2006 in the nutshell - PROPARCO

GROUPE AGENCE FRANÇAISE

DE

DÉVELOPPEMENT

THE COMPANY

THE COMPANY

THE COMPANY

ADDRESSING THE PRIORITIES OF THE AFRICAN CONTINENT, AND THE CHALLENGES OF THE EMERGING COUNTRIES

1

Key Figures for 2006 Commitments for the year

4

of which:

Loans INTEGRATING SUSTAINABLE DEVELOPMENT AND CSR IN EACH SECTOR OF OPERATIONS

€401,6 M

€283,7 M

23 transactions 6

Equity Investments €60,7 M 17 operations

PROVIDING A FULL RANGE OF LONG-TERM FINANCIAL SERVICES

8

Guarantees

€57,2 M

6 transactions STRENGTHENING IMPACT EVALUATION AND QUALITY CONTROL MECHANISMS

AT THE HEART OF A NETWORK OF PUBLIC AND PRIVATE PARTNERSHIPS

RESULTS

10

Total balance sheet

Financings for sustainable development

PROPARCO is a Financial Development Institution, co-owned by the French Development Agency (AFD) and private shareholders.

PROPARCO’s mission is to effectively stimulate private investment in developing countries.

Indeed, the private sector is the main catalyst behind growth and job creation as well as being at the very heart of environmental, social and corporate governance related issues. Finally, the private sector is a key factor in matters of public policy through its role in public/private partnerships, thereby bringing essential services to the poorest populations.

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Net result

growth, job creation, correction of market imbalances in the poorest countries; ◆ Social

and developmental objectives whose focus is the implementation of the Millennium Development Goals; ◆ Sustainable

Development objectives and the promotion of global public goods in the major emerging countries.

With this aim in mind, PROPARCO finances projects which are economically viable, socially equitable, environmentally sustainable and financially profitable.

SHAREHOLDING

Total outstanding loans €706,6 M Investment Portfolio

◆ Economic

€950,2 M

of which: 12

PROPARCO’s activities are based on three broad groups of objectives:

Investors Agence Française de Développement

Other international financial institutions 6% 11 %

€109,5 M

Other french financial institutions

68 %

15 %

€10,3 M [1]

THE COMPANY

THE COMPANY

Our Team HEAD OFFICE MANAGEMENT TEAM

THE COMMERCIAL NETWORK

Chief Executive Officer: Luc Rigouzzo Deputy Managing Director: Etienne Viard

Brazil Christophe Blanchot Sao Paulo (From September 2007)

Investment Department: Laurent Demey Banking and financial markets: Gilles Genre-Grandpierre Infrastructure and mining: Jérôme Bertrand-Hardy Corporate: David Mizoule Private Equity: Pascal Pierra

China Paul de la Guérivière 7 Floor, Block C, East Lake Villas, 35 Dongzhimenwai Avenue, Dongchend District, Beijing 100027, Chine Tel: (8610) 84 51 12 00 Fax: (8610) 84 51 13 00 afdpekin@groupe-afd.org

Credit and Portfolio Department: Philippe Bassery Finance and Administration Department: Thierry Liscia

South-East Asia Antoine Vigier 14 F Abdulrahim Place 990 Rama IV Road, Silom, Bangkok 10500, Thailand Tel: + 662 636 12 35 Fax: + 662 636 12 47 afdbangkok@groupe-afd.org

Legal Department: Philippe Leboucq

Tunisia Emmanuel Haye Immeuble Miniar – Bloc B, 3e et 4e étages, Rue du Lac d’Ourmia, 1053 Les Berges du Lac Tunis, Tunisie Tel: 71 861 799 Fax: 71 779 825 afdtunis@tn.groupe-afd.org

East Africa Ghislain de Valon Royal Ngao HouseHospital Road PO Box 45995 Nairobi, Kenya Tel: (254 20) 271 84 52 Fax: (254 20) 271 79 88 afdnairobi@groupe-afd.org Nigeria Charles-André Le Pape Lagos (From September 2007)

Southern Africa Laurent Klein Ironwood House Ballywoods Office Park 29, Ballyclare Drive, Bryanston 2021 Johannesburg Southern Africa Tel: + 27 11 540 7100 Fax: +27 11 540 7117 proparcojohannesbourg@groupe-afd.org

India Jean-Pierre Barral New Delhi (From October 2007)

PARIS SAINT PIERRE & MIQUELON

BEIJING TURQUEY

TUNIS

LIBAN

TUNISIA

CHINA

AFGHANISTAN

PALESTINIAN TERRITOTIES

JORDAN

MAROCCO

ALGERIA

SINAI

PAKISTAN

NEW DELHI

EGYPT

BAHAMAS

INDIA

CUBA REP. HAITI DOMINICAN

MAURITANIA

DOMINICA

GUADELOUPE MARTINIQUE BARBADE

CAP-VERDE

TRINIDAD-AND-TOBAGO

NIGER

THAILAND

TCHAD

GAMBIE GUINEA-BISSAU

GUINEA

BURKINA FASO CÔTE D'IVOIRE

LIBERIA

SUDAN

GHANA BENIN TOGO

VIETNAM

YEMEN

SENEGAL

SIERRA LEONE GUYANA SURINAME

LAOS

MALI

JAMAICA

BANGKOK

DJIBOUTI

CAMBODIA

NIGERIA

LAGOS

CAMEROON

SRI LANKA

CENTRAL AFRICAN REPUBLIC

ETHIOPIA SOMALIA

AMAPA

OUGANDA SAO TOME-AND-PRINCIPE

EQUAT. GUINEA GABON

DEM. REP. OF CONGO

CONGO

KENYA SUMATRA

RWANDA BURUNDI

BRAZIL

TANZANIA

ZAMBIA ANGOLA

NAIROBI

INDONESIA SEYCHELLES COMOROS MAYOTTE

WALLIS-ET-FUTUNA

VANUATU MAURITUS MADAGASCAR

ZIMBABWE

NAMIBIA

SAO PAULO

REUNION BOTSWANA

MOZAMBIQUE

NEW CALEDONIA

SWAZILAND

FRENCH POLYNESIA

JOHANNESBURG LESOTHO

Countries in which PROPARCO operates

SOUTH AFRICA

PROPARCO’s network of offices

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ADDRESSING THE PRIORITIES OF THE AFRIC AN CONTINENT, AND THE CHALLENGES OF THE EMERGING COUNTRIES

Promoting Global Public Goods and Social and Environmental Responsibility in emerging countries

Supporting growth and employment in Africa Africa and the Indian Ocean represent 64% of its foreign outstanding debt, of which 43% is for Sub-Saharan Africa. As such, PROPARCO has a comparative advantage in Africa.

PROPARCO’s primary objective is to double its commitments in favour of the private sector in Africa.

◆

growth and job creation through the financing of companies (exports, regional markets…),

◆

promoting financial systems,

◆

strengthening cost-effective private infrastructure in order to provide basic services,

Having been active for some time in South Africa, the Maghreb countries and in Turkey, the Company is now present in Brazil, China, India, Indonesia, Pakistan and Thailand.

In each of these countries, PROPARCO’s strategy focuses on Global Public Goods (GPG), Social and Environmental Responsibility (SER) and the sharing of French expertise in these fields.

This strategy can be divided into five sectors: ◆

PROPARCO’s financings are concentrated around five different areas:

◆

protecting the local and global environment,

◆

the development of a local entrepreneurial community.

◆

◆

Rehabilitation of power stations and the renovation of the electric grid in Cameroon (Loan of €30 million).

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energy related issues (cleaner electricity production, renewable sources of energy, gas distribution), supporting ‘model’ companies or banks with high social and/or environmental standards,

environmental content, or which are promoting good practices, ◆

the environment, both local and global,

◆

investment funds committed to implementing SER action or specialising in the financing of energy efficient or renewable energy projects.

financial intermediation on credit lines allotted to projects with a high social or

Promoting wind-turbine generated energy on the island of La Réunion (Loan of €2.6 million).

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Investment in the Black Economic Empowerment Fund in South Africa.

INTEGRATING SUSTAINABLE DEVELOPMENT AND CSR IN EACH SECTOR OF OPERATIONS

Constructing cost-effective infrastructure for the benefit of the local people Efficient and cost-effective infrastructure networks are an essential prerequisite in the fight against poverty. Apart from serving the local community and creating opportunities for the poorest populations, they also help attract foreign investment and promote a network of local companies. PROPARCO is involved in the financing necessary to provide the greatest possible access to services such as drinking water, energy and means of communication.

PROPARCO also seeks to manage its projects with respect for environmental concerns by developing energy efficient projects which come within the framework of the Clean Development Mechanism of the Kyoto Protocol. In the emerging countries, PROPARCO aims to finance projects which set good examples in these areas in order to encourage effective sustainable development.

Modernising and strengthening the financial systems The development of the private sector in developing countries can only be achieved if they are able to gain access to sources of financing that are adapted to their needs.

Supporting banking intermediation in Ghana (Credit line of USD 10 million).

Reinforcing financial institutions, adapting them to meet corporate expectations and requirements and promoting financial markets in order to improve the interaction between long-term savings and companies, represent three complementary facets of PROPARCO’s activity.

Developping regional exports in Niger (Loan guarantee of €2.6 million allotted to an agro-industrial company).

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Supporting the manufacturing sector Through long-term resources, consistent with the lifetimes of financed assets, and because the ability of local banking markets is often insufficient, PROPARCO focuses on financing young companies wishing to develop their industrial base, clusters in the process of restructuring and needing investments to modernize, and borrowers looking to diversify their activities to take-on increased competition.

Plantations and basic agro industries, fishfarming, the modernization and expansion of heavy industries, transport, education, health, and the tourist industry constitute the main historic sectors of intervention.

Increasing the number of projects contributing to Social and Environmental responsibility Having reinforced company practices in this area (environmental analysis of projects, anti money laundering, corporate governance …), PROPARCO’s key objective is to help its clients reach an acceptable standard in this field and is therefore intensifying efforts on the eight Social and Environmental Responsibility guidelines:

taking into account local environmental constraints, contributing to the fight against global warming, protecting biodiversity, respect for social rights, improving access to education and health care, supporting the fight against financial crime and improving standards of corporate governance.

Modernisation of a Ugandan hotel (Investment and long-term loan totalling USD 8.2 million).

Mobile phones: fostering development and reconstruction in Haiti and Afghanistan (Loans totalling USD 54 million)

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PROVIDING A FULL RANGE OF LONG-TERM FINANCIAL SERVICES

PROPARCO’s financial services provide private sector companies in developing countries with long-term financing, the possibility to cover or reduce certain types of risk and offer solutions adapted to issues specific to these countries.

Reinforcing the equity capital of companies (€0.5 to 10 million per transaction) PROPARCO invests via equity and quasiequity transactions through the following structures: capital contributions, shareholders’ loans, convertible bonds, participating loans, subordinated loans.

PROPARCO also acquires interests in a variety of different investment funds: based in a single country or across a larger region, whether multi-sectoral or not, specialised in venture capital or capital development.

Providing loans adapted to each project (€5 to 80 million per transaction) PROPARCO offers a wide range of medium to long term loan products: ◆ senior loans, ◆ junior loans, ◆ mezzanine debt, ◆ subordinated loans.

Loans may be denominated in either in euros, US dollars or in local currency to help the borrower’s risk control. The loans mature after a period of fifteen to twenty years, with the possibility of a grace period where appropriate.

Supporting the construction and operating of gas distribution pipelines in China (Loan of USD 25 million).

‘Red label’ certification for shrimp farms in Madagascar (Loans and equity investments totalling €7.3 million).

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Working in local currency and risk-cover (€5 to 80 million per transaction) PROPARCO’s name is itself a guarantee of solvability and therefore facilitates the mobilisation of local currency resources for private sector borrowers. The Company guarantees subscribers the repayment of capital and interest on the loans. PROPARCO thus reduces exchange rate risk and country-related risk.

Bond guarantee, inter-bank loan guarantee, ◆ local currency loan guarantee, ◆ liquidity guarantee for mutual funds, investment funds, local saving funds. ◆ ◆

Optimising financial engineering to respond to specific needs PROPARCO makes full use of financial engineering to implement the most suitable financial solutions.

Apart from the more traditional participation or subordinated loans, the Company also offers the following: ◆

loans whose debt service is indexed to the price of raw materials, ◆ financial engineering assignments such as financial consultancy, lead arranging, or coordination of sponsors – which are of high added value in matters of development. ◆

Loans whose margin is partially indexed to the borrower’s results in terms of Social and Environmental responsibility,

The development of gas resources in Mozambique (€10 million loan).

Construction of three dams on the Bai Shui Jiang river in China (€10 million loan).

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STRENGTHENING IMPACT EVALUATION AND QUALIT Y CONTROL MECHANISMS

Evaluating the impact on development of all projects receiving financing

An independent advisory framework for project cycles

The evaluation of impact on development and the environment allows PROPARCO to monitor the quality of each project, thus substantiating the investment made and measuring its contribution to development.

The project cycle is structured around independent advice concerning risk control, compliance with anti money-laundering

The Company systematically uses an impact evaluation device for specific purposes, both prior to the financing decision and during the course of the project.

SOME EXAMPLES OF THE IMPACT OF PROJECTS FINANCED AND CO-FINANCED BY

regulations and the enforcement of environmental and social standards.

PROPARCO

Supporting growth and employment in developing countries:

Improving access to means of communication for the poorest populations:

Over the course of the last three years, PROPARCO has financed or co-financed projects which have contributed to the creation of 350 companies, thus creating or securing 60,000 jobs.

In the field of telecommunications, PROPARCO has financed in 2005 and 2006 the creation of GSM networks in Afghanistan, Haiti and Algeria. In the long term, these networks will serve 6.4 million subscribers.

Addressing the priorities of the African continent:

Providing for a sustainable environment:

75% of projects financed since the year 2000 have been in Africa.

Developing and improving access to energy sources: In 2005 and 2006, PROPARCO has financed projects in the field of gas and electricity distribution, benefiting 750,000 households in Cameroon and China by providing access to modern sources of energy. Energy production projects, after completion, will improve the quality of service for nearly 30 million people in Thailand, China and Senegal.

Over the same period of time, PROPARCO financed renewable energy projects for the production of electricity (hydroelectricity, biogas, wind turbines) in Laos, China, Thailand, and the French Overseas Territories. The accumulated generation capacity resulting from these projects is close to 1 200 MW, which will prevent the emission of 3.9 million tons of CO2.

Placing the SER at the heart of every project: 90% of companies and infrastructure financed since 2000 have undertaken to respect international social standards (ILO).

Contributing to State revenues:

Michel Dukhan © IRD

€562 million in tax revenues generated over the past seven years.

Infrastructure projects financed by PROPARCO in 2005 and 2006 will generate revenues of €1 billion over a twenty five year period for those States hosting the projects.

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AT THE HEART OF A NET WORK OF PUBLIC AND PRIVATE PARTNERSHIPS

Drawing on the strength of the European EDFI Network

Building new strategic partnerships

Since the founding of EDFI in 1992, PROPARCO has been an active member of the European Development Finance Institutions, a group of fifteen or so European bilateral financial institutions specialised in the development of the private sector in developing and emerging countries. In 2006, the consolidated portfolio of investments of the EDFI reached €12.5 billion.

This level of commitment can be seen in the form of the numerous projects co-financed by PROPARCO and the European Financing Partners (EFP), and thanks to the ongoing sharing of expertise between EDFI members.

PROPARCO is in the process of developing a new working relationship with the African Development Bank (ADB) and the Development Bank of South Africa (DBSA).

PROPARCO is able to offer its clients profit and risk sharing financial structures with the AFD. PROPARCO is therefore in a position to increase the sums offered to its clients.

The AFD also supports the commercial development of PROPARCO through its network of offices, offering the Company the possibility to establish itself as the sole private sector financier of the Group.

Developing syndications and lead arranging capabilities

In 2004, ten EDFI members joined forces to create EFP (European Financing Partners). Two further members joined in 2006. EFP is a joint financing initiative whose financial commitments at this time stand at €315 million, of which €156 million was granted to 13 projects at the end of 2006. The objective of the EFP is to finance private sector operations in the ACP zone (Africa, the Caribbean and Pacific countries), partly via funding from the Cotonou Investment Facility. It provides real benefits for private sector development in the ACP countries and promotes cofinancing agreements between the EIB and EDFI members in a spirit of mutual trust, shared expertise and professionalism, as well as allowing participating institutions the possibility of more effective risk control thanks to an additional leverage effect.

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Finally, thanks to PROPARCO’s considerable knowledge of local markets, particularly in Africa, and its network of public and private partnerships, the Company is in an ideal position to serve as a point of reference in terms of solutions available, both for investors and for borrowers. As such, PROPARCO plays a central role as a catalyst for private investment in developing and emerging countries.

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Bernard Moizo © IRD

E F P : A V E H I C L E F O R E U RO P E A N CO - F I N A NC I NG – I N NOVAT I V E , F L E X I B L E , I N S P I R I NG

PROPARCO is also developing commercial relationships with private banks and investment funds. Having carried out numerous projects with these companies, particularly in terms of equity investments and loan facilities, PROPARCO is now developing syndication and arrangement programmes.

RESULTS

RESULTS

For the first time, in 2006 PROPARCO made investments totalling €400 million in thirty countries. The African continent is still the main beneficiary, with the Company investing more than 60%of its foreign states investments there. The sectoral readjustment towards infrastructure and the marked increase in equity investments were also significant factors in 2006.

Equity Transactions

Loans 23 loans approved in 2006 worth €283 million 77 outstanding loans with 64 counterparties ◆ Total outstanding loans of €706 million ◆ Excluding French Overseas Territories, outstanding loans are split equally across the Company’s geographical areas of activity. ◆ ◆

Loans : sector breakdown (foreign countries portfolio)

17 equity investments approved ◆ 12 investments and 4 disinvestments made ◆ A portfolio worth €109 million gross, split between 74 companies ◆ Paid-up investments of €68 million at the end of 2006 ◆

248,7 M€ Financial sector

Equity Investments : breakdown by sector (portfolio)

45 %

Financial sector

Infrastructure and mining

185,2 M€ Infrastructures and mining

34 % 115,0 M€ Corporates

21 %

6% 13 %

Corporates

20 %

Loans : geographic breakdown (foreign countries portfolio)

Investment funds 61 % Other countries 1%

Multi-countries

Equity Investments : geographic breakdown (portfolio)

Asia, Caribbean 22 %

Central Africa, South Africa and Indian Ocean

Mediterranean 35 %

15,1 %

30,1 %

Mediterranean 23,5 % West Africa 16,7 %

French Overseas Territories 1,4 %

West Africa 8 % South Africa and Indian Ocean 16 %

Central and Eastern Africa 18 %

Guarantees 6 guarantees, worth €57 million, were approved in 2006 Guarantees issues amounted to €13 million ◆ Proparco made guarantee commitments of €72 million reflecting 29 transactions ◆

Asia 13,2 %

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◆

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RESULTS

ANNUAL REPORT

Summary Balance Sheets in net values (€ millions) ASSETS

LIABILITIES

Loans : financial institutions

383

Debts

Loans: non financial institutions

319

Other liabilities, accruals & contingencies

Investments

105

Equity

191

Placements Long and short term

141

- of which, capital subscribed

143

Other

TOTAL

2

950

695

64

- of which, reserves and retained earnings

38

- of which, income

10

TOTAL

Summary Income statement

950

(€ millions)

Net banking income

26.8

Gross operating income

15.4

Cost of risk

1.1

Operating income

14.3

Net income

10.3 N° ISSN en cours Dépôt légal juillet 2007 Direction artistique et réalisation : MH Éditions - www.mh-editions.fr Crédit photos : Michel Hasson, Groupe AFD, D. Riffet, ©IRD, L. Rigouzzo This publication was printed in the respect of the environment with vegetable inks on recycled paper or to standards FSC (sustainable management of the forests).

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5, rue Roland Barthes 75598 Paris Cedex 12 TĂŠl. +33 1 53 44 37 37 Fax +33 1 53 44 38 38 www.proparco.fr