and other debt securities
Discounted cash flows
1,545
1.0 - 50.0
0.0 - 85.0
2.9
45.6
Range
(%)
8.0 - 22.2
Weighted
average
(%)
13.3
n/a
n/a
0.7 - 80.0
0.0 - 85.0
n/a
3.9
44.8
n/a
2,059
Total
$
2,644
June 30, 2012
Fair value
(US$
millions)
Valuation technique
Discounted cash flows
$
159
Relative valuations
91
Net asset value
123
Recent transactions
275
Other techniques
9
Total preferred shares
Significant inputs
Discount rate
Valuation multiples*
Third party pricing
657
Discounted cash flows
2,037
Recent transactions
Other techniques
Credit default swap spreads
Expected recovery rates
57
8
Total loans and other debt securities
Total
Credit default swap spreads
Expected recovery rates
416
98
Total loans and other debt securities
Loans and other debt securities
Weighted
average
(%)
12.0
585
Recent transactions
Other techniques
Debt securities - preferred shares
Significant inputs
Discount rate
Valuation multiples*
Third party pricing
Range
(%)
6.9 - 18.0
2,102
$
2,759
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
110
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Borrowings - Fair values derived by using quoted prices in active markets are classified as Level 1. Fair values derived by determining the present
value of estimated future cash flows using appropriate discount rates and option specific models where appropriate are classified as Level 2. The
significant inputs used in valuing borrowings classified as Level 2 are presented below:
Classes
Structured bonds
Significant Inputs
Foreign exchange rate and inter-bank yield curves, IFC's credit curve and swaption volatility matrix, foreign
exchange rate volatility, equity spot price, volatility and dividend yield.
Unstructured bonds
Inter-bank yield curve and IFC's credit curve.
As of June 30, 2013 IFC had four inflation index linked structured borrowing issues classified as level 3 with a total fair value of $391 million. The
significant unobservable inputs in the valuation of this structure are the correlations between and the weights of the constituents of the inflation
index.
Derivative instruments - The various classes of derivative instruments include interest rate contracts, foreign exchange contracts, interest rate and
currency contracts, equity contracts and other derivative contracts. Certain over the counter derivatives in the liquid asset portfolio priced in-house
are classified as Level 2, while certain over the counter derivatives priced using external manager prices are classified as Level 3. Fair values for
derivative instruments are derived by determining the present value of estimated future cash flows using appropriate discount rates and option
specific models where appropriate.
The significant inputs used in valuing the various classes of derivative instruments classified as Level 2 and significant unobservable inputs for
derivative instruments classified as Level 3 as of June 30, 2013 and June 30, 2012 are presented below:
Level 2 derivatives
Interest rate contracts
Significant Inputs
Inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates.
Foreign exchange
Foreign exchange rate, inter-bank yield curves and foreign exchange basis curve.
Interest rate and currency rates
Foreign exchange rate, inter-bank yield curves, foreign exchange basis curve and yield curves specified to
index floating rates.
Level 3 derivatives
Equity related derivatives
Borrowing related structured
currency swap
Total
Level 3 derivatives
Equity related derivatives
Other derivatives
Total
June 30, 2013
Fair value
(US$
millions)
Type
Fixed strike price options
$
38
Variable strike price options
742
Other techniques
1
Inflation index linked note
(26)
$
Range
(%)
14.4 -115.1
Weighted
average
(%)
34.9
Inflation index weights
and correlations
Significant inputs
Volatilities
Contractual strike price*
419
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided
111
Weighted
average
(%)
21.5
755
June 30, 2012
Fair value
(US$
millions)
Type
Fixed strike price options
$
76
Variable strike price options
332
Other techniques
7
4
$
Significant inputs
Volatilities
Contractual strike price*
Range
(%)
1.0 - 70.6
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity investments - Equity investments valued using quoted prices in active markets are classified as Level 1. Equity investments classified as
Level 2 were valued using quoted prices in inactive markets. The valuation techniques and significant unobservable inputs for equity investments
classified as Level 3 as of June 30, 2013 and June 30, 2012 are presented below:
Sector
Banking and other financial
institutions
Valuation technique
Discounted cash flows
Relative valuations
Listed price (adjusted)
Recent transactions
Other techniques
June 30, 2013
Fair value
(US$ millions)
Significant inputs
$
674 Cost of equity
Asset growth rate
Return on assets
Perpetual growth rate
261 Price/book value
203 Discount for lock-up
271
96
Total banking and other financial
institutions
AMC Funds
Other funds
Net Asset Value
Recent transactions
Net Asset Value
Recent transactions
886
2
1,801
42
Third party pricing
2,731
Discounted cash flows
318
Relative valuations
Listed price (adjusted)
Recent transactions
Other techniques
174
29
156
138
Total others
Total
Weighted
average (%)
15.0
9.7
2.2
5.0
1.3
11.2
1,505
Total funds
Others
Range (%)
9.2 - 22.1
(5.9) - 170.0
(14.2) - 6.2
2.5 - 11.0
1.0 - 1.3
8.1 - 30.0
Weighted average cost of
capital
Cost of equity
Valuation multiples*
Discount for lock-up
815
$
5,051
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
112
6.7 - 16.7
8.7 - 19.1
11.8
13.1
2.1 - 24.0
11.0
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sector
Banking and other financial
institutions
Valuation technique
Discounted cash flows
Relative valuations
Listed price (adjusted)
Recent transactions
Other techniques
June 30, 2012
Fair value
(US$ millions)
Significant inputs
$
514 Cost of equity
Asset growth rate
Return on assets
Perpetual growth rate
203 Price/book value
207 Discount for lock-up
70
14
Total banking and other financial
institutions
AMC Funds
Other funds
1,008
Net Asset Value
Net Asset Value
Recent transactions
491
1,690
103
Total funds
Others
Third party pricing
n/a
n/a
2,284
Discounted cash flows
177
Relative valuations
Listed price (adjusted)
Recent transactions
Other techniques
135
37
151
161
Total others
Total
Weighted
Range (%) average (%)
9.8 - 22.7
16.8
(34.0) - 113.0
20.1
(8.6) - 7.4
2.1
3.0 - 11.0
5.2
1.5 - 2.4
1.5
9.4 - 27.8
12.5
n/a
n/a
Weighted average cost of
capital
Cost of equity
Valuation multiples*
Discount for lock-up
661
$
3,953
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
113
6.8 - 16.1
10.2 - 16.4
10.4
13.9
5.0-18.7
n/a
6.5
n/a
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value of assets and liabilities
Estimated fair values of IFC’s financial assets and liabilities and off-balance sheet financial instruments at June 30, 2013 and June 30, 2012 are
summarized below (US$ millions).
June 30, 2013
June 30, 2012
Carrying
Carrying
amount
Fair value
amount
Fair value
Financial assets
Cash and due from banks, time deposits, trading securities and
securities purchased under resale agreements
$
37,191
$
37,191
$
36,879
$
36,879
Investments:
Loans at amortized cost, net of reserves against losses
Loans held for sale at lower of amortized cost or fair value
Loans accounted for at fair value under the Fair Value Option
20,295
43
493
21,801
84
493
18,845
60
591
19,452
84
591
20,831
22,378
19,496
20,127
3,119
4,733
3,066
5,269
4,230
4,346
4,230
4,346
3,231
3,477
3,231
3,477
11,695
13,309
9,774
11,977
1,911
1,911
1,916
1,916
240
240
252
252
Total debt securities
2,151
2,151
2,168
2,168
Total investments
34,677
37,838
31,438
34,272
1,503
376
1,378
119
1,503
376
1,378
119
3,369
264
852
130
3,369
264
852
130
3,376
3,376
4,615
4,615
5
120
37
158
Total loans
Equity investments at cost less impairment
Equity investments accounted for at fair value as available-forsale
Equity investments accounted for at fair value
Total equity investments
Debt securities accounted for at fair value as available-for-sale
Debt securities accounted for at fair value under the Fair Value
Option
Derivative assets:
Borrowings-related
Liquid asset portfolio-related and other
Investment-related
Client risk management-related
Total derivative assets
Other investment-related financial assets
Financial liabilities
Securities sold under repurchase agreements and payable for
cash collateral received
$
5,736
$
5,736
$
6,397
$
6,397
Market and IBRD borrowings outstanding
44,869
44,863
44,665
44,669
Derivative liabilities:
Borrowings-related
Liquid asset portfolio-related and other
Investment-related
Client risk management-related
1,823
210
157
120
1,823
210
157
120
627
223
281
130
627
223
281
130
2,310
2,310
1,261
1,261
Total derivative liabilities
Other investment-related financial assets comprise standalone options and warrants that do not meet the definition of a derivative.
The fair value of loan commitments amounted to $24 million at June 30, 2013 ($20 million - June 30, 2012). Fair values of loan commitments are
based on present value of loan commitment fees.
114
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value hierarchy
The following tables provide information as of June 30, 2013 and June 30, 2012, about IFC’s financial assets and financial liabilities measured at
fair value on a recurring basis. As required by ASC 820, financial assets and financial liabilities are classified in their entirety based on the lowest
level input that is significant to the fair value measurement (US$ millions):
June 30, 2013
Level 1
Level 2
Level 3
Total
Trading securities:
Money market funds
$
768
$
$
$
768
Treasury securities
6,098
6,098
Foreign government obligations
6,491
6,491
Government guaranteed obligations
436
55
491
Supranational bonds
131
26
157
Municipal bonds
900
900
Agency bonds
170
2
172
Foreign agency bonds
893
893
Agency residential mortgage-backed securities
184
63
247
Asset-backed securities
3,533
5
3,538
Foreign asset-backed securities
2,359
2,359
Corporate bonds
4,930
4,930
Commercial mortgage-backed securities
601
601
Foreign residential mortgage-backed securities
19
2,281
2,300
Non-agency residential mortgage-backed securities
311
34
345
Collateralized debt and collateralized loan obligations
13
46
59
Total trading securities
21,020*
9,244
85
30,349
Loans (outstanding principal balance $474)
Equity investments:
Banking and non-banking financial institutions
Insurance companies
Funds
Others
Total equity investments
Debt securities:
Corporate debt securities
Preferred shares
Asset-backed securities
Other debt securities
Total debt securities
Derivative assets:
Interest rate contracts
Foreign exchange
Interest rate and currency
Equity
Others
Total derivative assets
Total assets at fair value
Borrowings:
Structured bonds
Unstructured bonds
Total borrowings (outstanding principal balance $43,245**)
-
493
493
1,669
229
1,490
3,388
18
73
46
137
1,464
41
2,731
815
5,051
3,151
343
2,731
2,351
8,576
-
-
1,474
585
87
5
2,151
1,474
585
87
5
2,151
-
684
124
1,787
2,595
780
1
781
684
124
1,787
780
1
3,376
$
24,408
$
11,976
$
8,561
$
44,945
$
24,798
24,798
$
3,606
14,129
17,735
$
391
391
$
3,997
38,927
42,924
Derivative liabilities:
Interest rate contracts
Foreign exchange
Interest rate and currency rates
Total derivative liabilities
Total liabilities at fair value
-
-
$
24,798
446
41
1,797
2,284
$
20,019
26
26
$
417
446
41
1,823
2,310
$
45,234
* includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $768 million at June 30, 2013.
** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $2,386 million, with a fair value of
$1,925 million as of June 30, 2013.
Note: For the year ended June 30, 2013: trading securities with a fair value of $180 million transferred from level 2 to level 1 due to indications of improved market activity; and trading securities
with a fair value of $1 million were transferred from level 1 to level 2 due to decrease in market activity. Equity investments with fair value of $72 million transferred from level 1 to level 2 and $49
million from level 2 to level 1 due to decrease/increase in market activities. Bonds issued by IFC with a fair value of $1,090 million transferred from level 1 to level 2 due to change in information
quality.
115
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Level 2
Level 3
Level 1
Trading securities:
Money market funds
Treasury securities
Foreign government obligations
Government guaranteed obligations
Supranational bonds
Municipal bonds
Agency bonds
Foreign agency bonds
Agency residential mortgage-backed securities
Asset-backed securities
Foreign asset-backed securities
Corporate bonds
Commercial mortgage-backed securities
Foreign residential mortgage-backed securities
Non-agency residential mortgage-backed securities
Collateralized debt and collateralized loan obligations
Total trading securities
$
109
6,362
6,251
696
63
480
(95)
1,020
213
1
3,503
24
18,627*
Loans (outstanding principal balance $607)
$
14
1,436
38
301
4
171
62
3,780
1,026
73
874
1,946
348
18
10,091
$
Total
10
46
94
150
$
109
6,362
6,265
2,132
101
781
(91)
1,191
275
3,790
1,027
3,576
874
1,970
394
112
28,868
-
-
591
591
1,353
114
1,145
2,612
69
13
61
143
930
78
2,284
661
3,953
2,352
205
2,284
1,867
6,708
Debt securities:
Corporate debt securities
Preferred shares
Asset-backed securities
Other debt securities
Total debt securities
-
-
1,495
657
7
9
2,168
1,495
657
7
9
2,168
Derivative assets:
Interest rate contracts
Foreign exchange
Interest rate and currency rate
Equity
Other
Total derivative assets
-
905
174
3,116
4,195
418
2
420
905
174
3,116
418
2
4,615
Equity investments:
Banking and non-banking financial institutions
Insurance companies
Funds
Others
Total equity investments
Total assets at fair value
Borrowings:
Structured bonds
Unstructured bonds
Total borrowings (outstanding principal balance $42,523**)
$
21,239
$
14,429
$
7,282
$
42,950
$
23,444
23,444
$
6,219
13,183
19,402
$
-
$
6,219
36,627
42,846
Derivative liabilities:
Interest rate contracts
Foreign exchange
Interest rate and currency rates
Equity price risk contracts
Total derivative liabilities
Total liabilities at fair value
-
$
23,444
410
68
782
1,260
$
20,662
1
1
$
1
410
68
782
1
1,261
$
44,107
* includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $109 million at June 30, 2012.
** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $3,229 million, with a fair value of
$2,640 million as of June 30, 2012.
Note: For the year ended June 30, 2012: trading securities with a fair value of $214 million were transferred from level 2 to level 1 due to indications of improved market activity; and, trading
securities with a fair value of $749 million were transferred from level 1 to level 2 due to decrease in market activity. Equity investments with fair value of $116 million were transferred from level 1
to level 2 due to decrease in market activity. Bonds issued by IFC with a fair value of $514 million were transferred from level 2 to level 1, while bonds issued with a fair value of $1,952 million
were transferred from level 1 to level 2 due to change in information quality.
116
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the changes in the carrying value of IFC’s Level 3 financial assets and financial liabilities for the year ended June 30,
2013 and June 30, 2012 (US$ millions). IFC’s policy is to recognize transfers in and transfers out at the beginning of the reporting period.
Level 3 trading securities for the year ended June 30, 2013
Mortgage
Asset
backed
backed
securities
securities
Balance as of July 1, 2012
$
10
$
46
Transfers out Level 3 (*)
(5)
Net gains and losses (realized and unrealized) in
net income
9
Purchases, issuances, sales and settlements:
Purchases
5
Sales
(5)
Settlements and others
(21)
Balance as of June 30, 2013
For the year ended June 30, 2013:
Net unrealized gains and losses included in net income
Total
Collateralized
loan and debt
obligations
$
94
-
$
150
(5)
19
28
(4)
(63)
5
(9)
(84)
$
5
$
34
$
46
$
85
$
-
$
13
$
18
$
31
(*)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of
June 2012 beginning balance as of June 30, 2013.
Level 3 loans for the year ended June 30, 2013
Loans
591
Total
Balance as of July 1, 2012
Net gains and losses (realized and unrealized) in:
Net income
Purchases, issuances, sales and settlements:
Issuances
Settlements and others
$
Balance as of June 30, 2013
For the year ended June 30, 2013:
Net unrealized gains and losses included in net income
$
493
$
493
$
38
$
38
Level 3 debt securities for the year ended June 30, 2013
Corporate
Preferred
Asset
securities
shares
backed
securities
Balance as of July 1, 2012
$
1,495
$
657
$
7
Net gains and losses (realized and unrealized) in:
Net income
(14)
(37)
Other comprehensive income
14
1
Purchases, issuances, sales and settlements:
Purchases
387
50
86
Proceeds from sales
(35)
Settlements and others
(408)
(51)
(6)
Balance as of June 30, 2013
For the year ended June 30, 2013:
Net unrealized gains and losses included in net income
Net unrealized gains and losses included in other
comprehensive income
$
591
38
38
141
(277)
141
(277)
Others
$
Total
9
$
2,168
(4)
-
(55)
15
-
523
(35)
(465)
$
1,474
$
585
$
87
$
5
$
2,151
$
(1)
$
(48)
$
-
$
(4)
$
(53)
$
18
$
2
$
(1)
$
-
$
19
117
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 3 equity investments for the year ended June 30, 2013
Insurance
Funds
Banking and
companies
non-banking
institutions
Balance as of July 1, 2012
$
930
$
78
$
2,284
Transfers into Level 3 (*)
52
Transfers out of Level 3 (**)
(65)
(51)
Net gains and losses (realized and unrealized) in:
Net income
4
(8)
34
Other comprehensive income
43
2
Purchases, issuances, sales and settlements:
Purchases
322
21
713
Proceeds from sales
(13)
(316)
Settlements and others
191
(1)
16
Balance as of June 30, 2013
For the year ended June 30, 2013:
Net unrealized gains and losses included
in net income
Net unrealized gains and losses included
in other comprehensive income
Others
$
Total
661
(33)
$
3,953
52
(149)
(75)
6
(45)
51
167
(19)
108
1,223
(348)
314
$
1,464
$
41
$
2,731
$
815
$
5,051
$
39
$
(8)
$
(142)
$
(77)
$
(188)
$
50
$
2
$
-
$
5
$
57
(*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of June 30, 2013.
(**)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of
June 2012 beginning balance as of June 30, 2013.
Level 3 derivative assets for the year ended June 30, 2013
Equity
Balance as of July 1, 2012
$
418
Net gains and losses (realized and unrealized) in:
Net income
93
Purchases, issuances, sales and settlements:
Purchases
5
Settlements and others
264
Balance as of June 30, 2013
For the year ended June 30, 2013:
Net unrealized gains and losses included in net income
118
Total
2
$
420
(1)
92
-
5
264
$
780
$
1
$
781
$
78
$
(2)
$
76
Level 3 bond liabilities for the year ended June 30, 2013
Structured
Balance as of July 1, 2012
$
Net gains and losses (realized and unrealized) in:
Net income
52
Purchases, issuances, sales and settlements:
Issuances
(443)
Balance as of June 30, 2013
For the year ended June 30, 2013:
Net unrealized gains and losses included in net income
Other
$
Unstructured
$
Total
-
$
-
-
52
-
(443)
$
(391)
$
-
$
(391)
$
52
$
-
$
52
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 3 derivative liabilities for the year ended June 30, 2013
Interest rate
and currency
Total
Balance as of July 1, 2012
Net gains and losses (realized and unrealized) in:
Net income
Purchases, issuances, sales and settlements:
Purchases and other
$
Balance as of June 30, 2013
For the year ended June 30, 2013:
Net unrealized gains and losses included in net income
$
(26)
$
(26)
$
(34)
$
(34)
Level 3 trading securities for the year ended June 30, 2012
Mortgage
Asset
backed
backed
securities
securities
Balance as of July 1, 2011
$
43
$
64
Transfers into Level 3 (*)
5
Transfers out of Level 3 (**)
(43)
(13)
Net gains and losses (realized and unrealized) in:
Net income
(5)
Purchases, issuances, sales and settlements:
Purchases
5
Settlements and others
-
Balance as of June 30, 2012
For the year ended June 30, 2012:
Net unrealized gains and losses included in net income
-
$
-
(34)
(34)
8
8
Collateralized
loan and debt
obligations
$
103
-
Total
$
210
5
(56)
13
8
(22)
5
(22)
$
10
$
46
$
94
$
150
$
-
$
10
$
12
$
22
(*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of June 30, 2012.
(**)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of
June 2011 beginning balance as of June 30, 2012.
Level 3 loans for the year ended June 30, 2012
Loans
637
Total
Balance as of July 1, 2011
Net gains and losses (realized and unrealized) in:
Net income
Purchases, issuances, sales and settlements:
Issuances
Settlements and others
$
Balance as of June 30, 2012
For the year ended June 30, 2012:
Net unrealized gains and losses included in net income
$
591
$
591
$
(14)
$
(14)
$
Total
2,166
Level 3 debt securities for the year ended June 30, 2012
Asset
backed
Corporate
Preferred
securities
securities
shares
Balance as of July 1, 2011
$
1,620
$
516
$
22
Net gains and losses (realized and unrealized) in:
Net income
10
27
Other comprehensive income
(221)
(38)
Purchases, issuances, sales and settlements:
Purchases
307
214
Proceeds from sales
(56)
Settlements and others
(221)
(6)
(15)
Balance as of June 30, 2012
For the year ended June 30, 2012:
Net unrealized gains and losses included in net income
Net unrealized gains and losses included in other
comprehensive income
$
(13)
(13)
129
(162)
129
(162)
Others
$
637
8
1
-
38
(259)
-
521
(56)
(242)
$
1,495
$
657
$
7
$
9
$
2,168
$
(7)
$
13
$
-
$
1
$
7
$
(171)
$
(38)
$
-
$
-
$
(209)
Level 3 equity investments for the year ended June 30, 2012
119
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance as of July 1, 2011
Transfers into Level 3 (*)
Transfers out of Level 3 (**)
Net gains and losses (realized and unrealized) in:
Net income
Other comprehensive income
Purchases, issuances, sales and settlements:
Purchases
Proceeds from sales
Settlements and others
Balance as of June 30, 2012
For the year ended June 30, 2012:
Net unrealized gains and losses included in net income
Net unrealized gains and losses included in other
comprehensive income
Banking and
non-banking
institutions
$
566
393
(110)
Insurance
companies
$
14
-
(4)
(3)
(2)
41
(19)
-
(8)
19
(33)
57
58
(28)
58
13
12
436
(237)
-
138
(1)
3
645
(266)
73
$
Funds
2,104
-
$
Others
548
21
(59)
$
Total
3,232
414
(169)
$
930
$
78
$
2,284
$
661
$
3,953
$
29
$
(2)
$
(157)
$
(6)
$
(136)
$
(3)
$
41
$
-
$
19
$
57
(*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of June 30, 2012.
(**)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of
June 2011 beginning balance as of June 30, 2012.
Level 3 derivative assets for the year ended June 30, 2012
Equity
Balance as of July 1, 2011
$
390
Net gains and losses (realized and unrealized) in:
Net income
40
Purchases, issuances, sales and settlements:
Purchases and issuances
8
Settlements and others
(20)
Balance as of June 30, 2012
For the year ended June 30, 2012:
Net unrealized gains and losses included in net income
Other
$
Total
7
$
397
(5)
35
-
8
(20)
$
418
$
2
$
420
$
70
$
(5)
$
65
Gains and losses (realized and unrealized) from trading securities, loans, equity investments and debt securities included in net income for the
period are reported on the consolidated income statement in income from liquid asset trading activities, income from loans and guarantees,
income from equity investments and income from debt securities, respectively.
As of June 30, 2013, equity investments, accounted for at cost less impairment, with a carrying amount of $1,090 million were written down to
their fair value of $938 million ($1,519 million and $1,247 million - June 30, 2012), resulting in a loss of $152 million, which was included in income
from equity investments in the consolidated income statement during the year ended June 30, 2013 (loss of $272 million - year ended June 30,
2012). The amount of the write-down was based on a Level 3 measure of fair value.
120
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE S – CURRENCY POSITION
IFC conducts its operations for loans, debt securities, equity investments, time deposits, trading securities, and borrowings in multiple currencies.
IFC’s policy is to minimize the level of currency risk by closely matching the currency of its assets (other than equity investments and quasi-equity
investments) and liabilities by using hedging instruments. IFC’s equity investments in enterprises located in its developing member countries are
typically made in the local currency of the country. As a matter of policy, IFC carries the currency risk of equity investments and funds these
investments from its capital and retained earnings. The following table summarizes IFC’s exposure in major currencies at June 30, 2013 and June
30, 2012 (US$ millions):
June 30, 2013
US dollar
Assets
Cash and cash equivalents
Trading securities
Securities purchased under resale
agreements
$
Investments:
Loans
Less: Reserve against losses on loans
Net loans
Equity investments
Debt securities
Total investments
Derivative assets
Receivables and other assets
Total assets
Liabilities
Securities sold under repurchase
agreements
Borrowings
Derivative liabilities
Payables and other liabilities
Total liabilities
2,965
17,630
Japanese
yen
Euro
$
1,461
2,256
$
Fair value
and other
adjustments
Other
currencies
4
330
$
2,075
10,133
$
-
Total
$
6,505
30,349
337
-
-
-
-
337
16,594
(1,200)
15,394
1,528
16,922
2,935
(218)
2,717
100
2,817
20
20
20
2,910
(210)
2,700
11,695
523
14,918
-
22,459
(1,628)
20,831
11,695
2,151
34,677
6,833
1,238
537
577
2,683
41
15,623
425
(22,300)
-
3,376
2,281
$
45,925
$
7,648
$
3,078
$
43,174
$
(22,300)
$
77,525
$
5,715
26,406
9,009
1,346
$
21
278
6,438
584
$
2,685
26
40
$
15,500
9,874
365
$
(23,037)
-
$
5,736
44,869
2,310
2,335
$
42,476
$
7,321
$
2,751
$
25,739
$
(23,037)
$
55,250
121
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
US dollar
Assets
Cash and cash equivalents
Trading securities
Securities purchased under resale
agreements
$
Investments
Loans
Less: Reserve against losses on loans
Net loans
Equity investments
Debt securities
Total investments
Derivative assets
Receivables and other assets
Total assets
Liabilities
Securities sold under repurchase
agreements
Borrowings
Derivative liabilities
Payables and other liabilities
Total liabilities
2,397
18,763
Japanese
yen
Euro
$
1,480
997
$
Other
currencies
208
1,359
$
2,962
7,749
Fair value
and other
adjustments
$
-
Total
$
7,047
28,868
931
-
-
33
-
964
15,496
(1,120)
14,376
1,287
15,663
2,807
(164)
2,643
69
2,712
30
(1)
29
29
2,544
(96)
2,448
9,774
812
13,034
-
20,877
(1,381)
19,496
9,774
2,168
31,438
6,454
1,986
393
80
3,832
36
16,034
727
(22,098)
-
4,615
2,829
$
46,194
$
5,662
$
5,464
$
40,539
$
(22,098)
$
75,761
$
6,397
24,672
6,811
2,099
$
267
4,871
89
$
3,833
1,383
36
$
15,893
10,492
634
$
(22,296)
-
$
6,397
44,665
1,261
2,858
$
39,979
$
5,227
$
5,252
$
27,019
$
(22,296)
$
55,181
NOTE T – SEGMENT REPORTING
For management purposes, IFC’s business comprises three segments: investment services, treasury services and advisory services. The
investment services segment consists primarily of lending and investing in debt and equity securities. The investment services segment also
includes AMC, which is not separately disclosed due to its immaterial impact. Further information about the impact of AMC on IFC’s consolidated
balance sheets and income statements can be found in Note B. Operationally, the treasury services segment consists of the borrowing, liquid
asset management, asset and liability management and client risk management activities. Advisory services provide consultation services to
governments and the private sector. Consistent with internal reporting, net income or expense from asset and liability management and client risk
management activities in support of investment services is allocated from the treasury segment to the investment services segment.
The performance of investment services, treasury services and advisory services is assessed by senior management on the basis of net income
for each segment, return on assets, and return on capital employed. Advisory services are primarily assessed based on the level and adequacy of
its funding sources (See Note V). IFC’s management reporting system and policies are used to determine revenues and expenses attributable to
each segment. Consistent with internal reporting, administrative expenses are allocated to each segment based largely upon personnel costs and
segment headcounts. Transactions between segments are immaterial and, thus, are not a factor in reconciling to the consolidated data.
122
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An analysis of IFC’s major components of income and expense by business segment for the years ended June 30, 2013, June 30, 2012 and June
30, 2011, is provided below (US$ millions):
June 30, 2013
Investment
Treasury
Advisory
services
services
services
Total
1,059
1,059
Income from loans and guarantees
$
$
$
$
Provision for losses on loans, guarantees and other receivables
(243)
(243)
Income from equity investments
752
752
5
5
Income from debt securities
500
Income from liquid asset trading activities
500
Charges on borrowings
(109)
(111)
(220)
239
239
Advisory services income
202
202
Other income
Administrative expenses
(781)
(22)
(42)
(845)
Advisory services expenses
(351)
(351)
Expense from pension and other postretirement benefit plans
(120)
(6)
(47)
(173)
Other expenses
(32)
(32)
Foreign currency transaction gains and losses on non-trading
35
35
activities
Income (loss) before net gains and losses on other non-trading
financial instruments accounted for at fair value and grants
to IDA
768
361
(201)
928
Net gains and losses on other non-trading financial instruments
accounted for at fair value
35
35
Realized gains
2
2
Gains on non-monetary exchanges
353
32
385
Unrealized gains
Income (loss) before grants to IDA
1,158
393
(201)
1,350
Grants to IDA
(340)
(340)
Net income (loss)
818
393
(201)
1,010
8
Less: Net loss attributable to noncontrolling interests
8
Net income (loss) attributable to IFC
Income from loans and guarantees
Provision for losses on loans, guarantees and other receivables
Income from equity investments
Income from debt securities
Income from liquid asset trading activities
Charges on borrowings
Advisory services income
Other income
Administrative expenses
Advisory services expenses
Expense from pension and other postretirement benefit plans
Other expenses
Foreign currency transaction gains and losses on non-trading
activities
Income (loss) before net gains and losses on other non-trading
financial instruments accounted for at fair value and grants
to IDA
Net gains and losses on other non-trading financial instruments
accounted for at fair value
Realized gains
Gains on non-monetary exchanges
Unrealized losses
Income (loss) before grants to IDA
Grants to IDA
Net income (loss)
$
826
Investment
services
$
938
(117)
1,457
81
(92)
179
(728)
(68)
(23)
$
123
$
393
$
(201)
June 30, 2012
Treasury
Advisory
services
services
$
$
313
(89)
269
(23)
(47)
(290)
(3)
(25)
-
$
1,018
Total
$
938
(117)
1,457
81
313
(181)
269
179
(798)
(290)
(96)
(23)
145
-
-
145
1,772
198
(93)
1,877
11
10
(34)
1,759
(330)
(206)
(8)
-
(93)
-
11
10
(240)
1,658
(330)
1,429
$
(8)
$
(93)
$
1,328
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income from loans and guarantees
Release of provisions for losses on loans, guarantees and other
receivables
Income from equity investments
Income from debt securities
Income from liquid asset trading activities
Charges on borrowings
Other income
Administrative expenses
Advisory services expenses
Expense from pension and other postretirement benefit plans
Other expenses
Foreign currency transaction gains and losses on non-trading
activities
Income (loss) before net gains and losses on other non-trading
financial instruments accounted for at fair value and grants
to IDA
Net gains and losses on other non-trading financial instruments
accounted for at fair value
Realized gains
Gains on non-monetary exchanges
Unrealized gains (losses)
Income (loss) before grants to IDA
Grants to IDA
Net income (loss)
Investment
services
$
869
$
June 30, 2011
Treasury
Advisory
services
services
$
8
$
Total
-
$
877
40
1,464
46
(109)
222
(665)
(80)
(19)
529
(31)
(9)
(4)
-
(26)
(153)
(25)
-
40
1,464
46
529
(140)
222
(700)
(153)
(109)
(19)
(33)
-
-
(33)
1,735
493
(204)
2,024
63
22
(23)
1,797
(600)
93
586
-
(204)
-
63
22
70
2,179
(600)
1,197
$
586
$
(204)
$
1,579
Geographical segment data in respect of investment services is disclosed in Note D, and the composition of Liquid Assets is provided in Note C.
NOTE U – VARIABLE INTEREST ENTITIES
Significant variable interests
IFC has identified 139 investments in VIEs which are not consolidated by IFC but in which it is deemed to hold significant variable interests at
June 30, 2013 (106 investments - June 30, 2012).
The majority of these VIEs do not involve securitizations or other types of structured financing. IFC is usually the minority investor in these VIEs.
These VIEs are mainly: (a) investment funds, where the general partner or fund manager does not have substantive equity at risk, which IFC does
not consolidate because it does not absorb the majority of funds’ expected losses or expected residual returns and (b) entities whose total equity
investment is considered insufficient to permit such entity to finance its activities without additional subordinated financial support or whose
activities are so narrowly defined by contracts that equity investors are considered to lack decision making ability, which IFC does not consolidate
because it does not have the power to control the activities that most significantly impact their economic performance. IFC’s involvement with
these VIEs includes investments in equity interests and senior or subordinated interests, guarantees and risk management arrangements. IFC’s
interests in these VIEs are recorded on IFC’s consolidated balance sheet primarily in equity investments, loans, debt securities, and other
liabilities, as appropriate.
Based on the most recent available data of these VIEs, the balance sheet size, including committed funding, in which IFC is deemed to hold
significant variable interests, totaled $22,810 million at June 30, 2013 ($18,143 million - June 30, 2012). IFC’s maximum exposure to loss as a
result of its investments in these VIEs, comprising both carrying value of investments and amounts committed but not yet disbursed, was $4,712
million at June 30, 2013 ($3,213 million - June 30, 2012).
124
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The industry sector and geographical regional analysis of IFC’s maximum exposures as a result of its investment in these VIEs at June 30, 2013
and June 30, 2012 is as follows (US$ millions):
Loans
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
$
Total manufacturing, agribusiness and
services
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Total infrastructure and natural resources
Maximum exposure to VIEs
$
91
459
$
Total manufacturing, agribusiness and
services
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Total infrastructure and natural resources
Maximum exposure to VIEs
$
$
7
18
$
19
1
$
-
Risk
management
$
-
Total
$
117
478
266
42
-
-
-
308
816
67
20
-
-
903
158
55
69
263
201
51
2
10
-
288
521
48
78
208
1
41
159
121
-
15
418
253
339
541
401
174
25
1,480
594
429
42
39
8
4
-
48
644
520
1,081
28
14
7
35
1,165
2,104
109
26
7
83
2,329
3,259
$
717
$
93
284
$
30
447
$
181
June 30, 2012
Debt
securities
Guarantees
Equity
investments
Loans
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
June 30, 2013
Debt
securities
Guarantees
Equity
investments
$
4
3
$
-
$
108
$
Risk
management
$
-
4,712
Total
$
97
317
140
31
-
-
-
171
517
61
7
-
-
585
20
56
57
42
85
-
-
77
183
62
72
114
-
55
122
1
-
13
232
207
210
213
262
1
13
699
721
406
33
31
33
2
-
72
787
511
556
27
25
8
15
631
1,683
91
60
8
87
1,929
2,410
$
365
125
$
329
$
9
$
100
$
3,213
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying value of investments and maximum exposure to VIEs at June 30, 2013 and June 30, 2012 is as follows (US$ millions):
Investment category
Loans
Equity investments
Debt securities
Guarantees
Risk management
Maximum exposure to VIEs
Investment category
Loans
Equity investments
Debt securities
Guarantees
Risk management
Maximum exposure to VIEs
Carrying value
of investments
$
2,207
504
447
181
69
June 30, 2013
Committed but
not yet disbursed
$
1,052
213
39
$
$
3,408
1,304
Carrying value
of investments
$
1,749
212
329
9
79
June 30, 2012
Committed but
not yet disbursed
$
661
153
21
$
$
2,378
835
$
$
$
$
Maximum
exposure
3,259
717
447
181
108
4,712
Maximum
exposure
2,410
365
329
9
100
3,213
NOTE V – ADVISORY SERVICES
IFC provides advisory services to government and private sector clients through four business lines: access to finance; investment climate; publicprivate partnerships; and sustainable business. IFC funds this business line by a combination of cash received from government and other donors
and IFC’s operations via retained earnings and operating budget designations as well as fees received from the recipients of the services.
IFC administers donor funds through trust funds. The donor funds may be used to support feasibility studies, project preparation, and other advisory
services initiatives. Donor funds are restricted for purposes specified in agreements with the donors. IFC’s funding for advisory services are made in
accordance with terms approved by IFC’s Board.
Donor funds under administration and IFC’s funding can be comingled in accordance with administration agreements with donors. The comingled
funds are held in a separate liquid asset investment portfolio managed by IBRD, which is not commingled with IFC’s other liquid assets and is
reported at fair value in other assets. Donor funds are refundable until expended for their designated purpose.
As of June 30, 2013, other assets include undisbursed donor funds of $391 million ($406 million - June 30, 2012) and IFC’s advisory services
funding of $170 million ($196 million - June 30, 2012). Included in other liabilities as of June 30, 2013 is $391 million ($406 million - June 30,
2012) of refundable undisbursed donor funds.
126
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE W – PENSION AND OTHER POSTRETIREMENT BENEFITS
IBRD, IFC and MIGA participate in a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and a Post-Employment
Benefits Plan (PEBP) that cover substantially all of their staff members. The SRP provides pension benefits and includes a cash balance plan.
The RSBP provides certain health and life insurance benefits to eligible retirees. The PEBP provides certain pension benefits administered
outside the SRP.
IFC uses a June 30 measurement date for its pension and other postretirement benefit plans. The amounts presented below reflect IFC’s
respective share of the costs, assets and liabilities of the plans. All costs, assets and liabilities associated with these plans are allocated between
IBRD, IFC and MIGA based upon their employees’ respective participation in the plans. Costs allocated to IBRD are then shared between IBRD
and IDA based on an agreed cost-sharing ratio. IDA, IFC and MIGA reimburse IBRD for their proportionate share of any contributions made to
these plans by IBRD. Contributions to these plans are calculated as a percentage of salary.
The following table summarizes the benefit costs associated with the SRP, RSBP, and PEBP allocated to IFC for the years ended June 30, 2013,
June 30, 2012 and June 30 2011 (US$ millions):
SRP
2012
2013
Benefit cost
Service cost
$
Interest cost
Expected return on plan
assets
Amortization of prior service
cost
Amortization of unrecognized
net loss
Net periodic pension cost
(income)
$
116
101
$
2011
87
112
$
RSBP
2012
2013
78
109
$
25
17
$
2011
17
17
$
PEBP
2012
2013
16
16
$
11
7
$
2011
9
6
$
8
5
(141)
(150)
(137)
(18)
(18)
(16)
-
-
-
1
2
1
2
-
*
*
*
*
36
6
20
9
4
6
7
4
3
$
113
57
$
71
$
35
$
20
$
22
$
25
$
19
$
16
* Less than $0.5 million
The expenses for the SRP, RSBP, and PEBP are included in expense from pension and other postretirement benefit plans. For the years ended
June 30, 2013, June 30, 2012 and June 30, 2011, expenses for these plans of $173 million, $96 million and $109 million, respectively, were
allocated to IFC.
The following table summarizes the projected benefit obligations, fair value of plan assets, and funded status associated with the SRP, RSBP, and
PEBP for IFC for the years ended June 30, 2013 and June 30, 2012 (US$ millions). Since the assets for the PEBP are not held in an irrevocable
trust separate from the assets of IBRD, they do not qualify for off-balance sheet accounting and are therefore included in IBRD's investment
portfolio. IFC has recognized a receivable (prepaid asset) from IBRD and a payable (liability) to IBRD equal to the amount required to support the
plan. The assets of the PEBP are invested in fixed income and equity instruments.
SRP
RSBP
2013
Projected benefit obligations
Beginning of year
Service cost
Interest cost
Participant contributions
Federal subsidy received
Plan amendments
Benefits paid
Actuarial loss (gain)
End of year
Fair value of plan assets
Beginning of year
Participant contributions
Actual return on assets
Employer contributions
Benefits paid
End of year
$
Funded status*
Accumulated benefit obligations
$
2,647
116
101
30
(106)
(85)
2,703
2012
$
2,166
87
112
27
(100)
355
2,647
PEBP
2013
$
416
25
17
2
*
2
(7)
(22)
433
2012
$
305
17
17
2
25
(6)
56
416
2013
$
2012
175
11
7
1
(5)
6
195
$
127
9
7
*
(6)
38
175
2,431
30
183
75
(106)
2,613
2,347
27
94
63
(100)
2,431
294
2
23
28
(7)
340
266
2
6
26
(6)
294
-
-
(90)
(216)
(93)
(122)
(195)
(175)
1,918
$
1,812
$
433
$
416
$
163
$
148
* Positive funded status is reflected in Receivables and other assets under prepaid pension and other postretirement benefit cost, in Note J; negative funded status is included in Payables and
other liabilities under liabilities under retirement benefits plans, in Note L
127
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the fiscal year ended June 30, 2012, amendments were made to the RSBP. These included: (i) Providing reimbursements for standard
and income related premiums paid by eligible Medicare B participants effective on July 1, 2012, (ii) moving from the current Retiree Drug Subsidy
(RDS) arrangement to an Employer Group Waiver Plan (EGWP) effective January 1, 2013, (iii) providing reimbursements of Medicare Part D
income-related premium amounts once the plan moved to the EGWP arrangement and (iv) eliminating the Medicare savings feature. The
combined effect of these changes was a $25 million increase to the projected benefit obligation at June 30, 2012.
During the fiscal year ended June 30, 2013, IFC decided not to transition the RSBP plan from RDS to EGWP following further evaluations of the
design and administrative requirements of the EGWP. The effect of this change was a $2 million increase to the projected benefit obligation at
June 30, 2013.
The following tables present the amounts included in Accumulated other comprehensive income relating to Pension and Other Postretirement
Benefits (US$ millions):
Amounts included in Accumulated other comprehensive income in the year ended June 30, 2013:
Net actuarial loss
Prior service cost
$
SRP
485
3
$
RSBP
115
25
$
PEBP
108
-
$
Total
708
28
Net amount recognized in accumulated other comprehensive loss
$
488
$
140
$
108
$
736
Amounts included in Accumulated other comprehensive income in the year ended June 30, 2012:
Net actuarial loss
Prior service cost
$
SRP
648
4
$
RSBP
151
25
$
PEBP
108
1
$
Total
907
30
Net amount recognized in accumulated other comprehensive loss
$
652
$
176
$
109
$
937
The estimated amounts that will be amortized from Accumulated other comprehensive income (loss) into net periodic benefit cost in the fiscal year
ending June 30, 2014 are as follows (US$ millions):
SRP
RSBP
PEBP
Total
Net actuarial loss
Prior service cost
$
20
1
$
5
3
$
7
*
$
32
4
Net amount recognized in accumulated other comprehensive loss
$
21
$
8
$
7
$
36
* Less than $0.5 million
Assumptions
The actuarial assumptions used are based on financial market interest rates, inflation expectations, past experience, and management’s best
estimate of future benefit changes and economic conditions. Changes in these assumptions will impact future benefit costs and obligations.
The expected long-term rate of return for the SRP assets is a weighted average of the expected long-term (10 years or more) returns for the
various asset classes, weighted by the portfolio allocation. Asset class returns are developed using a forward-looking building block approach and
are not strictly based on historical returns. Equity returns are generally developed as the sum of expected inflation, expected real earnings growth
and expected long-term dividend yield. Bond returns are generally developed as the sum of expected inflation, real bond yield, and risk
premium/spread (as appropriate). Other asset class returns are derived from their relationship to equity and bond markets. The expected longterm rate of return for the RSBP is computed using procedures similar to those used for the SRP. The discount rate used in determining the
benefit obligation is selected by reference to the year-end yield of AA corporate bonds.
Actuarial gains and losses occur when actual results are different from expected results. Amortization of these unrecognized gains and losses will
be included in income if, at the beginning of the fiscal year, they exceed 10 percent of the greater of the projected benefit obligation or the marketrelated value of plan assets. If required, the unrecognized gains and losses are amortized over the expected average remaining service lives of
the employee group.
128
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the weighted-average assumptions used in determining the projected benefit obligations and the net periodic pension
costs for the years ended June 30, 2013, June 30, 2012 and June 30, 2011:
Weighted average assumptions used to determine projected benefit obligation (%)
2013
Discount rate
4.60
Rate of compensation increase
5.70
Health care growth rates
- at end of fiscal year
Ultimate health care growth
rate
Year in which ultimate rate
is reached
SRP
2012
3.90
5.40
2011
5.30
5.90
2013
4.80
RSBP
2012
4.10
2011
5.50
5.90
6.30
6.90
3.90
3.60
4.00
2022
2022
2022
RSBP
2012
5.50
6.70
2011
6.00
7.75
2013
4.50
5.70
PEBP
2012
3.90
5.40
2011
5.20
5.90
2013
3.90
PEBP
2012
5.20
2011
5.75
5.40
5.90
6.20
Weighted average assumptions used to determine net periodic pension cost (%)
2013
Discount rate
3.90
Expected return on plan assets
5.80
Rate of compensation increase
5.40
Health care growth rates
- at end of fiscal year
Ultimate health care growth
rate
Year in which ultimate rate
is reached
SRP
2012
5.30
6.40
5.90
2011
5.75
6.75
6.20
2013
4.10
6.10
6.30
6.90
7.00
3.60
4.00
4.25
2022
2022
2022
The medical cost trend rate can significantly affect the reported postretirement benefit income or costs and benefit obligations for the RSBP. The
following table shows the effects of a one-percentage-point change in the assumed healthcare cost trend rate (US$ millions):
Effect on total service and interest cost
Effect on projected benefit obligation
$
$
One-percentage-point increase
12
109
One-percentage-point decrease
$
(9)
$
(82)
Investment Strategy
The investment policies establish the framework for investment of the plan assets based on long-term investment objectives and the trade-offs
inherent in seeking adequate investment returns within acceptable risk parameters. A key component of the investment policy is to establish a
Strategic Asset Allocation (SAA) representing the policy portfolio (i.e., target mix of assets) around which the plans are invested. The SAA for the
plans is reviewed in detail and reset about every three years, with more frequent reviews and changes if and as needed based on market
conditions.
The key long-term objective is to target and secure asset performance that is reasonable in relation to the growth rate of the underlying liabilities
and the assumed sponsor contribution rates. This is particularly so in the case of the SRP, which has liabilities that can be projected based on the
actuarial assumptions. Given the relatively long investment horizons of the SRP and RSBP, and the relatively modest liquidity needs over the
short-term to pay benefits and meet other cash requirements, the focus of the investment strategy is on generating sustainable long-term
investment returns through various asset classes and strategies including public and private equity and real estate.
The SAA is derived using a mix of quantitative analysis that incorporates expected returns and volatilities by asset class as well as correlations
across the asset classes, and qualitative considerations such as the desired liquidity needs of the plans. The SAA is comprised of a diversified
portfolio drawn from among fixed-income, equity, real assets and absolute return strategies.
129
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the actual and target asset allocation at June 30, 2013 and June 30, 2012 by asset category for the SRP and RSBP.
The target allocations for SRP and RSBP were last revised in May 2013.
Target
Allocation
2013 (%)
Asset class
Public equity
Fixed income & cash
Private equity
Hedge funds
Real assets*
Opportunistic**
Total
SRP
% of Plan Assets
2013
2012
Target
Allocation
2013 (%)
RSBP
% of Plan Assets
2013
2012
27
26
20
10
12
5
30
28
18
12
12
-
24
33
20
11
12
-
29
24
20
10
12
5
30
29
21
9
11
-
27
32
24
8
9
-
100
100
100
100
100
100
* Real assets include public and private real estate, infrastructure and timber.
** Opportunistic strategies are designed to take advantage of temporary market opportunities that are not captured in other parts of portfolio.
Significant concentrations of risk in Plan assets
The assets of the SRP and RSBP are diversified across a variety of asset classes. Investments in these asset classes are further diversified
across funds, managers, strategies, geographies and sectors, to limit the impact of any individual investment. In spite of such level of
diversification, equity market risk remains the primary source of the overall return volatility of the Plans.
Risk management practices
Managing investment risk is an integral part of managing the assets of the Plans. Liability driven investment management and asset diversification
are central to the overall investment strategy and risk management approach for the SRP. The surplus volatility risk (defined as the annualized
standard deviation of asset returns relative to that of liabilities) and downside risk measures are considered key indicators of the Plan’s overall
investment risk. These measures are used to define the risk tolerance level and establish the overall level of investment risk.
Investment risk is regularly monitored at the absolute level, as well as at the relative levels with respect to the investment policy, manager
benchmarks, and liabilities of the Plans. Stress tests are performed periodically using relevant market scenarios to assess the impact of extreme
market events. Monitoring of performance (at both manager and asset class levels) against benchmarks, and compliance with investment
guidelines, is carried out on a regular basis as part of the risk monitoring process. Risk management for different asset classes is tailored to their
specific characteristics and is an integral part of the external managers’ due diligence and monitoring processes.
Credit risk is monitored on a regular basis and assessed for possible credit event impacts. The liquidity position of the Plans is analyzed at regular
intervals and periodically tested using various stress scenarios to ensure that the Plans have sufficient liquidity to meet all cash flow requirements.
In addition, the long-term cash flow needs of the Plans are considered during the SAA exercise and are one of the main drivers in determining
maximum allocation to the illiquid investment vehicles. The plans mitigate operational risk by maintaining a system of internal controls along with
other checks and balances at various levels.
130
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value measurements and disclosures
All plan assets are measured at fair value on recurring basis. The following table presents the fair value hierarchy of major categories of plans
assets as of June 30, 2013 and June 30, 2012 (US$ millions):
June 30, 2013 Fair value measurements on a recurring basis
SRP
RSBP
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Level 1
Debt securities
Time deposits
Securities purchased
under resale agreements
Government and agency securities
Corporate and convertible bonds
Asset-backed securities
Mortgage-backed securities
Total debt securities
$
Equity securities
US common stocks
Non-US common stocks
Mutual funds
Real estate investment trusts
Total equity securities
* $
$
$
Equity securities
US common stocks
Non-US common stocks
Mutual funds
Real estate investment trusts
Total equity securities
Commingled funds
Private equity
Hedge funds
Derivative assets/ liabilities
Real estate (including
Infrastructure and timber)
Other assets/ liabilities**, net
Total Assets
$
40
$
* $
6 $
- $
6
119
25
14
32
230
-
55
632
25
14
32
798
4
35
39
53
2
*
*
61
-
4
88
2
*
*
100
88
419
27
56
590
-
-
88
419
27
56
590
7
52
7
6
72
-
-
7
52
7
6
72
*
226
205
2
483
79
-
226
483
284
2
(*)
37
21
*
71
8
-
37
71
29
*
-
76
(*)
181
-
257
(27)
-
6
-
23
-
29
2
111 $
125 $
1,158 $
739 $
743 $
2,613
$
102 $
June 30, 2012 Fair value measurements on a recurring basis
SRP
RSBP
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Level 1
Debt securities
Time deposits
Securities purchased
under resale agreements
Government and agency securities
Corporate and convertible bonds
Asset-backed securities
Mortgage-backed securities
Total debt securities
- $
55
513
568
Commingled funds
Private equity
Hedge funds
Derivative assets/ liabilities
Real estate (including
infrastructure and timber)
Other assets/ liabilities**, net
Total Assets
40 $
Total
- $
9 $
- $
9
$
- $
4 $
340
Total
- $
4
15
595
610
104
27
9
49
198
*
*
*
*
15
699
27
9
49
808
3
38
41
49
3
1
1
58
*
*
*
3
87
3
1
1
99
73
240
107
57
477
-
-
73
240
107
57
477
8
33
9
3
53
-
-
8
33
9
3
53
(*)
140
173
(1)
491
68
-
140
491
241
(1)
1
28
16
(*)
67
7
-
28
67
23
1
-
65
*
174
-
239
36
*
-
2
-
21
-
23
-
95 $
104 $
1,087 $
575 $
733 $
*Less than $0.5 million
** Includes receivables and payables carried at amounts that approximate fair value
131
2,431
$
95 $
294
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present a reconciliation of Level 3 assets held during the year ended June 30, 2013 and June 30, 2012 (US$ millions). For
the fiscal year ended June 30, 2012, investments in certain real estate funds that were identified as redeemable within 90 days of the period end
were transferred out of Level 3 into Level 2.
June 30, 2013
SRP: Fair value measurements using significant unobservable inputs
Corporate
and
convertible
debt
Beginning of the fiscal year
Actual return on plan assets:
Relating to assets still held
at the reporting date
Relating to assets sold
during the period
Purchase, issuances and
settlements, net
Transfer in
Transfer out
Balance at end of
fiscal year
$
Mortgagebacked
securities
Assetbacked
securities
Private
equity
* $
* $
* $
*
-
*
-
-
(*)
(*)
(*)
-
$
- $
Hedge
funds
Total
174 $
68
92
2
6
100
(*)
(22)
15
*
(7)
(*)
-
(78)
-
(10)
-
6
11
(12)
(82)
11
(12)
483 $
181 $
- $
- $
491 $
Real
estate
79
$
733
$
743
* Less than $0.5 million
June 30, 2013
RSBP: Fair value measurements using significant unobservable inputs
Corporate
and
convertible
debt
Beginning of the fiscal year
Actual return on plan assets:
Relating to assets still held
at the reporting date
Relating to assets sold
during the period
Purchase, issuances and
settlements, net
Transfer in
Transfer out
Balance at end of
fiscal year
$
$
Mortgagebacked
securities
Assetbacked
securities
Private
equity
- $
* $
* $
67 $
-
-
-
14
-
-
-
-
(*)
-
(*)
-
- $
- $
- $
* Less than $0.5 million
June 30, 2012
132
Real
estate
Hedge
funds
21 $
Total
7 $
95
*
1
15
(3)
2
*
(1)
(7)
-
(*)
-
1
1
(2)
(6)
1
(2)
71 $
23 $
8 $
102
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SRP: Fair value measurements using significant unobservable inputs
Corporate
and
convertible
debt
Beginning of the fiscal year
Actual return on plan assets:
Relating to assets still held
at the reporting date
Relating to assets sold
during the period
Purchase, issuances and
settlements, net
Transfer in
Transfer out
Balance at end of
fiscal year
$
Mortgagebacked
securities
Assetbacked
securities
- $
5 $
Private
equity
Real
estate
3 $
475 $
Hedge
funds
139 $
Total
61 $
683
*
(*)
1
(42)
4
(1)
(38)
*
*
(1)
40
6
(1)
44
(*)
-
(5)
(*)
(2)
*
(1)
18
-
25
-
11
4
(6)
47
4
(7)
$
* $
* $
* $
491 $
174 $
68 $
733
* Less than $0.5 million
June 30, 2012
RSBP: Fair value measurements using significant unobservable inputs
Corporate
and
convertible
debt
Beginning of the fiscal year
Actual return on plan assets:
Relating to assets still held
at the reporting date
Relating to assets sold
during the period
Purchase, issuances and
settlements, net
Transfer in
Transfer out
Balance at end of
fiscal year
$
$
Mortgagebacked
securities
Assetbacked
securities
- $
* $
Private
equity
Real
estate
* $
66 $
Hedge
funds
17 $
6 $
Total
89
-
(*)
*
(5)
3
(*)
(2)
-
(*)
*
6
2
(*)
8
-
(*)
(*)
(*)
(*)
*
-
(1)
-
2
*
(1)
1
*
(1)
- $
* $
* $
67 $
21 $
7 $
95
* Less than $0.5 million
Valuation methods and assumptions
The following are general descriptions of asset categories, as well as the valuation methodologies and inputs used to determine the fair value of
each major category of Plan assets. It is important to note that the investment amounts in the asset categories shown in the table above may be
different from the asset category allocation shown in the Investment Strategy section of the note. Asset classes in the table above are grouped by
the characteristics of the investments held. The asset class break-down in the Investment Strategy section is based on management’s view of the
economic exposures after considering the impact of derivatives and certain trading strategies.
Debt securities
Debt securities include time deposits, U.S. treasuries and agencies, debt obligations of foreign governments and debt obligations in corporations of
domestic and foreign issuers. Fixed income also includes investments in asset backed securities such as collateralized mortgage obligations and
mortgage backed securities. These securities are valued by independent pricing vendors at quoted market prices for the same or similar securities,
where available. If quoted market prices are not available, fair values are based on discounted cash flow models using market-based parameters
such as yield curves, interest rates, volatilities, foreign exchange rates and credit curves. Some debt securities are valued using techniques which
require significant unobservable inputs. The selection of these inputs may involve some judgment. Management believes its estimates of fair value
are reasonable given its processes for obtaining securities prices from multiple independent third-party vendors, ensuring that valuation models are
reviewed and validated, and applying its approach consistently from period to period. Unless quoted prices are available, money market instruments
and securities purchased under resale agreements are reported at face value which approximates fair value
133
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity securities
Equity securities, including Real estate investment trusts (REITS), are invested in companies in various industries and countries. Investments in
public equity listed on securities exchanges are valued at the last reported sale price on the last business day of the fiscal year.
Commingled funds
Commingled funds are typically common or collective trusts reported at net asset value (NAV) as provided by the investment manager or sponsor
of the fund based on valuation of underlying investments, and reviewed by management.
Private equity
Private equity includes investments primarily in leveraged buyouts, distressed investments and venture capital funds across North America,
Europe and Asia in a variety of sectors. A large number of these funds are in the investment phase of their life cycle. Private Equity investments
do not have a readily determinable fair market value and are reported at NAV provided by the fund managers, and reviewed by management,
taking into consideration the latest audited financial statements of the funds. The underlying investments are valued using inputs such as cost,
operating results, discounted future cash flows and trading multiples of comparable public securities.
Real estate
Real estate includes several funds which invest in core real estate as well as non-core type of real estate investments such as debt, value add,
and opportunistic equity investments. Real estate investments do not have a readily determinable fair market value and are reported at NAV
provided by the fund managers, and reviewed by management, taking into consideration the latest audited financial statements of the funds. The
valuations of underlying investments are based on income and/or cost approaches or comparable sales approach, and taking into account
discount and capitalization rates, financial conditions, local market conditions among others.
Hedge fund investments
Hedge fund investments include those seeking to maximize absolute returns using a broad range of strategies to enhance returns and provide
additional diversification. Hedge Funds include investments in equity, event driven, fixed income, multi strategy and macro relative value strategies.
These investments do not have a readily determinable fair market value and are reported at NAVs provided by external managers or fund
administrators (based on the valuations of underlying investments) on a monthly basis, and reviewed by management, taking into consideration the
latest audited financial statements of the funds.
Investments in hedge funds and commingled funds can typically be redeemed at NAV within the near term while investments in private equity and
most real estate are inherently long term and illiquid in nature with a quarter lag in reporting by the fund managers. Reporting of those asset classes
with a reporting lag, management estimates are based on the latest available information taking into account underlying market fundamentals and
significant events through the balance sheet date
Investment in derivatives
Investment in derivatives such as equity or bond futures, TBA securities, swaps, options and currency forwards are used to achieve a variety of
objectives that include hedging interest rates and currency risks, gaining desired market exposure of a security, an index or currency exposure and
rebalancing the portfolio. Over-the-counter derivatives are reported using valuations based on discounted cash flow methods incorporating market
observable inputs.
Estimated future benefits payments
The following table shows the benefit payments expected to be paid in each of the next five years and subsequent five years. The expected
benefit payments are based on the same assumptions used to measure the benefit obligation at June 30, 2013 (US$ millions):
SRP
July 1, 2013 - June 30, 2014
July 1, 2014 - June 30, 2015
July 1, 2015 - June 30, 2016
July 1, 2016 - June 30, 2017
July 1, 2017 - June 30, 2018
July 1, 2018 - June 30, 2023
$
RSBP
Before Federal
subsidy
109
117
126
135
145
872
$
* Less than $0.5 million
134
7 $
8
9
10
11
77
PEBP
Federal
subsidy
*
*
*
*
*
2
$
9
10
11
12
13
81
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expected contributions
IFC’s contribution to the SRP and RSBP varies from year to year, as determined by the Pension Finance Committee, which bases its judgment on
the results of annual actuarial valuations of the assets and liabilities of the SRP and RSBP. The best estimate of the amount of contributions
expected to be paid to the SRP and RSBP for IFC during the year beginning July 1, 2013 is $88 million and $33 million, respectively.
NOTE X – SERVICE AND SUPPORT PAYMENTS
IFC obtains certain administrative and overhead services from IBRD in those areas where common services can be efficiently provided by IBRD.
This includes shared costs of the Boards of Governors and Directors, and other services such as communications, internal auditing, administrative
support, supplies, and insurance. IFC makes payments for these services to IBRD based on negotiated fees, chargebacks and allocated charges,
where chargeback is not feasible. Expenses allocated to IFC for the year ended June 30, 2013, were $60 million ($57 million - year ended June
30, 2012; $50 million - year ended June 30, 2011). Other chargebacks include $30 million for the year ended June 30, 2013 ($26 million - year
ended June 30, 2012; $26 million - year ended June 30, 2011).
NOTE Y – CONTINGENCIES
In the normal course of its business, IFC is from time to time named as a defendant or co-defendant in various legal actions on different grounds
in various jurisdictions. Although there can be no assurances, based on the information currently available, IFC’s Management does not believe
the outcome of any of the various existing legal actions will have a material adverse effect on IFC’s financial position, results of operations or cash
flows.
135
INTERNATIONAL FINANCE CORPORATION
136
INTERNATIONAL FINANCE CORPORATION
137
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013
Page
Condensed consolidated balance sheets as of September 30, 2013 (unaudited) and June 30, 2012
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Condensed consolidated statements of income for the three months ended September 30, 2013 (unaudited)
and September 30, 2012 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Condensed consolidated statements of comprehensive income for the three months ended September 30,
2013 (unaudited) and September 30, 2012 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Condensed consolidated statements of changes in capital for three months ended September 30, 2013
(unaudited) and September 30, 2012 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Condensed consolidated statements of cash flows for the three months ended September 30, 2013
(unaudited) and September 30, 2012 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to condensed consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Auditors’ Review Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
138
139
140
141
142
143
145
187
INTERNATIONAL FINANCE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
as of September 30, 2013 (unaudited) and June 30, 2013 (unaudited)
(US$ millions)
September 30
June 30
Assets
Cash and due from banks ....................................................................................................... $
Time deposits ..........................................................................................................................
Trading securities - Note K .....................................................................................................
Securities purchased under resale agreements - Note P .........................................................
Investments - Notes B, D, E, F, K and M
Loans
($529 - September 30, 2013 and $493 - June 30, 2013 at fair value;
$39 - September 30, 2013 and $43 - June 30, 2013 at lower of cost or fair value;
net of reserve against losses of $1,668 - September 30, 2013
and $1,628 - June 30, 2013) - Notes D, E and K............................................................
Equity investments
($8,819 - September 30, 2013 and $8,576 - June 30, 2013 at fair value)
- Notes B, D and K .........................................................................................................
Debt securities - Notes D, F and K.......................................................................................
615
7,305
32,813
894
$
616
5,889
30,349
337
21,775
20,831
11,952
2,201
11,695
2,151
Total investments .......................................................................................................
35,928
34,677
Derivative assets - Notes J, K and P .......................................................................................
3,423
3,376
Receivables and other assets .................................................................................................
3,111
2,281
Total assets .................................................................................................................. $
84 089
$
77 525
Liabilities
Securities sold under repurchase agreements and payable
for cash collateral received - Note P ............................................................................... $
6,051
$
5,736
Borrowings outstanding - Note K .........................................................................................
From market sources at amortized cost ..........................................................................
From market sources at fair value ...................................................................................
From International Bank for Reconstruction and Development at amortized cost ............
1,719
47,924
230
1,715
42,924
230
Total borrowings ........................................................................................................
49,873
44,869
Derivative liabilities - Notes J, K and P ................................................................................
2,376
2,310
Payables and other liabilities ...............................................................................................
3,274
2,335
Total liabilities ................................................................................................................
61,574
55,250
Capital
Capital stock, authorized (2,580,000 - September 30, 2013 and June 30, 2013)
shares of $1,000 par value each
Subscribed and paid-in ..............................................................................................
2,403
2,403
Liabilities and capital
Accumulated other comprehensive income - Note H ...........................................................
1,108
1,121
Retained earnings - Note H .................................................................................................
18,957
18,713
Total IFC capital .........................................................................................................
22,468
22,237
Noncontrolling interests .......................................................................................................
47
38
Total capital ...............................................................................................................
22,515
22,275
Total liabilities and capital ......................................................................................... $
84 089
The notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
139
$
77 525
INTERNATIONAL FINANCE CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
for the three months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)
(US$ millions)
2013
2012
Income from investments
Income from loans, realized gains and losses on associated derivatives and guarantees - Note E .......... $
267
(Provision) release of provision for losses on loans, guarantees and other receivables - Note E ..............
(29)
13
Income from equity investments and associated derivatives - Note G…... ................................................
240
92
Income (losses) from debt securities and realized gains and losses on associated derivatives - Note F ..
9
(3)
Total income from investments ....................................................................................................
487
348
Income from liquid asset trading activities - Note C ....................................................................................
106
249
Charges on borrowings ...............................................................................................................................
(43)
(64)
$
246
Income from investments and liquid asset trading activities, after charges on borrowings ............
550
533
Other income
Advisory services income .....................................................................................................................…
Service fees … .........................................................................................................................................
Other - Note B ..........................................................................................................................................
41
16
30
40
13
31
Total other income .........................................................................................................................
87
84
Other expenses
Administrative expenses .........................................................................................................................
Advisory services expenses .....................................................................................................................
Expense from pension and other postretirement benefit plans - Note O....................................................
Other - Note B ..........................................................................................................................................
(220)
(55)
(43)
(7)
(209)
(57)
(43)
(8)
Total other expenses .....................................................................................................................
(325)
(317)
Foreign currency transaction gains and losses on non-trading activities ......................................................
13
Income before net unrealized gains and losses on non-trading financial instruments
accounted for at fair value and grants to IDA .. ..............................................................................
325
296
(78)
169
247
465
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value - Note I ......................................................................................................
Net Income ........................................................................................................................................
Less: Net gains attributable to noncontrolling interests .............................................................................
Net income attributable to IFC ......................................................................................................... $
The notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
140
(4)
(3)
244
$
465
INTERNATIONAL FINANCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
for the three months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)
(US$ millions)
2013
Net income attributable to IFC ................................................................................................................. $
2012
244
$
465
Other comprehensive income
Unrealized gains and losses on debt securities
Net unrealized (losses) gains on available-for-sale debt securities arising during the period… .............
(27)
24
Add: reclassification adjustment for realized gains
included in net income (Income from debt securities and realized gains and losses
on associated derivatives) ........................................................................................................
-
(7)
Add: reclassification adjustment for other-than-temporary impairments
included in net income (Income from debt securities and realized gains and losses
on associated derivatives) ........................................................................................................
3
25
Net unrealized (losses) gains on debt securities ......................................................................
(24)
42
Unrealized gains and losses on equity investments
Net unrealized gains on available-for-sale equity investments arising during the period .......................
82
125
Add: reclassification adjustment for realized gains
included in net income (Income from equity investments and associated derivatives) ...............
(115)
(43)
Add: reclassification adjustment for other-than-temporary impairments
included in net income (Income from equity investments and associated derivatives) ...............
35
34
Net unrealized gains on equity investments ..............................................................................
2
116
Net unrecognized net actuarial gains and unrecognized prior service credits
on benefit plans - Note O .............................................................................................................
9
14
Total other comprehensive (loss) income ..........................................................................................
(13)
172
Total comprehensive income ........................................................................................................ $
The notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
141
231
$
637
INTERNATIONAL FINANCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN CAPITAL
for the three months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)
(US$ millions)
At June 30, 2012
Undesignated
retained
earnings
$
17,373
Three months ended
September 30, 2012
Net income attributable
to IFC
Other comprehensive
income
Designation of retained
earnings - Note H
Expenditures against
designated retained
earnings - Note H
Designated
retained
earnings
$
322
Attributable to IFC
Accumulated
other
Total
comprehensive
retained
income earnings
Note H
$ 17,695 $
513
465
Capital
stock
$ 2,372
Total IFC
capital
$ 20,580
465
-
172
Noncontrolling
interests
$
-
Total
capital
$ 20,580
465
465
172
172
(80)
80
-
-
-
20
(20)
-
-
-
At September 30, 2012
$
17,778
$
382
$
18,160
$
685
$
2,372
$
21,217
$
-
$
21,217
At June 30, 2013
$
18,435
$
278
$
18,713
$
1,121
$
2,403
$
22,237
$
38
$
22,275
Three months ended
September 30, 2013
Net income attributable
to IFC
Other comprehensive
income
Expenditures against
designated retained
earnings - Note H
Noncontrolling
interests issued
Net gain attributable to
noncontrolling
interests
At September 30, 2013
244
244
244
244
(13)
(13)
-
-
-
-
-
6
6
-
-
3
3
-
16
$
18,695
(16)
$
262
$
18,957
(13)
$
1,108
$
2,403
$
22,468
The notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
142
$
47
$
22,515
INTERNATIONAL FINANCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)
(US$ millions)
2013
Cash flows from investing activities
Loan disbursements ................................................................................................................................ $
Investments in equity securities ...............................................................................................................
Investments in debt securities ..................................................................................................................
Loan repayments .....................................................................................................................................
Debt securities repayments .....................................................................................................................
Proceeds from sales of equity investments ...............................................................................................
Proceeds from sales of debt securities ....................................................................................................
2012
(1,858)
(340)
(148)
883
69
261
-
$
(1,757)
(417)
(61)
1,036
100
168
1
Net cash used in investing activities ............................................................................................
(1,133)
(930)
Cash flows from financing activities
Medium and long-term borrowings
New issues...........................................................................................................................................
Retirement ...........................................................................................................................................
Medium and long-term borrowings related derivatives, net ...................................................................
Short-term borrowings, net........................................................................................................................
Noncontrolling interests issued .................................................................................................................
5,982
(1,446)
(45)
93
6
2,804
(2,528)
41
(210)
-
Net cash provided by financing activities ...................................................................................
4,590
107
244
3
247
465
465
Cash flows from operating activities
Net income attributable to IFC ..................................................................................................................
Add: Net gains attributable to noncontrolling interests ..............................................................................
Net income ..............................................................................................................................................
Adjustments to reconcile net income to net cash used in operating activities:
Realized gains from loans and associated derivatives …………………………………………………… ...
Realized gains on debt securities and associated derivatives ...............................................................
Gains on equity investments and related derivatives, net .....................................................................
Provision (release of provision) for losses on loans, guarantees and other receivables ........................
Other-than-temporary impairments on debt securities ..........................................................................
Other-than-temporary impairments on equity investments ....................................................................
Net discounts paid on retirement of borrowings………………………………….. ....................................
Net realized gains on extinguishment of borrowings .............................................................................
Foreign currency transaction losses (gains) on non-trading activities ...................................................
Net unrealized losses (gains) on non-trading financial instruments accounted for at fair value .............
Change in accrued income on loans, time deposits and securities ......................................................
Change in payables and other liabilities ..............................................................................................
Change in receivables and other assets ...............................................................................................
Change in trading securities and securities purchased and sold under
resale and repurchase agreements ..................................................................................................
(224)
29
3
50
(1)
(1)
(13)
78
(85)
1,123
(648)
(1)
(7)
(89)
(13)
25
83
(3)
4
(169)
(44)
293
399
(2,561)
(1,156)
Net cash used in operating activities ...........................................................................................
(2,003)
(213)
Change in cash and cash equivalents .........................................................................................................
Effect of exchange rate changes on cash and cash equivalents ..................................................................
Net change in cash and cash equivalents ....................................................................................................
Beginning cash and cash equivalents ..........................................................................................................
1,454
(39)
1,415
6,505
(1,036)
114
(922)
7,047
Ending cash and cash equivalents .......................................................................................................... $
7 920
$
6 125
Composition of cash and cash equivalents
Cash and due from banks......................................................................................................................... $
Time deposits .........................................................................................................................................
615
7,305
$
1,219
4,906
Total cash and cash equivalents .......................................................................................................... $
7,920
$
6,125
The notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
143
INTERNATIONAL FINANCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)
(US$ millions)
2013
2012
Supplemental disclosure
Change in ending balances resulting from currency exchange rate fluctuations:
Loans outstanding ............................................................................................................................... $
Debt securities ....................................................................................................................................
Loan and debt security-related currency swaps ...................................................................................
Borrowings ...........................................................................................................................................
Borrowing-related currency swaps ......................................................................................................
45
(6)
1
(178)
174
$
153
18
(161)
(495)
488
Charges on borrowings paid, net .............................................................................................................. $
36
$
67
Non-cash item:
Loan and debt securities conversion to equity, net ................................................................................ $
2
$
1
The notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
144
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
PURPOSE
The International Finance Corporation (IFC), an international organization, was established in 1956 to further economic development in its member
countries by encouraging the growth of private enterprise. IFC is a member of the World Bank Group, which also comprises the International Bank
for Reconstruction and Development (IBRD), the International Development Association (IDA), the Multilateral Investment Guarantee Agency
(MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). Each member is legally and financially independent.
Transactions with other World Bank Group members are disclosed in the notes that follow. IFC’s activities are closely coordinated with and
complement the overall development objectives of the other World Bank Group institutions. IFC, together with private investors, assists in financing
the establishment, improvement and expansion of private sector enterprises by making loans, equity investments and investments in debt securities
where sufficient private capital is not otherwise available on reasonable terms. IFC’s share capital is provided by its member countries. It raises
most of the funds for its investment activities through the issuance of notes, bonds and other debt securities in the international capital markets. IFC
also plays a catalytic role in mobilizing additional funding from other investors and lenders through parallel loans, loan participations, partial credit
guarantees, securitizations, loan sales, risk sharing facilities, and fund investments through the IFC Asset Management Company, LLC and other
IFC crisis initiatives. In addition to project finance and mobilization, IFC offers an array of financial and technical advisory services to private
businesses in the developing world to increase their chances of success. It also advises governments on how to create an environment hospitable
to the growth of private enterprise and foreign investment.
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES
The Condensed Consolidated Financial Statements include the financial statements of IFC and consolidated subsidiaries as detailed in Note B. The
accounting and reporting policies of IFC conform with accounting principles generally accepted in the United States of America (US GAAP). The
results as of and for the three months ended September 30, 2013 are not indicative of the results that may be expected for the full year ending June
30, 2014. In the opinion of management, the Condensed Consolidated Financial Statements reflect all adjustments necessary for the fair
presentation of IFC’s financial position and results of operation.
Condensed Consolidated Financial Statements presentation – Certain amounts in the prior years have been changed to conform to the current
year’s presentation.
Advisory services – Beginning July 1, 2011, IFC adopted a new reporting basis for funds received from donors for IFC’s advisory services
business and reported advisory services business as a separate segment. See Notes L and N. Funding received for IFC advisory services from
governments and other donors are recognized as contribution revenue when the conditions on which they depend are substantially met. Advisory
services expenses are recognized in the period incurred. Advisory client fees and administration fees are recognized as income when earned.
Functional currency – IFC’s functional currency is the United States dollar (US dollars or $).
Use of estimates – The preparation of the Condensed Consolidated Financial Statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed
Consolidated Financial Statements and the reported amounts of income and expense during the reporting periods. Actual results could differ from
these estimates. A significant degree of judgment has been used in the determination of: the reserve against losses on loans and impairment of
debt securities and equity investments; estimated fair values of financial instruments accounted for at fair value (including equity investments, debt
securities, loans, trading securities and derivative instruments); projected benefit obligations, fair value of pension and other postretirement benefit
plan assets, and net periodic pension income or expense. There are inherent risks and uncertainties related to IFC’s operations. The possibility
exists that changing economic conditions could have an adverse effect on the financial position of IFC.
IFC uses internal models to determine the fair values of derivative and other financial instruments and the aggregate level of the reserve against
losses on loans and impairment of equity investments. IFC undertakes continuous review and respecification of these models with the objective of
refining its estimates, consistent with evolving best practices appropriate to its operations. Changes in estimates resulting from refinements in the
assumptions and methodologies incorporated in the models are reflected in net income in the period in which the enhanced models are first applied.
Consolidation, non-controlling interests and variable interest entities – IFC consolidates:
i)
all majority-owned subsidiaries;
ii) limited partnerships in which it is the general partner, unless the presumption of control is overcome by certain management participation or
other rights held by minority shareholders/limited partners; and
iii) variable interest entities (VIEs) for which IFC is deemed to be the VIE's primary beneficiary (together, consolidated subsidiaries).
Significant intercompany accounts and transactions are eliminated in consolidation.
145
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Equity interests in consolidated subsidiaries held by third parties are referred to as non-controlling interests. Such interests and the amount of
consolidated net income/loss attributable to those interests are identified within IFC's condensed consolidated balance sheet and condensed
consolidated income statement as "non-controlling interests" and "net gains / losses attributable to non-controlling interests", respectively.
An entity is a VIE if:
i)
its equity is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties;
ii) its equity investors do not have decision-making rights about the entity's operations; or
iii) if its equity investors do not absorb the expected losses or receive the expected returns of the entity proportionally to their voting rights.
A variable interest is a contractual, ownership or other interest whose value changes as the fair value of the VIE's net assets change. IFC's variable
interests in VIEs arise from financial instruments, service contracts, guarantees, leases or other monetary interests in those entities.
IFC is considered to be the primary beneficiary of a VIE if it has the power to direct the VIE's activities that most significantly impact its economic
performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE unless:
i)
the entity has the attributes of an investment company or for which it is industry practice to account for their assets at fair value through
earnings;
ii) IFC has an explicit or implicit obligation to fund losses of the entity that could be potentially significant to that entity; and
iii) the entity is a securitization vehicle, an asset-backed financing entity, or an entity that was formerly considered a qualifying special purpose
entity, as well as entities that are required to comply with or operate in accordance with requirements that are similar to those included in Rule
2a-7 of the Investment Company Act of 1940.
In those cases, IFC is considered to be the entity's primary beneficiary if it will absorb the majority of the VIE's expected losses or expected residual
returns.
IFC has a number of investments in VIEs that it manages and supervises in a manner consistent with other portfolio investments.
Fair Value Option and Fair Value Measurements – IFC has adopted the Financial Accounting Standards Board’s (FASB) Accounting Standards
Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) and the Fair Value Option subsections of ASC Topic 825,
Financial Instruments (ASC 825 or the Fair Value Option). ASC 820 defines fair value, establishes a framework for measuring fair value and a fair
value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels and applies to all items
measured at fair value, including items for which impairment measures are based on fair value. ASC 825 permits the measurement of eligible
financial assets, financial liabilities and firm commitments at fair value on an instrument-by-instrument basis, that are not otherwise permitted to be
accounted for at fair value under other accounting standards. The election to use the Fair Value Option is available when an entity first recognizes a
financial asset or liability or upon entering into a firm commitment.
The Fair Value Option
IFC has elected the Fair Value Option for the following financial assets and financial liabilities existing at the time of adoption of ASC 825 and
subsequently entered into:
i)
investees in which IFC has significant influence:
a) direct investments in securities issued by the investee and, if IFC would have otherwise been required to apply equity method accounting,
all other financial interests in the investee (e.g., loans)
b) investments in Limited Liability Partnerships (LLPs), Limited Liability Companies (LLCs) and other investment fund structures that
maintain specific ownership accounts and loans or guarantees to such;
ii) direct equity investments representing 20 percent or more ownership but in which IFC does not have significant influence;
iii) certain hybrid instruments in the investment portfolio; and
iv) all market borrowings, except for such borrowings having no associated derivative instruments.
Beginning July 1, 2010, IFC has elected the Fair Value Option for all new equity interests in funds.
All borrowings for which the Fair Value Option has been elected are associated with existing derivative instruments used to create an economic
hedge. Measuring at fair value those borrowings for which the Fair Value Option has been elected mitigates the earnings volatility caused by
measuring the borrowings and related derivative differently (in the absence of a designated accounting hedge) without having to apply ASC Topic
815’s, Derivatives and Hedging (ASC 815) complex hedge accounting requirements. The Fair Value Option was not elected for all borrowings from
IBRD and all other market borrowings because such borrowings fund assets with similar characteristics.
Measuring at fair value those equity investments that would otherwise require equity method accounting simplifies the accounting and renders a
carrying amount on the condensed consolidated balance sheet based on a measure (fair value) that IFC considers superior to equity method
accounting. For the investments that otherwise would require equity method accounting for which the Fair Value Option is elected, ASC 825
requires the Fair Value Option to also be applied to all eligible financial interests in the same entity. IFC has disbursed loans to certain of such
investees; therefore, the Fair Value Option is also applied to those loans. IFC elected the Fair Value Option for equity investments with 20% or more
ownership where it does not have significant influence so that the same measurement method (fair value) will be applied to all equity investments
with more than 20% ownership.
146
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Equity securities held by consolidated subsidiaries that are investment companies
Pursuant to ASC Topic 946, Financial Services - Investment Companies (ASC 946) and ASC Topic 810, Consolidation, equity securities held by
consolidated subsidiaries that are investment companies are accounted for at fair value, with unrealized gains and losses reported in earnings.
Fair Value Measurements
ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability (i.e., an exit price) in an orderly transaction
between independent, knowledgeable and willing market participants at the measurement date assuming the transaction occurs in the entity’s
principal (or most advantageous) market. Fair value must be based on assumptions market participants would use (inputs) in determining the price
and measured assuming that market participants act in their economic best interest, therefore, their fair values are determined based on a
transaction to sell or transfer the asset or liability on a standalone basis. Under ASC 820, fair value measurements are not adjusted for transaction
costs.
Notwithstanding the following paragraph, pursuant to ASC Topic 320, Investments - Debt and Equity Securities (ASC 320), IFC reports equity
investments that are listed in markets that provide readily determinable fair values at fair value, with unrealized gains and losses being reported in
other comprehensive income.
The fair value hierarchy established by ASC 820 gives the highest priority to unadjusted quoted prices in active markets for identical unrestricted
assets and liabilities (Level 1), the next highest priority to observable market based inputs or unobservable inputs that are corroborated by market
data from independent sources (Level 2) and the lowest priority to unobservable inputs that are not corroborated by market data (Level 3). Fair
value measurements are required to maximize the use of available observable inputs.
Level 1 primarily consists of financial instruments whose values are based on unadjusted quoted market prices. It includes IFC’s equity investments,
which are listed in markets that provide readily determinable fair values, government issues and money market funds in the liquid assets portfolio,
and market borrowings that are listed on exchanges.
Level 2 includes financial instruments that are valued using models and other valuation methodologies. These models consider various
assumptions and inputs, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity and current market and
contractual pricing for the underlying asset, as well as other relevant economic measures. Substantially all of these inputs are observable in the
market place, can be derived from observable data or are supported by observable levels at which market transactions are executed. Financial
instruments categorized as Level 2 include non-exchange-traded derivatives such as interest rate swaps, cross-currency swaps, certain assetbacked securities, as well as the majority of trading securities in the liquid asset portfolio, and the portion of IFC’s borrowings accounted for at fair
value not included in Level 1.
Level 3 consists of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing significant
inputs that are non-observable. It also includes financial instruments whose fair value is estimated based on price information from independent
sources that cannot be corroborated by observable market data. Level 3 includes equity investments that are not listed in markets that provide
readily determinable fair values, all loans for which IFC has elected the Fair Value Option, all of IFC’s debt securities in the investment portfolio, and
certain hard-to-price securities in the liquid assets portfolio.
IFC estimates the fair value of its investments in private equity funds that do not have readily determinable fair value based on the funds’ net asset
values (NAVs) per share as a practical expedient to the extent that a fund reports its investment assets at fair value and has all the attributes of an
investment company, pursuant to ASC 946. If the NAV is not as of IFC’s measurement date, IFC adjusts the most recent NAV, as necessary, to
estimate a NAV for the investment that is calculated in a manner consistent with the fair value measurement principles established by ASC 820.
Remeasurement of foreign currency transactions – Assets and liabilities not denominated in US dollars, other than disbursed equity
investments, are expressed in US dollars at the exchange rates prevailing at September 30, 2013 and June 30, 2013. Disbursed equity
investments, other than those accounted for at fair value, are expressed in US dollars at the prevailing exchange rates at the time of disbursement.
Income and expenses are recorded based on the rates of exchange prevailing at the time of the transaction. Transaction gains and losses are
credited or charged to income.
Loans – IFC originates loans to facilitate project finance, restructuring, refinancing, corporate finance, and/or other developmental objectives. Loans
are recorded as assets when disbursed. Loans are generally carried at the principal amounts outstanding adjusted for net unamortized loan
origination costs and fees. It is IFC’s practice to obtain collateral security such as, but not limited to, mortgages and third-party guarantees.
Certain loans are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on loans
accounted for at fair value under the Fair Value Option are reported in income from loans, realized gains and losses on associated derivatives and
guarantees on the condensed consolidated income statement.
Certain loans originated by IFC contain income participation, prepayment and conversion features. These features are bifurcated and separately
accounted for in accordance with ASC 815 if IFC has not elected the Fair Value Option for the loan host contracts and the features meet the
definition of a derivative, and are not considered to be clearly and closely related to their host loan contracts. Otherwise, these features are
accounted for as part of their host loan contracts in accordance with IFC’s accounting policies for loans as indicated herein.
Loans held for sale are carried at the lower of cost or fair value. The excess, if any, of amortized cost over fair value is accounted for as a valuation
allowance. Changes in the valuation allowance are recognized in net income as they occur.
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Revenue recognition on loans – Interest income and commitment fees on loans are recorded as income on an accrual basis. Loan origination
fees and direct loan origination costs are deferred and amortized over the estimated life of the originated loan; such amortization is determined
using the interest method unless the loan is a revolving credit facility in which case amortization is determined using the straight-line method.
Prepayment fees are recorded as income when received in freely convertible currencies.
IFC does not recognize income on loans where collectability is in doubt or payments of interest or principal are past due more than 60 days unless
management anticipates that collection of interest will occur in the near future. Any interest accrued on a loan placed in nonaccrual status is
reversed out of income and is thereafter recognized as income only when the actual payment is received. Interest not previously recognized but
capitalized as part of a debt restructuring is recorded as deferred income, included in the condensed consolidated balance sheet in payables and
other liabilities, and credited to income only when the related principal is received. Such capitalized interest is considered in the computation of the
reserve against losses on loans in the condensed consolidated balance sheet.
Reserve against losses on loans – IFC recognizes impairment on loans not carried at fair value in the condensed consolidated balance sheet
through the reserve against losses on loans, recording a provision or release of provision for losses on loans in net income, which increases or
decreases the reserve against losses on loans. Individually impaired loans are measured based on the present value of expected future cash flows
to be received, observable market prices, or for loans that are dependent on collateral for repayment, the estimated fair value of the collateral.
The reserve against losses on loans reflects management’s estimates of both identified probable losses on individual loans (specific reserves) and
probable losses inherent in the portfolio but not specifically identifiable (portfolio reserves). The determination of identified probable losses
represents management’s judgment of the creditworthiness of the borrower. Reserves against losses are established through a review of individual
loans undertaken on a quarterly basis. IFC considers a loan as impaired when, based on current information and events, it is probable that IFC will
be unable to collect all amounts due according to the loan’s contractual terms. Information and events, with respect to the borrower and/or the
economic and political environment in which it operates, considered in determining that a loan is impaired include, but not limited to, the borrower’s
financial difficulties, breach of contract, bankruptcy/reorganization, credit rating downgrade as well as geopolitical conflict, financial/economic crisis,
commodity price decline, adverse local government action and natural disaster. Unidentified probable losses are the losses incurred at the reporting
date that have not yet been specifically identified. The risks inherent in the portfolio that are considered in determining unidentified probable losses
are those proven to exist by past experience and include: country systemic risk; the risk of correlation or contagion of losses between markets;
uninsured and uninsurable risks; nonperformance under guarantees and support agreements; and opacity of, or misrepresentation in, financial
statements. There were no changes, during the periods presented herein, to IFC’s accounting policies and methodologies used to estimate its
reserve against loan losses.
For purposes of providing certain disclosures about IFC’s entire reserve against losses on loans, IFC considers its entire loan portfolio to comprise
one portfolio segment. A portfolio segment is the level at which the method for estimating the reserve against losses on loans is developed and
documented.
Loans are written-off when IFC has exhausted all possible means of recovery, by reducing the reserve against losses on loans. Such reductions in
the reserve are partially offset by recoveries, if any, associated with previously written-off loans.
Equity investments – IFC invests primarily for developmental impact; IFC does not seek to take operational, controlling, or strategic equity
positions within its investees. Equity investments are acquired through direct ownership of equity instruments of investees, as a limited partner in
LLPs and LLCs, and/or as an investor in private equity funds.
Revenue recognition on equity investments – Equity investments, which are listed in markets that provide readily determinable fair values, are
accounted for as available-for-sale securities at fair value with unrealized gains and losses reported in other comprehensive income in accordance
with ASC 320. As noted above under “Fair Value Option and Fair Value Measurements”, direct equity investments and investments in LLPs and
LLCs that maintain ownership accounts in which IFC has significant influence, direct equity investments representing 20 percent or more ownership
but in which IFC does not have significant influence and, beginning July 1, 2010, all new equity interests in funds are accounted for at fair value
under the Fair Value Option. Direct equity investments in which IFC does not have significant influence and which are not listed in markets that
provide readily determinable fair values are carried at cost, less impairment. Notwithstanding the foregoing, equity securities held by consolidated
subsidiaries that are investment companies are accounted for at fair value, with unrealized gains and losses reported in earnings.
IFC’s investments in certain private equity funds in which IFC is deemed to have a controlling financial interest, are fully consolidated by IFC, as the
presumption of control by the fund manager or the general partner has been overcome. Certain equity investments, for which recovery of invested
capital is uncertain, are accounted for under the cost recovery method, such that receipts of freely convertible currencies are first applied to recovery
of invested capital and then to income from equity investments. The cost recovery method is principally applied to IFC's investments in its oil and
gas unincorporated joint ventures (UJVs). IFC’s share of conditional asset retirement obligations related to investments in UJVs are recorded when
the fair value of the obligations can be reasonably estimated. The obligations are capitalized and systematically amortized over the estimated
economic useful lives.
Unrealized gains and losses on equity investments accounted for at fair value under the Fair Value Option are reported in income from equity
investments and associated derivatives on the condensed consolidated income statement. Unrealized gains and losses on equity investments listed
in markets that provide readily determinable fair values which are accounted for as available-for-sale are reported in other comprehensive income.
Realized gains on the sale or redemption of equity investments are measured against the average cost of the investments sold and are generally
recorded as income from equity investments and associated derivatives when received. Capital losses are recognized when incurred.
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STATEMENTS (UNAUDITED)
Profit participations received on equity investments are recorded when received in freely convertible currencies. Dividends received on equity
investments through June 30, 2011 were recorded as income when received in freely convertible currencies. Beginning July 1, 2011, dividends on
listed equity investments are recorded on the ex-dividend date - dividends on unlisted equity investments are recorded upon receipt of notice of
declaration. Realized gains on the sale or redemption of equity investments are measured against the average cost of the investments sold and,
through June 30, 2011, were recorded as income in income from equity investments when received in freely convertible currencies. Beginning July
1, 2011, realized gains on listed equity investments are recorded upon trade date - realized gains on unlisted equity investments are recorded upon
incurring the obligation to deliver the applicable shares. Losses are recognized when incurred.
IFC enters into put and call option and warrant agreements in connection with certain equity investments; these are accounted for in accordance
with ASC 815 to the extent they meet the definition of a derivative.
Gains and losses on debt conversions to equity securities and exchanges of equity securities – IFC's non cash transactions typically arise
through: (1) loan and debt security conversions to equity interests and (2) transfer of equity interest in exchange for equity interest in another
entity exchanges of equity interest for an ownership interest in another entity of non-cash assets by exercising a conversion option that results in
the exchange of one financial instrument (e.g., loan, equity or debt security) for another instrument (e.g., debt or equity securities) or (2) a receipt
by IFC of an asset for which no assets are relinquished by IFC in return. Generally, accounting for such non cash transactions are based on the
fair value of the asset relinquished unless the fair value of the asset received is more clearly evident in which case gain or loss is based on the fair
value of the asset received. The difference between the fair value basis and the recorded amount of the asset relinquished is recorded as a gain
or loss in the income statement.
Impairment of equity investments – Equity investments accounted for at cost, less impairment and available-for-sale are assessed for impairment
each quarter. When impairment is identified, it is generally deemed to be other than temporary, and the equity investment is written down to the
impaired value, which becomes the new cost basis in the equity investment. Such other than temporary impairments are recognized in net income.
Subsequent increases in the fair value of available-for-sale equity investments are included in other comprehensive income - subsequent decreases
in fair value, if not other than temporary impairment, also are included in other comprehensive income.
Debt securities – Debt securities in the investment portfolio are classified as available-for-sale and carried at fair value on the condensed
consolidated balance sheet with unrealized gains and losses included in accumulated other comprehensive income until realized. Realized gains on
sales of debt securities and interest on debt securities is included in income from debt securities and realized gains and losses on associated
derivatives on the condensed consolidated income statement.
Certain debt securities are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on debt
securities accounted for at fair value under the Fair Value Option are reported in net unrealized gains and losses on non-trading financial
instruments accounted for at fair value on the condensed consolidated income statement.
IFC invests in certain debt securities with conversion features; these features are accounted for in accordance with ASC 815 to the extent they meet
the definition of a derivative.
Impairment of debt securities – In determining whether an unrealized loss on debt securities is other-than-temporary, IFC considers all relevant
information including the length of time and the extent to which fair value has been less than amortized cost, whether IFC intends to sell the debt
security or whether it is more likely than not that IFC will be required to sell the debt security, the payment structure of the obligation and the ability
of the issuer to make scheduled interest or principal payments, any changes to the ratings of a security, and relevant adverse conditions specifically
related to the security, an industry or geographic sector.
Debt securities in the investment portfolio are assessed for impairment each quarter. When impairment is identified, the entire impairment is
recognized in net income if (1) IFC intends to sell the security, or (2) it is more likely than not that IFC will be required to sell the security before
recovery. However, if IFC does not intend to sell the security and it is not more likely than not that IFC will be required to sell the security but the
security has suffered a credit loss, the impairment charge will be separated into the credit loss component, which is recognized in net income, and
the remainder which is recorded in other comprehensive income. The impaired value becomes the new amortized cost basis of the debt security.
Subsequent increases and decreases - if not an additional other-than-temporary impairment - in the fair value of debt securities are included in other
comprehensive income.
The difference between the new amortized cost basis of debt securities for which an other-than-temporary impairment has been recognized in net
income and the cash flows expected to be collected is accreted to interest income using the effective yield method. Significant subsequent
increases in the expected or actual cash flows previously expected are recognized as a prospective adjustment of the yield.
Guarantees – IFC extends financial guarantee facilities to its clients to provide credit enhancement for their debt securities and trade obligations.
IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client obligations on bonds or loans. Under the terms of IFC's
guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client (i.e., failure to pay when
payment is due). Guarantees are regarded as issued when IFC commits to the guarantee. Guarantees are regarded as outstanding when the
underlying financial obligation of the client is incurred, and this date is considered to be the “inception” of the guarantee. Guarantees are regarded
as called when IFC’s obligation under the guarantee has been invoked. There are two liabilities associated with the guarantees: (i) the stand-ready
obligation to perform and (ii) the contingent liability. The fair value of the stand-ready obligation to perform is recognized at the inception of the
guarantee unless a contingent liability exists at that time or is expected to exist in the near term. The contingent liability associated with the financial
guarantee is recognized when it is probable the guarantee will be called and when the amount of guarantee called can be reasonably estimated. All
liabilities associated with guarantees are included in payables and other liabilities, and the receivables are included in other assets on the
condensed consolidated balance sheet. When the guarantees are called, the amount disbursed is recorded as a new loan, and specific reserves
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STATEMENTS (UNAUDITED)
against losses are established, based on the estimated probable loss. Guarantee fees are recorded in income as the stand-ready obligation to
perform is fulfilled. Commitment fees on guarantees are recorded as income on an accrual basis.
Designations of retained earnings – IFC establishes funding mechanisms for specific Board approved purposes through designations of retained
earnings. Designations of retained earnings for grants to IDA are recorded as a transfer from undesignated retained earnings to designated
retained earnings when the designation is approved by the Board of Governors. All other designations are recorded as a transfer from
undesignated retained earnings to designated retained earnings when the designation is noted with approval by the Board of Directors. Total
designations of retained earnings are determined based on IFC’s annual income before expenditures against designated retained earnings and net
unrealized gains and losses on non-trading financial instruments accounted for at fair value in excess of $150 million, and contemplating the
financial capacity and strategic priorities of IFC.
Expenditures resulting from such designations are recorded as expenses in IFC’s condensed consolidated income statement in the year in which
they are incurred, also having the effect of reducing the respective designated retained earnings for such purposes. Expenditures are deemed to
have been incurred when IFC has ceded control of the funds to the recipient. If the recipient is deemed to be controlled by IFC, the expenditure is
deemed to have been incurred only when the recipient disburses the funds to a non-related party. On occasion, recipients who are deemed to be
controlled by IFC make investments. In such cases, IFC includes those assets on its condensed consolidated balance sheet until the recipient
disposes of or transfers the asset or IFC is deemed to no longer be in control of the recipient. These investments have had no material impact on
IFC’s financial position, results of operations, or cash flows. Investments resulting from such designations are recorded on IFC’s condensed
consolidated balance sheet in the year in which they occur, also having the effect of reducing the respective designated retained earnings for such
purposes.
Liquid asset portfolio – The liquid asset portfolio, as defined by IFC, consists of: time deposits and securities; related derivative instruments;
securities purchased under resale agreements, securities sold under repurchase agreements and payable for cash collateral received; receivables
from sales of securities and payables for purchases of securities; and related accrued income and charges. IFC’s liquid funds are invested in
government, agency and government-sponsored agency obligations, time deposits and asset-backed, including mortgage-backed, securities.
Government and agency obligations include positions in high quality fixed rate bonds, notes, bills, and other obligations issued or unconditionally
guaranteed by governments of countries or other official entities including government agencies and instrumentalities or by multilateral
organizations. Asset-backed and mortgage-backed securities include agency and non-agency residential mortgage-backed securities, commercial
mortgage-backed securities, consumer, auto and student loans-backed securities, commercial real estate collateralized debt obligations and
collateralized loan obligations.
Securities and related derivative instruments within IFC’s liquid asset portfolio are classified as trading and are carried at fair value with any changes
in fair value reported in income from liquid asset trading activities. Interest on securities and amortization of premiums and accretion of discounts are
also reported in income from liquid asset trading activities. Gains and losses realized on the sale of trading securities are computed on a specific
security basis.
IFC classifies cash and due from banks and time deposits (collectively, cash and cash equivalents) as cash and as cash equivalents in the
condensed consolidated statement of cash flows because they are generally readily convertible to known amounts of cash within 90 days of
acquisition generally when the original maturities for such instruments are under 90 days or in some cases are under 180 days.
Repurchase, resale and securities lending agreements – Repurchase agreements are contracts under which a party sells securities and
simultaneously agrees to repurchase the same securities at a specified future date at a fixed price. Resale agreements are contracts under which a
party purchases securities and simultaneously agrees to resell the same securities at a specified future date at a fixed price. Securities lending
agreements are similar to repurchase agreements except that the securities loaned are securities that IFC has received as collateral under
unrelated agreements and allowed by contract to rehypothecate. Amounts due under securities lending agreements are included in securities sold
under repurchase agreements and payable for cash collateral received on the condensed consolidated balance sheet.
It is IFC’s policy to take possession of securities purchased under resale agreements, which are primarily liquid government securities. The market
value of these securities is monitored and, within parameters defined in the agreements, additional collateral is obtained when their value declines.
IFC also monitors its exposure with respect to securities sold under repurchase agreements and, in accordance with the terms of the agreements,
requests the return of excess securities held by the counterparty when their value increases.
Repurchase, resale and securities lending agreements are accounted for as collateralized financing transactions and recorded at the amount at
which the securities were acquired or sold plus accrued interest.
Borrowings – To diversify its access to funding, and reduce its borrowing costs, IFC borrows in a variety of currencies and uses a number of
borrowing structures, including foreign exchange rate-linked, inverse floating rate and zero coupon notes. Generally, IFC simultaneously converts
such borrowings into variable rate US dollar borrowings through the use of currency and interest rate swap transactions. Under certain outstanding
borrowing agreements, IFC is not permitted to mortgage or allow a lien to be placed on its assets (other than purchase money security interests)
without extending equivalent security to the holders of such borrowings.
Substantially all borrowings are carried at fair value under the Fair Value Option with changes in fair value reported in net unrealized gains and
losses on non-trading financial instruments accounted for at fair value in the condensed consolidated income statement.
Interest on borrowings and amortization of premiums and accretion of discounts are reported in charges on borrowings.
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Risk management and use of derivative instruments – IFC enters into transactions in various derivative instruments for financial risk
management purposes in connection with its principal business activities, including lending, investing in debt securities and equity investments,
client risk management, borrowing, liquid asset portfolio management and asset and liability management. There are no derivatives designated as
accounting hedges.
All derivative instruments are recorded on the condensed consolidated balance sheet at fair value as derivative assets or derivative liabilities.
Where they are not clearly and closely related to the host contract, certain derivative instruments embedded in loans, debt securities and equity
investments are bifurcated from the host contract and recorded at fair value as derivative assets and liabilities. The fair value at inception of such
embedded derivatives is excluded from the carrying amount of the host contracts on the condensed consolidated balance sheet. Changes in fair
values of derivative instruments used in the liquid asset portfolio are recorded in income from liquid asset trading activities. Changes in fair values of
derivative instruments other than those in the liquid asset portfolio and those associated with equity investments are recorded in net unrealized
gains and losses on non-trading financial instruments accounted for at fair value. The risk management policy for each of IFC’s principal business
activities and the accounting policies particular to them are described below.
Lending activities IFC’s policy is to closely match the currency, interest rate basis, and maturity of its loans and borrowings. Derivative instruments
are used to convert the cash flows from fixed rate US dollar or non-US dollar loans into variable rate US dollars. IFC has elected not to designate
any hedging relationships for any of its lending-related derivatives.
Client risk management activities IFC enters into derivatives transactions with its clients to help them hedge their own currency, interest rate, or
commodity risk, which, in turn, improves the overall quality of IFC’s loan portfolio. To hedge the market risks that arise from these transactions with
clients, IFC enters into offsetting derivative transactions with matching terms with authorized market counterparties. Changes in fair value of all
derivatives associated with these activities are reported in net income in net unrealized gains and losses on non-trading financial instruments
accounted for at fair value.
Borrowing activities IFC issues debt securities in various capital markets with the objectives of minimizing its borrowing costs, diversifying funding
sources, and developing member countries’ capital markets, sometimes using complex structures. These structures include borrowings payable in
multiple currencies, or borrowings with principal and/or interest determined by reference to a specified index such as a stock market index, a
reference interest rate, a commodity index, or one or more foreign exchange rates. IFC uses derivative instruments with matching terms, primarily
currency and interest rate swaps, to convert such borrowings into variable rate US dollar obligations, consistent with IFC’s matched funding policy.
IFC elected to carry at fair value, under the Fair Value Option, all market borrowings for which a derivative instrument is used to create an economic
hedge. Changes in the fair value of such borrowings and the associated derivatives are reported in net unrealized gains and losses on non-trading
financial instruments accounted for at fair value in the condensed consolidated income statement.
Liquid asset portfolio management activities IFC manages the interest rate, currency and other market risks associated with certain of the time
deposits and securities in its liquid asset portfolio by entering into derivative transactions to convert the cash flows from those instruments into
variable rate US dollars, consistent with IFC’s matched funding policy. The derivative instruments used include short-term, over-the-counter foreign
exchange forwards (covered forwards), interest rate and currency swaps, and exchange-traded interest rate futures and options. As the entire liquid
asset portfolio is classified as a trading portfolio, all securities (including derivatives) are carried at fair value with changes in fair value reported in
income from liquid asset trading activities. No derivatives in the liquid asset portfolio have been designated as hedging instruments under ASC 815.
Asset and liability management In addition to the risk managed in the context of its business activities detailed above, IFC faces residual market
risk in its overall asset and liability management. Residual currency risk is managed by monitoring the aggregate position in each lending currency
and reducing the net excess asset or liability position through sales or purchases of currency. Interest rate risk arising from mismatches due to
write-downs, prepayments and re-schedulings, and residual reset date mismatches is monitored by measuring the sensitivity of the present value of
assets and liabilities in each currency to each basis point change in interest rates.
IFC monitors the credit risk associated with these activities by careful assessment and monitoring of prospective and actual clients and
counterparties. In respect of liquid assets and derivatives transactions, credit risk is managed by establishing exposure limits based on the credit
rating and size of the individual counterparty. In addition, IFC has entered into master agreements with its derivative market counterparties
governing derivative transactions that contain close-out and netting provisions and collateral arrangements. Under these agreements, if IFC’s credit
exposure to a counterparty, on a mark-to-market basis, exceeds a specified level, the counterparty must post collateral to cover the excess,
generally in the form of liquid government securities or cash. IFC does not offset the fair value amounts of derivatives and obligations to return cash
collateral associated with these master-netting agreements.
Loan participations – IFC mobilizes funds from commercial banks and other financial institutions (Participants) by facilitating loan participations,
without recourse. These loan participations are administered and serviced by IFC on behalf of the Participants. The disbursed and outstanding
balances of loan participations that meet the applicable accounting criteria are accounted for as sales and are not included in IFC’s condensed
consolidated balance sheet. All other loan participations are accounted for as secured borrowings and are included in loans on IFC’s condensed
consolidated balance sheet, with the related secured borrowings included in payables and other liabilities on IFC’s condensed consolidated balance
sheet.
Pension and other postretirement benefits – IBRD has a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and
a Post-Employment Benefits Plan (PEBP) that cover substantially all of its staff members as well as the staff of IFC and of MIGA.
The SRP provides regular pension benefits and includes a cash balance plan. The RSBP provides certain health and life insurance benefits to
eligible retirees. The PEBP provides pension benefits administered outside the SRP. All costs associated with these plans are allocated between
IBRD, IFC, and MIGA based upon their employees’ respective participation in the plans. In addition, IFC and MIGA reimburse IBRD for their share
of any contributions made to these plans by IBRD.
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STATEMENTS (UNAUDITED)
The net periodic pension and other postretirement benefit income or expense allocated to IFC is included in income or expense from pension and
other postretirement benefit plans in the condensed consolidated income statement. IFC includes a receivable from IBRD in receivables and other
assets, representing prepaid pension and other postretirement benefit costs.
Recently adopted accounting standards – In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about
Offsetting Assets and Liabilities and then amended the scope of ASU 2011-11 in January 2013 through the issuance of ASU 2013-01, Balance
Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This ASU applies to all entities that have derivative
instruments, resale and repurchase agreements, or securities lending agreements that are (i) offset in accordance with ASC 210-20-45 or ASC
815-10-45 or (ii) subject to an enforceable master netting arrangement or similar agreement, and requires an entity to disclose information about
offsetting to enable users of its financial statements to understand the effect of those arrangements on its financial position. The disclosures are
required for quarterly and annual reporting periods beginning on or after January 1, 2013 and are to be applied retrospectively for all comparative
periods presented. IFC adopted these ASUs on July 1, 2013. These ASUs did not change the accounting for these arrangements or require them
to be offset and thus had no impact on IFC’s condensed consolidated balance sheet. These disclosures are included in Note P.
In February 2013, the FASB issued ASU 2013-02, Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 201302). ASU 2013-02 requires disclosure of information about changes in AOCI balances by component and significant items reclassified out of AOCI.
It does not amend any existing reporting requirements for measuring net income or other comprehensive income. ASU 2013-02 is effective for
annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2012 (which is the year ending June 30,
2014 for IFC). These disclosures are included in the condensed consolidated statements of comprehensive income.
Accounting and financial reporting developments – In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act)
became law. The Act seeks to reform the U.S. financial regulatory system by introducing new regulators and extending regulation over new
markets, entities, and activities. The implementation of the Act is dependent on the development of various rules to clarify and interpret its
requirements. Pending the development of these rules, no impact on IFC has been determined as of September 30, 2013. IFC continues to
evaluate the potential future implications of the Act.
In June 2013, the FASB issued ASU 2013-08, Investment Companies (Topic 946); Amendments to the Scope, Measurement and Disclosure
Requirements (ASU 2013-08). Among other things, ASU 2013-08 amends the criteria for an entity to qualify as an investment company under ASC
Topic 946, introduces new disclosure requirements applicable to investment companies, and amends the measurement criteria for certain
investments by an investment company in another investment company. ASU 2013-08 is applicable for annual reporting periods and interim
periods within those annual periods, beginning after December 15, 2013 (which is the year ending June 30, 2015 for IFC). IFC is currently
evaluating the impact of ASU 2013-08.
In addition, during the three months ended September 30, 2013, the FASB issued and/or approved various other ASUs. IFC analyzed and
implemented the new guidance, as appropriate, with no material impact on the financial position, results of operations or cash flows of IFC.
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STATEMENTS (UNAUDITED)
NOTE B – SCOPE OF CONSOLIDATION
IFC Asset Management Company, LLC (AMC) and AMC Funds
IFC through its wholly owned subsidiary, AMC, seeks to mobilize capital from outside IFC’s traditional investor pool and to manage third-party
capital. AMC is consolidated into IFC’s financial statements. At September 30, 2013, IFC has provided $2 million of capital to AMC ($2 million June 30, 2013).
As a result of the consolidation of AMC, IFC’s condensed consolidated balance sheet at September 30, 2013 includes $33 million in cash,
receivables and other assets ($18 million - June 30, 2013), less than $0.5 million in equity investments (less than $0.5 million - June 30, 2013)
and $1 million in payables and other liabilities ($1 million - June 30, 2013). Other income in IFC’s condensed consolidated income statement
includes $14 million during the three months ended September 30, 2013 ($6 million - three months ended September 30, 2012) and other
expenses includes $3 million during the three months ended September 30, 2013 ($2 million - three months ended September 30, 2012).
At September 30, 2013, AMC managed seven funds (collectively referred to as the AMC Funds). All AMC Funds are investment companies and
are required to report their investment assets at fair value through net income. IFC’s ownership interests in these AMC Funds are shown in the
following table:
AMC Funds
IFC’s ownership interest
IFC Capitalization (Equity) Fund, L.P.
61%
IFC Capitalization (Subordinated Debt) Fund, L.P.
13%
IFC African, Latin American and Caribbean Fund, LP
20%
Africa Capitalization Fund, Ltd.
-
IFC Russian Bank Capitalization Fund, LP
45%
IFC Catalyst Funds(*)
22%(*)
IFC Global Infrastructure Fund, LP
19%
(*)
The ownership interest of 22% reflects IFC’s ownership interest taking into consideration the overall commitments for the IFC Catalyst Funds, which is comprised of IFC Catalyst Fund, LP and
IFC Catalyst Fund (UK), LP (collectively, IFC Catalyst Fund). IFC does not have an ownership interest in the IFC Catalyst Fund (UK), LP.
IFC’s investments in AMC Funds, except for IFC Russian Bank Capitalization Fund, LP (RBCF), are accounted for at fair value under the Fair
Value Option.
RBCF, created in June 2012, is consolidated into IFC’s financial statements because of the presumption of control by IFC as owner of the general
partner of RBCF.
As a result of consolidating RBCF, IFC’s condensed consolidated balance sheet at September 30, 2013 includes $86 million of equity investments
($74 million - June 30, 2013), and noncontrolling interests of $47 million ($38 million - June 30, 2013). These noncontrolling interests meet the
ASC's definition of mandatorily redeemable financial instruments because the terms of the underlying partnership agreement provide for a
termination date at which time its remaining assets are to be sold, its liabilities settled and the remaining net proceeds distributed to the
noncontrolling interest holders and IFC. RBCF's termination date is 2021 with a possible extension to 2023. As RBCF is considered an
investment company, its investment securities (equity investments) are measured at fair value in IFC's condensed consolidated balance sheet;
therefore, the settlement value or estimate of cash that would be due and payable to settle these noncontrolling interests, assuming an orderly
liquidation of RBCF on September 30, 2013, approximates the $47 million of noncontrolling interests reflected on IFC's condensed consolidated
balance sheet at September 30, 2013.
Other Consolidated entities
In October 2009, IFC created a special purpose vehicle, Hilal Sukuk Company, to facilitate a $100 million Sukuk under IFC’s borrowings program.
The Sukuk is scheduled to mature in November 2014. Hilal Sukuk Company is a VIE and has been consolidated into these Condensed
Consolidated Financial Statements, albeit with no material impact. The collective impact of this and other entities consolidated into these
Condensed Consolidated Financial Statements under the VIE or voting interest model is insignificant.
153
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE C – LIQUID ASSET PORTFOLIO
Income from liquid asset trading activities
Income from the liquid asset trading activities for the three months ended September 30, 2013 and 2012 comprises (US$ millions):
2013
Interest income
Net gains and losses on trading activities (realized and unrealized)
Total income from liquid asset trading activities
2012
$
105
1
$
89
160
$
106
$
249
Net gains and losses on trading activities comprises net gains on asset-backed and mortgage-backed securities of $9 million for the three months
ended September 30, 2013 ($115 million net gains - three months ended September 30, 2012), and net losses on other trading securities of $8
million in the three months ended September 30, 2013 ($45 million net gains - three months ended September 30, 2012).
NOTE D – INVESTMENTS
The carrying amount of investments at September 30, 2013 and June 30, 2013 comprises (US$ millions):
September 30, 2013
Loans
Loans at amortized cost
Less: Reserve against losses on loans
$
Net loans
Loans held for sale at lower of amortized cost or fair value
Loans accounted for at fair value under the Fair Value Option
(outstanding principal balance $513 - September 30, 2013, $474 - June 30, 2013)
Total loans
Equity investments
Equity investments at cost less impairment*
Equity investments accounted for at fair value as available-for-sale
(cost $2,453 - September 30, 2013, $2,397 - June 30, 2013)
Equity investments accounted for at fair value
(cost $3,847 - September 30, 2013, $3,697 - June 30, 2013)
Total equity investments
Debt securities
Debt securities accounted for at fair value as available-for-sale
(amortized cost $1,957 - September 30, 2013, $1,889 - June 30, 2013)
Debt securities accounted for at fair value under the Fair Value Option
(amortized cost $266 - September 30, 2013, $237 - June 30, 2013)
Total debt securities
Total carrying amount of investments
$
22,875
(1,668)
June 30, 2013
$
21,923
(1,628)
21,207
39
20,295
43
529
493
21,775
20,831
3,133
3,119
4,288
4,230
4,531
4,346
11,952
11,695
1,955
1,911
246
240
2,201
2,151
35,928
$
34,677
* Equity investments at cost less impairment at September 30, 2013 includes unrealized gains of $2 million ($2 million - June 30, 2013) related to equity investments
accounted for as available-for-sale in previous periods and for which readily determinable fair vales are no longer available.
154
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE E – LOANS AND GUARANTEES
Loans
Income from loans, realized gains and losses on associated derivatives and guarantees for the three months ended September 30, 2013 and
2012 comprise the following (US$ millions):
2013
Interest income
Commitment fees
Other financial fees
Realized gains on loans and associated derivatives
Income from loans, realized gains and losses on associated derivatives and guarantees
2012
$
231
10
26
-
$
219
8
18
1
$
267
$
246
Reserve against losses on loans and provision for losses on loans
Changes in the reserve against losses on loans for the three months ended September 30, 2013 and 2012, and for the years ended June 2013 and
June 30, 2012, as well as the related recorded investment in loans, evaluated for impairment individually (specific reserves) and on a pool basis
(portfolio reserves) respectively, are summarized below (US$ millions):
Beginning balance
Provision for (release of provision for)
losses on loans
Write-offs
Recoveries of previously written-off
loans
Foreign currency transaction
adjustments
Other adjustments*
Ending balance
Related recorded investment in loans
evaluated for impairment**
Recorded investment in loans with
specific reserves
Beginning balance
Provision for (release of provision for)
losses on loans
Write-offs
Recoveries of previously written-off
loans
Foreign currency transaction
adjustments
Other adjustments*
Ending balance
Related recorded investment in loans
evaluated for impairment**
Recorded investment in loans with
specific reserves
Three months ended September 30,2013
Specific
Portfolio
Total
reserves
reserves
reserves
$
741
$
887
$
1,628
Three months ended September 30,2012
Specific
Portfolio
Total
reserves
reserves
reserves
$
447
$
934
$
1,381
49
-
(19)
-
30
-
43
(1)
(53)
-
(10)
(1)
1
-
1
-
-
-
5
4
-
4
5
1
7
5
-
6
7
$
796
$
872
$
1,668
$
497
$
886
$
1,383
$
22,875
$
21,457
$
22,875
$
21,015
$
20,003
$
21,015
$
1,418
$
1,012
Year ended June 30, 2013
Specific
Portfolio
Total
reserves
reserves
reserves
$
447
$
934
$
1,381
Year ended June 30, 2012
Specific
Portfolio
Total
reserves
reserves
reserves
$
382
$
925
$
1,307
298
(13)
(49)
-
249
(13)
76
(13)
39
-
115
(13)
-
-
-
2
-
2
(2)
11
2
-
11
(5)
5
(30)
-
(35)
5
$
741
$
887
$
1,628
$
447
$
934
$
1,381
$
21,923
$
20,520
$
21,923
$
20,226
$
19,303
$
20,226
$
1,403
$
923
*Other adjustments comprise reserves against interest capitalized as part of a debt restructuring.
**IFC individually evaluates all loans for impairment. Portfolio reserves are established for losses incurred, but not specifically identifiable, on loans for which no specific reserve is
established.
155
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Reserve for losses on guarantees and other receivables and provision for losses on guarantees and other receivables
Changes in the reserve against losses on guarantees for the three months ended September 30, 2013 and 2012, and for the years ended June
2013 and June 30, 2012, are summarized below (US$ millions):
Beginning balance
Release of provision for losses on guarantees
$
Ending balance
$
Three months ended
September 30,
2013
2012
17
$
21
(1)
(3)
16
$
Year ended
June 30,
2013
2012
$
21
$
24
(4)
(3)
18
$
17
$
21
Changes in the reserve against losses on other receivables for the three months ended September 30, 2013 and 2012 and for the years ended
June 2013 and June 30, 2012, are summarized below (US$ millions):
Three months ended
Year ended
September 30,
June 30,
2013
2012
2013
2012
Beginning balance
$
3
$
5
$
5
$
(Release of) provision for losses on other receivables
(2)
5
Ending balance
$
3
$
5
$
3
$
5
Impaired loans
The average recorded investment during the three months ended September 30, 2013, in loans at amortized cost that are impaired was $1,433
million ($1,352 million - year ended June 30, 2013). The recorded investment in loans at amortized cost that are impaired at September 30, 2013
was $1,418 million ($1,403 million - June 30, 2013).
Loans at amortized cost that are impaired with specific reserves are summarized by industry sector and geographic region as follows (US$ millions):
Unpaid
principal
balance
Recorded
investment
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
Other
$
181
511
359
15
$
September 30, 2013
Average
Related
recorded
specific
investment
reserve
187
520
421
15
$
122
303
214
8
$
190
510
362
15
Interest
income
recognized
$
1
2
-
Total manufacturing, agribusiness and services
1,066
1,143
647
1,077
3
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
14
5
7
16
11
32
4
4
7
15
5
7
-
26
59
15
27
-
Infrastructure and natural resources
Asia
Sub-Saharan Africa, Latin America and Caribbean
Other
69
224
33
69
224
33
37
86
11
71
225
33
2
4
-
Total infrastructure and natural resources
326
326
134
329
6
Total financial markets
Total
$
IFC had no impaired loans at September 30, 2013 with no specific reserves.
156
1,418
$
1,528
$
796
$
1,433
$
9
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Unpaid
principal
balance
Recorded
investment
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
$
165
508
398
$
June 30, 2013
Related
specific
reserve
171
517
460
$
116
297
189
Average
recorded
investment
$
162
515
333
Interest
income
recognized
$
2
10
13
Total manufacturing, agribusiness and services
1,071
1,148
602
1,010
25
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
15
17
7
17
24
32
3
7
7
18
22
7
1
1
1
39
73
17
47
3
Infrastructure and natural resources
Asia
Sub-Saharan Africa, Latin America and Caribbean
Other
72
188
33
72
188
33
35
76
11
72
187
36
4
2
Total infrastructure and natural resources
293
293
122
295
6
Total financial markets
Total
$
1,403
$
1,514
$
741
$
1,352
$
34
IFC had no impaired loans at June 30, 2013 with no specific reserves.
Nonaccruing loans
Loans on which the accrual of interest has been discontinued amounted to $1,318 million at September 30, 2013 ($1,272 million - June 30, 2013).
The interest income on such loans for the three months ended September 30, 2013 and 2012 is summarized as follows (US$ millions):
Interest income not recognized on nonaccruing loans
Interest income recognized on loans in nonaccrual status
related to current and prior years, on a cash basis
$
Three months ended September 30,
2013
2012
$
13
20
6
3
The recorded investment in nonaccruing loans at amortized cost at September 30, 2013 and June 30, 2013 is summarized by industry sector and
geographic region as follow (US$ millions):
September 30, 2013
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
Other
Total disbursed loans at amortized cost
Manufacturing,
agribusiness
and services
$
182
466
385
-
Financial
markets
$
14
4
1
Infrastructure and
natural resources
$
69
128
-
Total recorded
investment in
nonaccruing loans
$
265
470
513
1
$
$
$
$
1,033
19
197
1,249
June 30, 2013
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and Caribbean
Total disbursed loans at amortized cost
Manufacturing,
agribusiness
and services
$
148
460
388
Financial
markets
$
15
4
-
Infrastructure and
natural resources
$
64
129
Total recorded
investment in
nonaccruing loans
$
227
464
517
$
$
$
$
996
157
19
193
1,208
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Past due loans
An age analysis, based on contractual terms, of IFC’s loans at amortized cost by industry sector and geographic region follows (US$ millions):
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total manufacturing, agribusiness and
services
$
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total infrastructure and natural
resources
Total disbursed loans
at amortized cost
$
September 30, 2013
90 days
or greater
Total
past due
past due
60-89
days
past due
30-59
days
past due
3
$
30
54
$
141
391
$
Total
loans
Current
171
448
$
1,819
2,925
$
1,990
3,373
11
-
52
-
209
-
272
-
2,067
980
2,339
980
14
136
741
891
7,791
8,682
-
-
4
4
1,825
2,410
1,825
2,414
-
-
1
1
2,097
216
2,097
217
-
-
5
5
6,548
6,553
-
4
-
39
-
43
-
1,686
2,446
1,729
2,446
-
-
96
-
96
-
3,129
419
3,225
419
-
4
135
139
7,680
7,819
14
$
140
$
Unamortized deferred loan origination fees,
net and other
Disbursed amount allocated to a related
financial instrument reported separately
in other assets or derivative assets
Recorded investment in loans
at amortized cost
881
$
1,035
$
22,019
$
23,054
(145)
(34)
$
At September 30, 2013, there are no loans 90 days or greater past due still accruing.
158
22,875
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total manufacturing, agribusiness
and services
$
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total infrastructure and natural
resources
Total disbursed loans
at amortized cost
$
June 30, 2013
90 days
or greater
Total
past due
past due
60-89
days
past due
30-59
days
past due
10
$
-
$
141
399
$
Total
loans
Current
141
409
$
1,820
2,803
$
1,961
3,212
31
-
35
-
146
-
212
-
1,860
1,017
2,072
1,017
41
35
686
762
7,500
8,262
1
-
4
5
1,837
2,290
1,837
2,295
-
1
-
1
1,946
216
1,946
217
1
1
4
6
6,289
6,295
-
4
-
64
-
68
-
1,627
2,306
1,695
2,306
-
-
130
-
130
-
2,996
413
3,126
413
-
4
194
198
7,342
7,540
42
$
40
$
Unamortized deferred loan origination fees,
net and other
Disbursed amount allocated to a related
financial instrument reported separately
in other assets or derivative assets
Recorded investment in loans
at amortized cost
884
$
966
$
21,131
$
22,097
(139)
(35)
$
At June 30, 2013, there are no loans 90 days or greater past due still accruing.
159
21,923
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Loan Credit Quality Indicators
IFC utilizes a rating system to classify loans according to credit worthiness and risk. Each loan is categorized as very good, good, average, watch,
substandard, doubtful or loss.
A description of each category (credit quality indicator), in terms of the attributes of the borrower, the business environment in which the borrower
operates or the loan itself, follows:
Credit quality
indicator
Description
Very good
Excellent debt service capacity; superior management; market leader; very favorable operating environment; may also have
strong collateral and/or guaranteed arrangements.
Good
Strong debt service capacity: good liquidity; stable performance, very strong management, high market share; minimal
probability of financial deterioration.
Average
Satisfactory balance sheet ratios, average liquidity; good debt service capacity; good management; average size and market
share.
Watch
Tight liquidity; financial performance below expectations; higher than average leverage ratio; week management in certain
aspects; uncompetitive products and operations; unfavorable or unstable macroeconomic factors.
Substandard
Poor financial performance; difficulty servicing debt; inadequate net worth and debt service capacity; loan not fully secured:
partial past due amounts of interest and/or principal; well-defined weaknesses may adversely impact collection but no loss of
principal is expected.
Doubtful
Bad financial performance; serious liquidity and debt service capacity issues: large and increasing past due amounts: partial
loss is very likely.
Loss
Close to or already in bankruptcy; serious regional geopolitical issues/conflicts; default and total loss highly likely.
160
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
A summary of IFC’s loans at amortized cost by credit quality indicator updated effective September 30, 2013 and June 30, 2013 respectively, as
well as by industry sector and geographic region follows (US$ millions):
September 30, 2013
Good
Very
good
Manufacturing, agribusiness
and services
Asia
$
Europe, Middle East and North
Africa
Sub-Saharan Africa, Latin
America and Caribbean
Other
Total manufacturing,
agribusiness and services
Financial markets
Asia
Europe, Middle East and North
Africa
Sub-Saharan Africa, Latin
America and Caribbean
Other
Total financial markets
Infrastructure and natural
resources
Asia
Europe, Middle East and North
Africa
Sub-Saharan Africa, Latin
America and Caribbean
Other
Total infrastructure and
natural resources
Total disbursed loans
at amortized cost
$
-
Watch
$ 699
9
491
975
1,034
387
368
3,373
25
-
204
787
1,025
152
571
13
177
28
264
-
73
-
2,339
980
34
1,914
2,851
2,204
682
422
575
8,682
41
827
608
323
12
14
-
1,825
-
556
1,399
266
165
24
4
2,414
-
672
-
1,226
1
182
216
10
-
7
-
-
2,097
217
41
2,055
3,234
987
187
45
4
6,553
-
360
557
688
55
8
61
1,729
-
240
896
996
292
22
-
2,446
-
208
35
1,183
43
1,423
136
304
205
38
-
69
-
3,225
419
-
843
2,679
3,243
856
68
130
7,819
4,812
$ 8,764
$
90
1,725
$
$
49
535
$
Total
109
6,434
$
Loss
1,990
$
586
Doubtful
134 $
$
$
Substandard
432
75
$
Average
$
709 $
Unamortized deferred loan
origination
fees, net and other
Disbursed amount allocated
to a related financial
instrument reported
separately in other assets or
derivative assets
23,054
(145)
(34)
Recorded investment in
loans at amortized cost
$
161
22,875
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
June 30, 2013
Very good
Manufacturing, agribusiness and
services
Asia
$
Europe, Middle East and North
Africa
Sub-Saharan Africa, Latin
America and Caribbean
Europe
Other
Total manufacturing,
agribusiness and services
Financial markets
Asia
Europe, Middle East and North
Africa
Sub-Saharan Africa, Latin
America and Caribbean
Other
Total financial markets
Infrastructure and natural
resources
Asia
Europe, Middle East and North
Africa
Sub-Saharan Africa, Latin
America and Caribbean
Other
Total infrastructure and
natural resources
Total disbursed loans
at amortized cost
$
-
Good
$
420
Average
Watch
$
$
830
440
Substandard
$
86
Doubtful
$
51
Loss
$
134
Total
$
1,961
9
369
986
994
400
86
368
3,212
25
-
184
826
998
164
344
24
208
3
248
-
65
-
2,072
1,017
34
1,799
2,978
1,802
697
385
567
8,262
41
713
813
242
12
16
-
1,837
-
530
1,280
289
165
27
4
2,295
-
870
-
911
1
148
216
10
-
7
-
-
1,946
217
41
2,113
3,005
895
187
50
4
6,295
-
291
589
664
79
8
64
1,695
-
245
825
924
290
22
-
2,306
-
232
35
1,072
49
1,472
123
238
206
43
-
69
-
3,126
413
-
803
2,535
3,183
813
73
133
7,540
4,715
$ 8,518
75
$
$
5,880
$
1,697
$
508
$
704
$
Unamortized deferred loan
origination fees, net and
other
22,097
(139)
Disbursed amount allocated to
a related financial instrument
reported separately in other
assets or derivative assets
(35)
Recorded investment in
loans at amortized cost
$
21,923
Loan modifications during the three months ended September 30, 2013 considered troubled debt restructurings were not significant. There were
no loans that defaulted during the three months ended September 30, 2013 that had been modified in a troubled debt restructuring within 12
months prior to the date of default.
Guarantees
IFC extends financial guarantee facilities to its clients to provide full or partial credit enhancement for their debt securities and trade obligations.
Under the terms of IFC’s guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client,
where default is defined as failure to pay when payment is due. Guarantees entered into by IFC generally have maturities consistent with those of
the loan portfolio. Guarantees signed at September 30, 2013 totaled $4,687 million ($4,933 million - June 30, 2013). Guarantees of $3,280 million
that were outstanding (i.e., not called) at September 30, 2013 ($3,565 million - June 30, 2013), were not included in loans on IFC’s condensed
consolidated balance sheet. The outstanding amount represents the maximum amount of undiscounted future payments that IFC could be
required to make under these guarantees.
162
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE F – DEBT SECURITIES
Income from debt securities and realized gains and losses on associated derivatives for the three months ended September 30, 2013 and
2012 comprise the following (US$ millions):
2013
Interest income
Dividends
Realized gains on debt securities and associated derivatives
Other-than-temporary impairments
Total income from debt securities and realized gains and losses on
associated derivatives
2012
$
12
(3)
$
9
$
14
1
7
(25)
$
(3)
Debt securities accounted for as available-for-sale at September 30, 2013 and June 30, 2013 comprise (US$ millions):
Corporate debt securities
Preferred shares
Asset-backed securities
Other debt securities
Total
September 30, 2013
Unrealized
Amortized
Fair
cost
value
gains
losses*
- $
(38) $
1,380
$
1,418 $
468
45
(4)
509
68
(5)
63
3
3
June 30, 2013
Unrealized
Amortized
Fair
cost
value
gains
losses
$
1,381 $
6 $
(17) $
1,370
438
43
(10)
471
67
67
3
3
$
$
1,957 $
45 $
(47) $
1,955
1,889 $
49 $
(27) $
1,911
* Net of foreign currency transaction losses.
Unrealized losses on debt securities accounted for as available-for-sale at September 30, 2013 and June 30, 2013 are summarized below (US$
millions):
Corporate debt securities
Preferred shares
Total
Corporate debt securities
Preferred shares
Total
$
$
$
$
Less than 12 months
Fair
Unrealized
value
losses
292
$
(11)
-
292
$
(11)
Less than 12 months
Fair
Unrealized
value
losses
224
$
(5)
23
(2)
247
$
(7)
$
$
$
$
12 months or greater
Fair
Unrealized
value
losses
126
$
(11)
111
(4)
237
$
(15)
12 months or greater
Fair
Unrealized
value
losses
173
$
(12)
106
(8)
279
$
(20)
Total
Fair
value
$
418
111
Unrealized
losses
$
(22)
(4)
$
529
$
(26)
Total
Fair
value
$
397
129
Unrealized
losses
$
(17)
(10)
$
526
$
(27)
Corporate debt securities comprise investments in bonds and notes. Unrealized losses associated with corporate debt securities are primarily
attributable to movements in the credit default swap spread curve applicable to the issuer. Based upon IFC’s assessment of expected credit
losses, IFC has determined that the issuer is expected to make all contractual principal and interest payments. Accordingly, IFC expects to
recover the cost basis of these securities.
Preferred shares comprise investments in preferred equity investments that are redeemable at the option of IFC or mandatorily redeemable by the
issuer. Unrealized losses associated with preferred shares are primarily driven by changes in discount rates associated with changes in credit
spreads or interest rates, minor changes in exchange rates and comparable market valuations in the applicable sector. Based upon IFC’s
assessment of the expected credit losses, IFC expects to recover the cost basis of these securities.
163
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE G – EQUITY INVESTMENTS AND ASSOCIATED DERIVATIVES
Income from equity investments and associated derivatives for the three months ended September 30, 2013 and 2012 comprises the following
(US$ millions):
2013
Gains on equity investments and associated derivatives, net
Dividends and profit participations
Custody, fees and other
Other-than-temporary impairments:
Equity investments at cost less impairment
Equity investments available-for-sale
Total other-than-temporary impairments
$
2012
224
74
(8)
$
(15)
(35)
(50)
Total income from equity investments and associated derivatives
$
240
89
89
(3)
(49)
(34)
(83)
$
92
Gains on equity investments and associated derivatives includes realized gains and losses on equity investments and associated derivatives of
$176 million and $115 million for the three months ended September 30, 2013 and 2012 respectively.
Dividends and profit participations include $6 million for three months ended September 30, 2013 ($13 million - three months ended September
30, 2012) of receipts received in freely convertible currency, net of cash disbursements, in respect of investments accounted for under the cost
recovery method, for which cost has been fully recovered.
Equity investments include several private equity funds that invest primarily in emerging markets across a range of sectors and that are accounted
for at fair value under the Fair Value Option. These investments cannot be redeemed. Instead distributions are received through the liquidation of
the underlying assets of the funds. IFC estimates that the underlying assets of the funds will be liquidated over five to eight years. The fair values
of all these funds have been determined using the net asset value of IFC’s ownership interest in partners’ capital and totaled $2,720 million as of
September 30, 2013 ($2,687 million - June 30, 2013).
164
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE H – RETAINED EARNINGS DESIGNATIONS AND RELATED EXPENDITURES AND ACCUMULATED
OTHER COMPREHENSIVE INCOME
Designated retained earnings
The components of designated retained earnings and related expenditures are summarized below (US$ millions):
Grants to
IDA
At June 30, 2011
$
-
Year ended June 30, 2012
Designations of retained earnings
Expenditures against designated
retained earnings
At June 30, 2012
$
Year ended June 30, 2013
Designations of retained earnings
Expenditures against designated
retained earnings
At June 30, 2013
$
217
Performancebased grants
$
54
$
34
$
Total
designated
retained
earnings
30
$
335
330
69
-
-
-
399
(330)
(67)
(13)
(2)
-
(412)
-
$
219
$
41
$
32
$
30
$
322
340
80
-
-
-
420
(340)
(100)
(10)
(4)
(10)
(464)
$
Three months ended
September 30, 2013
Expenditures against designated
retained earnings
At September 30, 2013
Advisory
services
Global
Infrastructure
Project
Development
Fund
SME
Ventures
for IDA
countries
-
$
-
$
-
199
$
(15)
$
184
31
$
28
(1)
$
30
$
-
$
28
20
$
-
$
278
(16)
20
$
262
On August 7, 2013, the Board of Directors approved a designation of $251 million of IFC’s retained earnings for grants to IDA.
Subsequent event - On October 11, 2013, the Board of Governors noted with approval the designation approved by the Board of Directors. IFC
recognizes designation of retained earnings for advisory services when the Board of Directors approves it and recognizes designation of retained
earnings for grants to IDA when it is noted with approval by the Board of Governors.
Accumulated other comprehensive income
The components of accumulated other comprehensive income at September 30, 2013 and June 30, 2013 are summarized as follows (US$
millions):
Net unrealized (losses) gains on available-for-sale debt securities
Net unrealized gains on available-for-sale equity investments
Unrecognized net actuarial losses and unrecognized prior service costs on benefit plans
Total accumulated other comprehensive income
September 30, 2013
$
(2)
1,837
(727)
$
165
1,108
$
$
June 30, 2013
22
1,835
(736)
1,121
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE I – NET UNREALIZED GAINS AND LOSSES ON NON-TRADING FINANCIAL INSTRUMENTS ACCOUNTED FOR AT FAIR VALUE
Net unrealized gains and losses on non-trading financial instruments accounted for at fair value for the three months ended September 30, 2013
and 2012 comprises (US$ millions):
2013
Unrealized gains and losses on loans, debt securities and associated derivatives:
Unrealized (losses) gains on loans and associated derivatives
Unrealized (losses) gains on debt securities and associated derivatives
$
Total net unrealized (losses) gains on loans, debt securities and associated derivatives
Unrealized gains and losses on market borrowings and associated derivatives:
Unrealized gains and losses on market borrowings accounted for at fair value:
Credit spread component
Interest rate, foreign exchange and other components
Total unrealized (losses) gains on market borrowings
Unrealized gains (losses) on derivatives associated with market borrowings
Total net unrealized (losses) gains on market borrowings and associated derivatives
Net unrealized gains and losses on non-trading financial instruments accounted for at fair value
$
2012
(16)
(36)
$
81
28
(52)
109
28
(238)
(210)
184
62
37
99
(39)
(26)
60
(78)
$
169
As discussed in Note A, “Summary of significant accounting and related policies”, market borrowings with associated derivatives are accounted for
at fair value under the Fair Value Option. Differences arise between the movement in the fair value of market borrowings and the fair value of the
associated derivatives primarily due to the different credit characteristics. The change in fair value reported in “Unrealized gains and losses on
market borrowings and associated derivatives” includes the impact of changes in IFC's own credit spread. As credit spreads widen, unrealized gains
are recorded and when such credit spreads narrow, unrealized losses are recorded (notwithstanding the impact of other factors, such as changes in
risk-free interest and foreign currency exchange rates). The magnitude and direction (gain or loss) can be volatile from period to period but they do
not alter the timing of the cash flows on the market borrowings.
166
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE J – DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
As discussed in Note A, “Summary of significant accounting and related policies”, IFC enters into transactions in various derivative instruments for
financial risk management purposes in connection with its principal business activities, including lending, investing in debt securities, equity
investments, client risk management, borrowing, liquid asset management and asset and liability management. None of these derivative
instruments are designated as hedging instruments under ASC Topic 815. Note A describes how and why IFC uses derivative instruments. The fair
value of derivative instrument assets and liabilities by risk type at September 30, 2013 and June 30, 2013 is summarized as follows (US$ millions):
September 30, 2013
Condensed consolidated balance sheet location
Derivative assets
Interest rate
Foreign exchange
Interest rate and currency
Equity
Other derivative
Total derivative assets
Derivative liabilities
Interest rate
Foreign exchange
Interest rate and currency
Equity and other
Total derivative liabilities
June 30, 2013
$
685
43
1,904
791
-
$
684
124
1,787
780
1
$
3,423
$
3,376
$
386
170
1,811
9
$
446
41
1,823
-
$
2,376
$
2,310
The effect of derivative instrument contracts on the condensed consolidated income statement for the three months ended September 30, 2013 and
2012 is summarized as follows (US$ millions):
Derivative risk category
Interest rate
Foreign exchange
Interest rate and currency
Income statement location
Income from loans, realized gains and losses on associated derivatives
and guarantees
Income from liquid asset trading activities
Charges on borrowings
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
2013
$
Foreign currency transaction gains and losses on non-trading activities
Income from liquid asset trading activities
Income from equity investments and associated derivatives
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
Income from loans, realized gains and losses on associated derivatives
and guarantees
Income from debt securities and realized gains and losses on
associated derivatives
Income from liquid asset trading activities
Charges on borrowings
Foreign currency transaction gains and losses on non-trading activities
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
Other income
Equity
Income from equity investments and associated derivatives
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
Other derivative contracts
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
Total
$
The income related to each derivative risk category includes realized and unrealized gains and losses.
167
2012
(9)
(80)
84
$
(9)
(94)
91
71
83
65
(66)
5
29
(53)
4
(6)
(6)
(40)
(41)
(6)
35
169
6
(11)
52
211
159
101
-
(29)
1
9
(7)
33
(4)
(1)
(3)
330
$
413
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
At September 30, 2013, the outstanding volume, measured by US$ equivalent notional, of interest rate contracts was $61,771 million ($55,400
million at June 30, 2013), foreign exchange contracts was $10,418 million ($10,853 million at June 30, 2013) and interest rate and currency
contracts was $33,484 million ($31,765 million at June 30, 2013). At September 30, 2013, there were 270 equity contracts related to IFC’s loan
and equity investment portfolio and 3 other derivative contracts recognized as derivatives assets or liabilities under ASC Topic 815 (263 equity
risk and other contracts at June 30, 2013).
NOTE K – FAIR VALUE MEASUREMENTS
Many of IFC’s financial instruments are not actively traded in any market. Accordingly, estimates and present value calculations of future cash flows
are used to estimate the fair values. Determining future cash flows for fair value estimation is subjective and imprecise, and minor changes in
assumptions or methodologies may materially affect the estimated values. The excess or deficit resulting from the difference between the carrying
amounts and the fair values presented does not necessarily reflect the values which will ultimately be realized, since IFC generally holds loans,
borrowings and other financial instruments with contractual maturities, with the aim of realizing their contractual cash flows.
The estimated fair values reflect the interest rate environments as of September 30, 2013 and June 30, 2013. In different interest rate environments,
the fair value of IFC’s financial assets and liabilities could differ significantly, especially the fair value of certain fixed rate financial instruments.
Reasonable comparability of fair values among financial institutions is not likely, because of the wide range of permitted valuation techniques and
numerous estimates that must be made in the absence of secondary market prices. This lack of objective pricing standards introduces a greater
degree of subjectivity and volatility to these derived or estimated fair values. Therefore, while disclosure of estimated fair values of financial
instruments is required, readers are cautioned in using these data for purposes of evaluating the financial condition of IFC. The fair values of the
individual financial instruments do not represent the fair value of IFC taken as a whole.
IFC’s financial instruments measured at fair value have been classified as Level 1, Level 2 or Level 3 based on the fair value hierarchy in ASC 820,
as described in Note A.
i)
Level 1 primarily consists of financial instruments whose values are based on unadjusted quoted market prices.
ii) Level 2 financial instruments are valued using models and other valuation methodologies and substantially all of the inputs are observable in
the market place, can be derived from observable data or are supported by observable levels at which market transactions are executed.
iii) Level 3 consists of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing inputs
that are non-observable. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair
value measurement.
All of IFC’s financial instruments in its liquid assets portfolio are managed according to an investment authority approved by the Board of Directors
and investment guidelines approved by IFC’s Corporate Risk Committee (CRC), a subcommittee of IFC’s Management Team. Third party
independent vendor prices are used to price the vast majority of the liquid assets. The vendor prices are evaluated by IFC's Treasury department
and IFC’s Integrated Risk department, maintains oversight for the pricing of liquid assets.
IFC’s regional and industry departments are primarily responsible for fair valuing IFC’s investment portfolio (equity investments, debt securities, loan
investments and related derivatives). IFC’s Portfolio Valuation Unit and Loss Provisioning Unit in the Accounting and Financial Operations
department, provide oversight over the fair valuation process by monitoring and reviewing the fair values of IFC’s investment portfolio. IFC’s
Valuation Oversight Subcommittee, which is a subcommittee of CRC, reviews significant valuation principles and the reasonableness of high
exposure valuations quarterly.
IFC's borrowings are fair valued by the Quantitative Analysis Group in IFC’s Treasury department under the oversight of the Integrated Risk
department.
The methodologies used and key assumptions made to estimate fair values as of September 30, 2013, and June 30, 2013, are summarized below.
Liquid assets - The primary pricing source for the liquid assets is valuations obtained from external pricing services (vendor prices). The most
liquid securities in the liquid asset portfolio are exchange traded futures, options, and US Treasuries. For exchange traded futures and options,
exchange quoted prices are obtained and these are classified as Level 1 in accordance with ASC 820. Liquid assets valued using quoted market
prices are also classified as Level 1. Securities valued using vendor prices for which there is evidence of high market trade activity may also be
classified as Level 1. US Treasuries are valued using index prices and also classified as Level 1. The remaining liquid assets valued using vendor
prices are classified as Level 2 or Level 3 based on the results of IFC’s evaluation of the vendor's pricing methodologies. Most vendor prices use
some form of matrix pricing methodology to derive the inputs for projecting cash flows or to derive prices. When vendor prices are not available,
liquid assets are valued internally by IFC using yield-pricing approach or comparables model approach and these are classified as Level 2 or Level
3 depending on the degree that the inputs are observable in the market.
The critical factors in valuing liquid assets in both Level 2 and Level 3 are the estimation of cash flows and yield. Other significant inputs for valuing
corporate securities, quasi-government securities and sovereign or sovereign-guaranteed securities include reported trades, broker/dealer quotes,
benchmark securities, option adjusted spread curve, volatilities, and other reference data. In addition to these inputs, valuation models for
securitized or collateralized securities use collateral performance inputs, such as weighted average coupon rate, weighted average maturity,
conditional prepayment rate, constant default rate, vintage, and credit enhancements.
168
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Loans and debt securities - Loans and debt securities in IFC’s investment portfolio that do not have available market prices are primarily valued
using discounted cash flow approaches. All loans measured at fair value are classified as Level 3. Certain loans contain embedded conversion
and/or income participation features. If not bifurcated as standalone derivatives, these features are considered in determining the loans’ fair value
based on the quoted market prices or other calculated values of the equity investments into which the loans are convertible and the discounted cash
flows of the income participation features. The valuation techniques and significant unobservable inputs for loans and debt securities classified as
Level 3 as of September 30, 2013 and June 30, 2013 are presented below:
Debt securities - preferred shares
September 30, 2013
Fair value
(US$
Valuation technique
millions)
Discounted cash flows
$
260
Relative valuations
107
Net asset value
108
Recent transactions
106
Other techniques
8
Total preferred shares
Loans and other debt securities
Discounted cash flows
1,379
1.5 - 50.0
0.0 - 85.0
4.2
46.2
Range
(%)
6.9 - 18.0
Weighted
average
(%)
12.0
1.0 - 50.0
0.0 - 85.0
2.9
45.6
2,141
Total
$
2,730
June 30, 2013
Fair value
(US$
Valuation technique
millions)
Discounted cash flows
$
267
Relative valuations
130
Net asset value
148
Recent transactions
33
Other techniques
7
Total preferred shares
Significant inputs
Discount rate
Valuation multiples*
Third party pricing
585
Discounted cash flows
1,545
Recent transactions
Other techniques
Credit default swap spreads
Expected recovery rates
416
98
Total loans and other debt securities
Total
Credit default swap spreads
Expected recovery rates
493
269
Total loans and other debt securities
Loans and other debt securities
Weighted
average
(%)
11.9
589
Recent transactions
Other techniques
Debt securities - preferred shares
Significant inputs
Discount rate
Valuation multiples*
Third party pricing
Range
(%)
6.9 - 18.0
2,059
$
2,644
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
169
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Borrowings - Fair values derived by using quoted prices in active markets are classified as Level 1. Fair values derived by determining the present
value of estimated future cash flows using appropriate discount rates and option specific models where appropriate are classified as Level 2. The
significant inputs used in valuing borrowings classified as Level 2 are presented below:
Classes
Structured bonds
Significant Inputs
Foreign exchange rate and inter-bank yield curves, IFC's credit curve and swaption volatility matrix, foreign
exchange rate volatility, equity spot price, volatility and dividend yield.
Unstructured bonds
Inter-bank yield curve and IFC's credit curve.
As of September 30, 2013 IFC had four inflation index linked structured borrowing issues classified as level 3 with a total fair value of $416 million.
The significant unobservable inputs in the valuation of this structure are the correlations between and the weights of the constituents of the inflation
index.
Derivative instruments - The various classes of derivative instruments include interest rate contracts, foreign exchange contracts, interest rate and
currency contracts, equity contracts and other derivative contracts. Certain over the counter derivatives in the liquid asset portfolio priced in-house
are classified as Level 2, while certain over the counter derivatives priced using external manager prices are classified as Level 3. Fair values for
derivative instruments are derived by determining the present value of estimated future cash flows using appropriate discount rates and option
specific models where appropriate.
The significant inputs used in valuing the various classes of derivative instruments classified as Level 2 and significant unobservable inputs for
derivative instruments classified as Level 3 as of September 30, 2013 and June 30, 2013 are presented below:
Level 2 derivatives
Interest rate contracts
Significant Inputs
Inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates.
Foreign exchange
Foreign exchange rate, inter-bank yield curves and foreign exchange basis curve.
Interest rate and currency rates
Foreign exchange rate, inter-bank yield curves, foreign exchange basis curve and yield curves specified to
index floating rates.
Level 3 derivatives
Equity related derivatives
Borrowing related structured
currency swap
Total
Level 3 derivatives
Equity related derivatives
Borrowing related structured
currency swap
Total
September 30, 2013
Fair value
(US$
Type
millions)
Fixed strike price options
$
41
Variable strike price options
739
Other techniques
11
Inflation index linked note
(15)
$
Range
(%)
1.0 - 70.6
Weighted
average
(%)
21.5
Inflation index weights
and correlations
Significant inputs
Volatilities
Contractual strike price*
Inflation index weights
and correlations
755
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided
170
Weighted
average
(%)
17.6
776
June 30, 2013
Fair value
(US$
Type
millions)
Fixed strike price options
$
38
Variable strike price options
742
Other techniques
1
Inflation index linked note
(26)
$
Significant inputs
Volatilities
Contractual strike price*
Range
(%)
0.0 - 91.6
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Equity investments - Equity investments valued using quoted prices in active markets are classified as Level 1. Equity investments classified as
Level 2 were valued using quoted prices in inactive markets. The valuation techniques and significant unobservable inputs for equity investments
classified as Level 3 as of September 30, 2013 and June 30, 2013 are presented below:
Sector
Banking and other financial
institutions
September 30, 2013
Fair value
Valuation technique
(US$ millions)
Significant inputs
Discounted cash flows
$
776 Cost of equity
Asset growth rate
Return on assets
Perpetual growth rate
Relative valuations
286 Price/book value
Listed price (adjusted)
221 Discount for lock-up
Recent transactions
130
Other techniques
210
Total banking and other financial
institutions
AMC Funds
Other funds
Net Asset Value
Recent transactions
Net Asset Value
Recent transactions
858
3
1,862
44
Third party pricing
2,767
Discounted cash flows
352
Relative valuations
Listed price (adjusted)
Recent transactions
Other techniques
197
15
157
125
Total others
Total
Weighted
average (%)
14.9
10.9
2.1
4.8
1.3
9.2
1,623
Total funds
Others
Range (%)
9.2 - 22.6
(3.2) -170.0
(8.8) - 5.4
3.0 -11.0
1.0 - 2.0
5.0 - 27.4
Weighted average
cost of capital
Cost of equity
Valuation multiples*
Discount for lock-up
846
$
5,236
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
171
6.6 - 15.7
8.6 - 19.0
11.7
12.7
2.3 - 12.3
6.6
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Sector
Banking and other financial
institutions
Valuation technique
Discounted cash flows
Relative valuations
Listed price (adjusted)
Recent transactions
Other techniques
June 30, 2013
Fair value
(US$ millions)
Significant inputs
$
674 Cost of equity
Asset growth rate
Return on assets
Perpetual growth rate
261 Price/book value
203 Discount for lock-up
271
96
Total banking and other financial
institutions
AMC Funds
Other funds
Net Asset Value
Recent transactions
Net Asset Value
Recent transactions
886
2
1,801
42
Third party pricing
2,731
Discounted cash flows
318
Relative valuations
Listed price (adjusted)
Recent transactions
Other techniques
174
29
156
138
Total others
Total
Weighted
average (%)
15.0
9.7
2.2
5.0
1.3
11.2
1,505
Total funds
Others
Range (%)
9.2 - 22.1
(5.9) - 170.0
(14.2) - 6.2
2.5 - 11.0
1.0 - 1.3
8.1 - 30.0
Weighted average cost of
capital
Cost of equity
Valuation multiples*
Discount for lock-up
815
$
5,051
* In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided.
172
6.7 - 16.7
8.7 - 19.1
11.8
13.1
2.1 - 24.0
11.0
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Fair value of assets and liabilities
Estimated fair values of IFC’s financial assets and liabilities and off-balance sheet financial instruments at September 30, 2013 and June 30, 2013
are summarized below (US$ millions).
September 30, 2013
Carrying
Fair
amount
value
Financial assets
Cash and due from banks, time deposits, trading securities and
securities purchased under resale agreements
$
41,627
Investments:
Loans at amortized cost, net of reserves against losses
Loans held for sale at lower of amortized cost or fair value
Loans accounted for at fair value under the Fair Value Option
Total loans
Equity investments at cost less impairment
Equity investments accounted for at fair value as available-for-sale
Equity investments accounted for at fair value
Total equity investments
Debt securities accounted for at fair value as available-for-sale
Debt securities accounted for at fair value under the Fair Value Option
Total debt securities
Total investments
Derivative assets:
Borrowings-related
Liquid asset portfolio-related and other
Investment-related
Client risk management-related
Total derivative assets
Other investment-related financial assets
Financial liabilities
Securities sold under repurchase agreements and payable for cash
collateral received
$
$
June 30, 2013
Carrying
Fair
amount
value
41,627
$
37,191
$
37,191
21,207
39
529
22,024
84
529
20,295
43
493
21,801
84
493
21,775
22,637
20,831
22,378
3,133
4,288
4,531
4,814
4,288
4,531
3,119
4,230
4,346
4,733
4,230
4,346
11,952
13,633
11,695
13,309
1,955
246
1,955
246
1,911
240
1,911
240
2,201
2,201
2,151
2,151
35,928
38,471
34,677
37,838
1,677
259
1,371
116
1,677
259
1,371
116
1,503
376
1,378
119
1,503
376
1,378
119
3,423
3,423
3,376
3,376
5
131
5
120
6,051
$
6,051
$
5,736
$
5,736
Market and IBRD borrowings outstanding
49,873
49,864
44,869
44,863
Derivative liabilities:
Borrowings-related
Liquid asset portfolio-related and other
Investment-related
Client risk management-related
1,607
454
199
116
1,607
454
199
116
1,823
210
157
120
1,823
210
157
120
2,376
2,376
2,310
2,310
Total derivative liabilities
Other investment-related financial assets comprise standalone options and warrants that do not meet the definition of a derivative.
The fair value of loan commitments amounted to $23 million at September 30, 2013 ($24 million - June 30, 2013). Fair values of loan
commitments are based on present value of loan commitment fees.
173
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Fair value hierarchy
The following tables provide information as of September 30, 2013 and June 30, 2013, about IFC’s financial assets and financial liabilities
measured at fair value on a recurring basis. As required by ASC 820, financial assets and financial liabilities are classified in their entirety based
on the lowest level input that is significant to the fair value measurement (US$ millions):
September 30, 2013
Level 1
Level 2
Level 3
Total
Trading securities:
Money market funds
$
215
$
$
$
215
Treasury securities
3,941
3,941
Foreign government obligations
8,482
28
8,510
Government guaranteed obligations
137
37
174
Supranational bonds
94
26
120
Municipal bonds
861
861
Agency bonds
91
2
93
Foreign agency bonds
1,704
1,704
Agency residential mortgage-backed securities
287
62
349
Asset-backed securities
4,410
5
4,415
Foreign asset-backed securities
2,473
2,473
Corporate bonds
5,909
5,909
Commercial mortgage-backed securities
1,007
1,007
Foreign residential mortgage-backed securities
62
2,588
2,650
Non-agency residential mortgage-backed securities
341
341
Collateralized debt and collateralized loan obligations
13
38
51
Total trading securities
21,783*
10,987
43
32,813
Loans (outstanding principal balance $513)
Equity investments:
Banking and non-banking financial institutions
Insurance companies
Funds
Others
Total equity investments
Debt securities:
Corporate debt securities
Preferred shares
Asset-backed securities
Other debt securities
Total debt securities
Derivative assets:
Interest rate contracts
Foreign exchange
Interest rate and currency
Equity
Total derivative assets
Total assets at fair value
Borrowings:
Structured bonds
Unstructured bonds
Total borrowings (outstanding principal balance $48,032**)
Derivative liabilities:
Interest rate contracts
Foreign exchange
Interest rate and currency rates
Equity price risk contracts
Total derivative liabilities
Total liabilities at fair value
$
$
-
-
529
529
1,517
245
1,544
3,306
103
86
88
277
1,570
53
2,767
846
5,236
3,190
384
2,767
2,478
8,819
-
-
1,525
589
83
4
2,201
1,525
589
83
4
2,201
25,089
685
43
1,904
2,632
13,896
791
791
8,800
685
43
1,904
791
3,423
47,785
31,145
$
$
$
3,442
12,921
$
$
416
-
$
$
3,858
44,066
31,145
16,363
416
47,924
31,145
386
170
1,805
2,361
18,724
6
9
15
431
386
170
1,811
9
2,376
50,300
$
$
$
* includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $215 million at September 30, 2013.
** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $2,364 million, with a fair value of
$1,901 million as of September 30, 2013.
Note: For the three months ended September 30, 2013: trading securities with a fair value of $0 transferred from level 2 to level 1 due to indications of improved market activity; and trading
securities with a fair value of $1 million were transferred from level 1 to level 2 due to decrease in market activity. Equity investments with fair value of $129 million transferred from level 1 to level
2 and $45 million from level 2 to level 1 due to decrease/increase in market activities. Bonds issued by IFC with a fair value of $1,851 million transferred from level 1 to level 2 due to change in
information quality.
174
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
June 30, 2013
Level 2
Level 3
Level 1
Trading securities:
Money market funds
Treasury securities
Foreign government obligations
Government guaranteed obligations
Supranational bonds
Municipal bonds
Agency bonds
Foreign agency bonds
Agency residential mortgage-backed securities
Asset-backed securities
Foreign asset-backed securities
Corporate bonds
Commercial mortgage-backed securities
Foreign residential mortgage-backed securities
Non-agency residential mortgage-backed securities
Collateralized debt and collateralized loan obligations
$
768
6,098
6,491
436
131
900
170
893
184
4,930
19
-
Total trading securities
$
55
26
2
63
3,533
2,359
601
2,281
311
13
$
Total
5
34
46
$
768
6,098
6,491
491
157
900
172
893
247
3,538
2,359
4,930
601
2,300
345
59
21,020*
9,244
85
30,349
Loans (outstanding principal balance $474)
-
-
493
493
Equity investments:
Banking and non-banking financial institutions
Insurance companies
Funds
Others
1,669
229
1,490
18
73
46
1,464
41
2,731
815
3,151
343
2,731
2,351
Total equity investments
3,388
137
5,051
8,576
-
-
1,474
585
87
5
2,151
1,474
585
87
5
2,151
-
684
124
1,787
-
780
1
684
124
1,787
780
1
-
2,595
781
3,376
Debt securities:
Corporate debt securities
Preferred shares
Asset-backed securities
Other debt securities
Total debt securities
Derivative assets:
Interest rate contracts
Foreign exchange
Interest rate and currency rate
Equity
Other
Total derivative assets
Total assets at fair value
$
24,408
$
11,976
$
8,561
$
44,945
Structured bonds
Unstructured bonds
Total borrowings (outstanding principal balance $43,245**)
Derivative liabilities:
Interest rate contracts
Foreign exchange
Interest rate and currency rates
Total derivative liabilities
$
24,798
24,798
$
3,606
14,129
17,735
$
391
391
$
3,997
38,927
42,924
Total liabilities at fair value
$
Borrowings:
24,798
446
41
1,797
2,284
$
20,019
26
26
$
417
446
41
1,823
2,310
$
45,234
* includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $768 million at June 30, 2013.
** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $2,386 million, with a fair value of
$1,925 million as of June 30, 2013.
Note: For the year ended June 30, 2013: trading securities with a fair value of $180 million transferred from level 2 to level 1 due to indications of improved market activity; and trading securities
with a fair value of $1 million were transferred from level 1 to level 2 due to decrease in market activity. Equity investments with fair value of $72 million transferred from level 1 to level 2 and $49
million from level 2 to level 1 due to decrease/increase in market activities. Bonds issued by IFC with a fair value of $1,090 million transferred from level 1 to level 2 due to change in information
quality.
175
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
The following tables present the changes in the carrying value of IFC’s Level 3 financial assets and financial liabilities for the three months ended
September 30, 2013 and 2012 (US$ millions). IFC’s policy is to recognize transfers in and transfers out at the beginning of the reporting period.
Level 3 trading securities for the three months ended September 30, 2013
Asset
Mortgage
Collateralized
backed
backed
loan and debt
securities
securities
obligations
Balance as of July 1, 2013
$
5
$
34
$
46
Transfers out Level 3 (*)
(34)
Purchases, issuances, sales and settlements:
Settlements and others
(8)
Balance as of September 30, 2013
$
5
$
-
$
Total
$
85
(34)
(8)
38
$
43
(*)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of June 2013
beginning balance as of September 30, 2013.
Level 3 loans for the three months ended September 30, 2013
Loans
493
(1)
Total
Balance as of July 1, 2013
Net gains and losses (realized and unrealized) in net income
Purchases, issuances, sales and settlements:
Issuances
Settlements and others
$
Balance as of September 30, 2013
For the three months ended September 30, 2013:
Net unrealized gains and losses included in net income
$
529
$
529
$
(1)
$
(1)
15
22
Level 3 debt securities for the three months ended September 30, 2013
Asset
Corporate
Preferred
backed
securities
shares
securities
Balance as of July 1, 2013
$
1,474
$
585
$
87
Net gains and losses (realized and unrealized) in:
Net income
(4)
(20)
Other comprehensive income
(27)
6
(3)
Purchases, issuances, sales and settlements:
Purchases
130
18
Settlements and others
(48)
(1)
Balance as of September 30, 2013
For the three months ended September 30, 2013:
Net unrealized gains and losses included in net income
Net unrealized gains and losses included in other
comprehensive income
$
15
22
Others
$
5
493
(1)
$
Total
2,151
(1)
-
(25)
(24)
-
148
(49)
$
1,525
$
589
$
83
$
4
$
2,201
$
(5)
$
(3)
$
-
$
-
$
(8)
$
(27)
$
6
$
-
$
-
$
(21)
176
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Level 3 equity investments for the three months ended September 30, 2013
Banking and
non-banking
Insurance
institutions
companies
Funds
Others
Balance as of July 1, 2013
$
1,464
$
41
$
2,731
$
815
Transfers into Level 3 (*)
18
Transfers out of Level 3 (**)
(7)
Net gains and losses (realized and unrealized) in:
Net income
(1)
12
6
28
Other comprehensive income
(6)
(2)
Purchases, issuances, sales and settlements:
Purchases
88
90
23
Proceeds from sales
(4)
(60)
Settlements and others
11
(11)
Balance as of September 30, 2013
For the three months ended September 30, 2013:
Net unrealized gains and losses included
in net income
Net unrealized gains and losses included
in other comprehensive income
Total
$
5,051
18
(7)
45
(8)
201
(64)
-
$
1,570
$
53
$
2,767
$
846
$
5,236
$
4
$
12
$
(13)
$
28
$
31
$
(6)
$
-
$
-
$
-
$
(6)
(*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of September 30, 2013.
(**)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of June 2013
beginning balance as of September 30, 2013.
Level 3 derivative assets for the three months ended September 30, 2013
Equity
Balance as of July 1, 2013
$
780
$
Net gains and losses (realized and unrealized) in net income
11
Balance as of September 30, 2013
For the three months ended September 30, 2013:
Net unrealized gains and losses included in net income
Other
Total
1
(1)
$
781
10
$
791
$
-
$
791
$
5
$
(1)
$
4
Level 3 bond liabilities for the three months ended September 30, 2013
Structured
Unstructured
Balance as of July 1, 2013
$
(391)
$
Net gains and losses (realized and unrealized) in net income
(25)
Balance as of September 30, 2013
For the three months ended September 30, 2013:
Net unrealized gains and losses included in net income
177
Total
$
(391)
(25)
$
(416)
$
-
$
(416)
$
(25)
$
-
$
(25)
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Level 3 derivative liabilities for the three months ended September 30, 2013
Interest rate and
Equity price
currency rate
risk contracts
Balance as of July 1, 2013
$
(26)
$
Net gains and losses (realized and unrealized) in net income
20
(9)
Balance as of September 30, 2013
For the three months ended September 30, 2013:
Net unrealized gains and losses included in net income
Total
(26)
11
$
(6)
$
(9)
$
(15)
$
20
$
(9)
$
11
Level 3 trading securities for the three months ended September 30, 2012
Asset
Mortgage
Collateralized
backed
backed
loan and debt
securities
securities
obligations
Balance as of July 1, 2012
$
10
$
46
$
94
Transfers out of Level 3 (*)
(5)
Net gains and losses (realized and unrealized) in:
Net income
8
Purchases, issuances, sales and settlements:
Settlements and others
(6)
Balance as of September 30, 2012
For the three months ended September 30, 2012:
Net unrealized gains and losses included in net income
$
Total
$
150
(5)
8
(6)
$
5
$
46
$
96
$
147
$
-
$
8
$
8
$
16
(*)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities during the three months
ended September 30, 2012.
Level 3 loans for the three months ended September 30, 2012
Loans
591
Total
Balance as of July 1, 2012
Net gains and losses (realized and unrealized) in:
Net income
Purchases, issuances, sales and settlements:
Issuances
Settlements and others
$
Balance as of September 30, 2012
For the three months ended September 30, 2012:
Net unrealized gains and losses included in net income
$
686
$
686
$
18
$
18
$
Total
2,168
Level 3 debt securities for the three months ended September 30, 2012
Asset
Corporate
Preferred
backed
securities
shares
securities
Balance as of July 1, 2012
$
1,495
$
657
$
7
Net gains and losses (realized and unrealized) in:
Net loss
(14)
(17)
Other comprehensive income
29
13
1
Purchases, issuances, sales and settlements:
Purchases
25
26
10
Settlements and others
(98)
(23)
(1)
Balance as of September 30, 2012
For the three months ended September 30, 2012:
Net unrealized gains and losses included in net income
Net unrealized gains and losses included in other
comprehensive income
$
19
19
64
12
64
12
Others
$
591
9
(2)
-
(33)
43
-
61
(122)
$
1,437
$
656
$
17
$
7
$
2,117
$
(12)
$
(19)
$
-
$
(2)
$
(33)
$
24
$
13
$
1
$
-
$
38
178
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Level 3 equity investments for the three months ended September 30, 2012
Banking and
non-banking
Insurance
institutions
companies
Funds
Balance as of July 1, 2012
$
930
$
78
$
2,284
Transfers into Level 3 (*)
45
Transfers out of Level 3 (**)
Net gains and losses (realized and unrealized) in:
Net income
20
(29)
Other comprehensive income
33
(11)
Purchases, issuances, sales and settlements:
Purchases
5
97
Proceeds from sales
(57)
Settlements and others
21
Balance as of September 30, 2012
For the three months ended September 30, 2012:
Net unrealized gains and losses included in net income
Net unrealized gains and losses included
in other comprehensive income
$
Others
661
10
(33)
$
Total
3,953
55
(33)
10
-
1
22
46
(4)
148
(57)
17
$
1,054
$
67
$
2,295
$
690
$
4,106
$
13
$
-
$
(64)
$
12
$
(39)
$
(3)
$
41
$
-
$
19
$
57
(*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of September 30, 2012.
(**)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities during the
Three months ended September 30, 2012.
Level 3 derivative assets for the three months ended September 30, 2012
Equity
Balance as of July 1, 2012
$
418
Net gains and losses (realized and unrealized) in net income
26
Purchases, issuances, sales and settlements:
Purchases and issuances
5
Settlements and others
(1)
Balance as of September 30, 2012
For the three months ended September 30, 2012:
Net unrealized gains and losses included in net income
Other
$
Total
2
(2)
$
-
$
448
$
$
29
$
(2)
420
24
5
(1)
$
448
$
27
Gains and losses (realized and unrealized) from trading securities, loans, equity investments and debt securities included in net income for the
period are reported on the condensed consolidated income statement in income from liquid asset trading activities, income from loans, realized
gains and losses on associated derivatives and guarantees, income from equity investments and associated derivatives, income from debt
securities and realized gains and losses from associated derivatives and net unrealized gains and losses on non-trading financial instruments
accounted for at fair value.
As of September 30, 2013, equity investments, accounted for at cost less impairment, with a carrying amount of $314 million were written down to
their fair value of $299 million ($365 million and $316 million - September 30, 2012), resulting in a loss of $15 million, which was included in
income from equity investments and associated derivatives in the condensed consolidated income statement during the three months ended
September 30, 2013 (loss of $49 million - three months ended September 30, 2012). The amount of the write-down was based on a Level 3
measure of fair value.
179
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE L – SEGMENT REPORTING
For management purposes, IFC’s business comprises three segments: investment services, treasury services and advisory services. The
investment services segment consists primarily of lending and investing in debt and equity securities. The investment services segment also
includes AMC, which is not separately disclosed due to its immaterial impact. Further information about the impact of AMC on IFC’s consolidated
balance sheets and income statements can be found in Note B. Operationally, the treasury services segment consists of the borrowing, liquid
asset management, asset and liability management and client risk management activities. Advisory services provide consultation services to
governments and the private sector. Consistent with internal reporting, net income or expense from asset and liability management and client risk
management activities in support of investment services is allocated from the treasury segment to the investment services segment.
The performance of investment services, treasury services and advisory services is assessed by senior management on the basis of net income
for each segment, return on assets, and return on capital employed. Advisory services are primarily assessed based on the level and adequacy of
its funding sources (See Note N). IFC’s management reporting system and policies are used to determine revenues and expenses attributable to
each segment. Consistent with internal reporting, administrative expenses are allocated to each segment based largely upon personnel costs and
segment headcounts. Transactions between segments are immaterial and, thus, are not a factor in reconciling to the consolidated data.
An analysis of IFC’s major components of income and expense by business segment for the three months ended September 30, 2013, and
September 30, 2012, is provided below (US$ millions):
Three months ended September 30, 2013
Treasury
Advisory
services
services
267
$
$
$
(29)
240
9
106
(10)
(33)
41
46
(195)
(5)
(20)
(55)
(30)
(1)
(12)
(7)
13
-
Investment
services
Income from loans, realized gains and losses on associated derivatives
and guarantees
$
Provision for losses on loans, guarantees and other receivables
Income from equity investments and associated derivatives
Income from debt securities and realized gains and losses on
associated derivatives
Income from liquid asset trading activities
Charges on borrowings
Advisory services income
Other income
Administrative expenses
Advisory services expenses
Expense from pension and other postretirement benefit plans
Other expenses
Foreign currency transaction gains and losses on non-trading activities
Income (loss) before net unrealized gains and losses on nontrading financial instruments accounted for at fair value and
grants to IDA
Net unrealized gains and losses on non-trading financial instruments
accounted for at fair value
Net income (loss)
Less: Net gains attributable to noncontrolling interests
Net income (loss) attributable to IFC
$
180
Total
267
(29)
240
9
106
(43)
41
46
(220)
(55)
(43)
(7)
13
304
67
(46)
325
(52)
252
(3)
(26)
41
-
(46)
-
(78)
247
(3)
249
$
41
$
(46)
$
244
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Investment
services
Income from loans, realized gains and losses on associated
derivatives and guarantees
$
Release of provision for losses on loans, guarantees and other
receivables
Income from equity investments and associated derivatives
Losses from debt securities and realized gains and losses on
associated derivatives
Income from liquid asset trading activities
Charges on borrowings
Advisory services income
Other income
Administrative expenses
Advisory services expenses
Expense from pension and other postretirement benefit plans
Other expenses
Foreign currency transaction gains and losses on non-trading
activities
Income (loss) before net unrealized gains and losses on nontrading financial instruments accounted for at fair value and
grants to IDA
Net unrealized gains and losses on non-trading financial
instruments accounted for at fair value
Net income (loss)
$
246
Three months ended September 30, 2012
Treasury
Advisory
services
services
$
-
$
-
Total
$
246
13
92
-
-
13
92
(3)
(32)
44
(188)
(30)
(8)
249
(32)
(5)
(1)
-
40
(16)
(57)
(12)
-
(3)
249
(64)
40
44
(209)
(57)
(43)
(8)
(4)
-
-
(4)
130
211
(45)
296
109
60
-
169
239
$
271
$
(45)
$
465
NOTE M – VARIABLE INTEREST ENTITIES
Significant variable interests
IFC has identified 146 investments in VIEs which are not consolidated by IFC but in which it is deemed to hold significant variable interests at
September 30, 2013 (139 investments - June 30, 2013).
The majority of these VIEs do not involve securitizations or other types of structured financing. IFC is usually the minority investor in these VIEs.
These VIEs are mainly: (a) investment funds, where the general partner or fund manager does not have substantive equity at risk, which IFC does
not consolidate because it does not absorb the majority of funds’ expected losses or expected residual returns and (b) entities whose total equity
investment is considered insufficient to permit such entity to finance its activities without additional subordinated financial support or whose
activities are so narrowly defined by contracts that equity investors are considered to lack decision making ability, which IFC does not consolidate
because it does not have the power to control the activities that most significantly impact their economic performance. IFC’s involvement with
these VIEs includes investments in equity interests and senior or subordinated interests, guarantees and risk management arrangements. IFC’s
interests in these VIEs are recorded on IFC’s condensed consolidated balance sheet primarily in equity investments, loans, debt securities, and
other liabilities, as appropriate.
Based on the most recent available data of these VIEs, the balance sheet size, including committed funding, in which IFC is deemed to hold
significant variable interests, totaled $24,728 million at September 30, 2013 ($22,810 million - June 30, 2013). IFC’s maximum exposure to loss as
a result of its investments in these VIEs, comprising both carrying value of investments and amounts committed but not yet disbursed, was $4,739
million at September 30, 2013 ($4,712 million - June 30, 2013).
181
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
The industry sector and geographical regional analysis of IFC’s maximum exposures as a result of its investment in these VIEs at September 30,
2013 and June 30, 2013 is as follows (US$ millions):
Loans
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Total manufacturing, agribusiness and
services
$
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Total infrastructure and natural resources
Maximum exposure to VIEs
$
124
442
$
Financial markets
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Other
Total financial markets
Infrastructure and natural resources
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Total infrastructure and natural resources
Maximum exposure to VIEs
$
$
7
19
September 30, 2013
Debt
securities
Guarantees
$
17
1
$
-
Risk
management
$
-
Total
$
148
462
268
63
-
-
-
331
834
89
18
-
-
941
157
55
67
244
199
4
10
-
234
502
46
33
291
205
2
518
40
203
442
97
101
15
25
388
253
1,377
581
509
42
39
6
4
-
49
629
601
1,109
2,199
30
111
14
24
7
7
31
80
1,191
2,421
3,324
Loans
Manufacturing, agribusiness and services
Asia
Europe, Middle East and North Africa
Sub-Saharan Africa, Latin America and
Caribbean
Total manufacturing, agribusiness and
services
Equity
investments
91
459
$
718
Equity
investments
$
7
18
$
484
$
108
June 30, 2013
Debt
securities
Guarantees
$
19
1
$
-
$
105
$
Risk
management
$
-
4,739
Total
$
117
478
266
42
-
-
-
308
816
67
20
-
-
903
158
55
69
263
201
51
2
10
-
288
521
48
78
339
208
1
541
41
159
401
121
174
15
25
418
253
1,480
594
429
42
39
8
4
-
48
644
520
1,081
28
14
7
35
1,165
2,104
109
26
7
83
2,329
3,259
$
717
182
$
447
$
181
$
108
$
4,712
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
The carrying value of investments and maximum exposure to VIEs at September 30, 2013 and June 30, 2013 is as follows (US$ millions):
Investment category
Loans
Equity investments
Debt securities
Guarantees
Risk management
Maximum exposure to VIEs
Investment category
Loans
Equity investments
Debt securities
Guarantees
Risk management
Maximum exposure to VIEs
Carrying value
of investments
$
2,444
496
484
108
69
September 30, 2013
Committed but
not yet disbursed
$
880
222
36
$
$
3,601
1,138
Carrying value
of investments
$
2,207
504
447
181
69
June 30, 2013
Committed but
not yet disbursed
$
1,052
213
39
$
$
3,408
1,304
$
$
$
$
Maximum
exposure
3,324
718
484
108
105
4,739
Maximum
exposure
3,259
717
447
181
108
4,712
NOTE N – ADVISORY SERVICES
IFC provides advisory services to government and private sector clients through four business lines: access to finance; investment climate; publicprivate partnerships; and sustainable business. IFC funds this business line by a combination of cash received from government and other donors
and IFC’s operations via retained earnings and operating budget designations as well as fees received from the recipients of the services.
IFC administers donor funds through trust funds. The donor funds may be used to support feasibility studies, project preparation, and other advisory
services initiatives. Donor funds are restricted for purposes specified in agreements with the donors. IFC’s funding for advisory services are made in
accordance with terms approved by IFC’s Board.
Donor funds under administration and IFC’s funding can be comingled in accordance with administration agreements with donors. The comingled
funds are held in a separate liquid asset investment portfolio managed by IBRD, which is not commingled with IFC’s other liquid assets and is
reported at fair value in other assets. Donor funds are refundable until expended for their designated purpose.
As of September 30, 2013, other assets include undisbursed donor funds of $393 million ($391 million - June 30, 2013) and IFC’s advisory
services funding of $194 million ($170 million - June 30, 2013). Included in other liabilities as of September 30, 2013 is $393 million ($391 million June 30, 2013) of refundable undisbursed donor funds.
183
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE O – PENSION AND OTHER POSTRETIREMENT BENEFITS
IBRD, IFC and MIGA participate in a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and a Post-Employment
Benefits Plan (PEBP) that cover substantially all of their staff members.
All costs, assets and liabilities associated with these pension plans are allocated between IBRD, IFC and MIGA based upon their employees’
respective participation in the plans. Costs allocated to IBRD are then shared between IBRD and IDA based on an agreed cost-sharing ratio. The
expenses for the SRP, RSBP, and PEBP are included in expense from pension and other postretirement benefit plans.
The following table summarizes the benefit costs associated with the SRP, RSBP, and PEBP allocated to IFC for the three months ended
September 30, 2013 and 2012 (US$ millions):
Three months ended September 30,
2013
RSBP
SRP
Benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of unrecognized net loss
Net periodic pension cost
PEBP
2012
RSBP
SRP
PEBP
$
30
30
(38)
*
5
$
6
5
(5)
1
1
$
4
2
*
2
$
29
25
(35)
*
9
$
6
4
(4)
1
2
$
3
1
*
2
$
27
$
8
$
8
$
28
$
9
$
6
*Less than $0.5 million
184
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
NOTE P – OFFSETTING OF DERIVATIVES, RESALE, REPURCHASE AND SECURITIES LENDING AGREEMENTS AND COLLATERAL
IFC does not present derivative assets and liabilities or amounts due or owed under resale, repurchase and securities lending transactions related
to contracts entered into with the same counterparty under a legally enforceable netting agreement on a net basis on its condensed consolidated
balance sheet. The following table provides the gross and net positions of IFC’s derivative contracts, resale, repurchase and securities lending
agreements considering amounts and collateral held or pledged that are subject to enforceable counterparty credit support and netting
agreements described below (US$ millions). Collateral amounts are included only to the extent of the related net derivative fair values or net
resale, repurchase and securities lending agreements amounts.
Derivative assets
Resale agreements
Total
Derivative liabilities
Repurchase and securities lending agreements
Total
Derivative assets
Resale agreements
Total
September 30, 2013
Gross amount of
assets presented in
the condensed
consolidated balance
sheet
Gross amounts not offset in
the condensed consolidated
balance sheet
Financial
Collateral
instruments
received
$
3,888*
894
$
1,559
894
$
948***
-
$
1,381
-
$
4,782
$
2,453
$
948
$
1,381
September 30, 2013
Gross amount of
liabilities presented in
the condensed
consolidated balance
sheet
Gross amounts not offset in
the condensed consolidated
balance sheet
Financial
Collateral
instruments
pledged
$
2,563**
6,051
$
1,559
6,050
$
-
$
1,004
1
$
8,614
$
7,609
$
-
$
1,005
Total
Net Amount
June 30, 2013
Gross amount of assets
presented in the
condensed
consolidated balance
sheet
Gross amounts not offset in
the condensed consolidated
balance sheet
Financial
Collateral
instruments
received
$
3,816*
337
$
1,399
337
$
949***
-
$
1,468
-
$
4,153
$
1,736
$
949
$
1,468
June 30, 2013
Gross amount of
liabilities presented in
the condensed
consolidated balance
sheet
Derivative liabilities
Repurchase and securities lending agreements
Net Amount
Net Amount
Gross amounts not offset in
the condensed consolidated
balance sheet
Financial
Collateral
instruments
pledged
Net Amount
$
2,463**
5,736
$
1,399
5,732
$
-
$
1,064
4
$
8,199
$
7,131
$
-
$
1,068
* Includes accrued income of $465 million and $440 million as of September 30 and June 30, 2013 respectively.
** Includes accrued charges of $187 million and $153 million as of September 30 and June 30, 2013 respectively.
*** Includes cash collateral of $103 million and $216 million as of September 30 and June 30, 2013 respectively. The remaining amounts of collateral received consist of off-balance-sheet US
Treasury securities reported in the above table at fair value.
185
INTERNATIONAL FINANCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
IFC’s derivative contracts with market counterparties are entered into under standardized master agreements published by the International
Swaps and Derivatives Association (“ISDA” Agreements). ISDA Agreements provide for a single lump sum settlement amount upon the early
termination of transactions following a default or termination event whereby amounts payable by the non-defaulting party to the other party may be
applied to reduce any amounts that the other party owes the non-defaulting party. This setoff effectively reduces any amount payable by the nondefaulting party to the defaulting party.
IFC’s ISDA Agreements are appended by a Credit Support Annex (“CSA”) that provide for the receipt of collateral in the form of cash, U.S.
Treasury securities or U.K. gilts to reduce its mark-to market exposure to derivative market counterparties. IFC recognizes cash collateral
received and a corresponding liability for the obligation to return it on its balance sheet. Securities received as collateral are not recognized on
IFC’s balance sheet. However, IFC may rehypothecate such collateral, subject to the obligation to return such collateral and any related
distributions received. In the event of a counterparty default, IFC may exercise certain rights and remedies, including the right to set off any
amounts payable by the counterparty against any collateral held by IFC and the right to liquidate any collateral held. As of September 30, 2013,
IFC had $129 million ($245 million at June 30, 2013) of outstanding obligations to return cash collateral under CSAs. The estimated fair value of all
securities received and held as collateral under CSAs of September 30, 2013, all of which may be rehypothecated, was $1,861 million ($1,029
million - June 30, 2013). As of September 30, 2013, $724 million of such collateral was rehypothecated under securities lending agreements ($0 June 30, 2013).
Under the CSA’s IFC is generally not required to pledge collateral unless its credit rating is downgraded from its current AAA. The aggregate fair
value of derivatives containing such a credit risk-linked contingent feature in a net liability position was $743 million at September 30, 2013 ($724
million at June 30, 2013). At September 30, 2013, IFC had no collateral posted under these agreements. If IFC’s credit rating was downgraded
from its current AAA to AA+ or below, then collateral in the amount of $257 million would be required to be posted against net liability positions
with counterparties at September 30, 2013 ($233 million at June 30, 2013).
IFC’s resale, repurchase and securities lending transactions are entered into with counterparties under industry standard master netting
agreements which generally provide the right to offset amounts owed one another with respect to multiple transactions under such master netting
agreement and liquidate the purchased or borrowed securities in the event of counterparty default.
NOTE Q – CONTINGENCIES
In the normal course of its business, IFC is from time to time named as a defendant or co-defendant in various legal actions on different grounds
in various jurisdictions. Although there can be no assurances, based on the information currently available, IFC’s Management does not believe
the outcome of any of the various existing legal actions will have a material adverse effect on IFC’s financial position, results of operations or cash
flows.
186
INTERNATIONAL FINANCE CORPORATION
187
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INFORMATION STATEMENT
International Finance Corporation
I
N
IO
N
L
C
N
O
RP
RNATIO
ORAT
TE
A
FINANCE
No person is authorized to give any information or to make any representation not contained in this
Information Statement, or any prospectus, information memorandum or offering circular, or related offering
document. Any information or representation not contained herein must not be relied upon as having been
authorized by IFC or by any dealer, underwriter or agent of IFC. Neither this Information Statement nor any such
prospectus, information memorandum or offering circular, or related offering document, constitutes an offer to
sell or solicitation of an offer to buy Securities in any jurisdiction to any person to whom it is unlawful to make
such an offer or solicitation in such jurisdiction.
Except as otherwise indicated, in this Information Statement (1) all amounts are stated in current United
States dollars translated as indicated in the notes to the consolidated financial statements, Note A — Summary of
significant accounting and related policies, translation of currencies and (2) all information in this Information
Statement is given as of June 30, 2013.
TABLE OF CONTENTS
Page
Availability of information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected financial data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial structure of IFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis as of and for the year ended June 30, 2013 . . . . . . . . . . . . . . . . . . .
Organization and administration of IFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis as of and for the three months ended September 30, 2013 . . . . . . .
Index to consolidated financial statements and internal control reports as of and for the year ended
June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to condensed consolidated financial statements as of and for the three months ended
September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
2
3
4
4
5
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49
65
138
PRINCIPAL OFFICE
OF THE CORPORATION
International Finance Corporation
2121 Pennsylvania Avenue, N.W.
Washington, DC 20433
U.S.A.
GLOBAL AGENT, PRINCIPAL PAYING AGENT,
REGISTRAR AND TRANSFER AGENT, EXCHANGE AGENT, DETERMINATION AGENT
AND CALCULATION AGENT
Citibank, N.A., London Branch
21st Floor, Citigroup Centre
Canada Square, Canary Wharf
London E14 5LB
AUDITORS TO THE CORPORATION
KPMG LLP
1801 K Street, N.W.
Washington, DC 20006
U.S.A.
LEGAL ADVISERS TO THE DEALERS
In respect of English law
Linklaters LLP
1345 Avenue of the Americas
New York, NY 10105
U.S.A.