by Bobbi A. Paulson

The Overseas Private Investment Corporation (OPIC) is a U.S. Government agency that promotes economic growth in developing countries and regions, including the Newly Independent States (NIS), by encouraging Ameri-can private investment. Since 1992, when OPIC first opened in the NIS, it has committed a total of $5.2 billion in fi-nancing and insurance support to about 140 projects in the region. OPIC assists American investors through three principal products, including insurance, financing, and in-vestment funds.

OPIC insurance can cover political risk to projects in the NIS from expropriation and political violence. The agency can insure up to $200 million per project and has practically no minimum investment size requirements. OPIC political risk insurance is available to U.S. inves-tors, contractors, exporters, and financial institutions in-volved in international transactions. Insurance is avail-able for investments in new ventures, expansions of ex-isting enterprises, privatizations, or acquisitions with positive developmental benefits. OPIC provides financing through direct loans and

loan guaranties that provide medium- to long-term fund-ing to ventures involving significant U.S. private equity and management participation. OPIC can provide financ-ing on either a project finance or corporate finance ba-sis.

Rather than relying on sovereign or sponsor guaran-ties, project financing looks for repayment from the cash flows generated by projects. Therefore, OPIC carefully ana-lyzes the economic, technical, marketing and financial sound-ness of each project. Corporate financing looks to the credit-worthiness of an existing corporate entity other than the

project company to support debt repayment. For new project financing, OPIC can loan up to 50 percent of the total project cost for a maximum of $200 million per project. For the ex-pansion of a commercially viable ongoing project, OPIC can provide financing for up to 75 percent of the project cost. OPIC also supports the creation of privately owned, pri-vately managed investment funds that make direct equity and equity-related investments in new, expanding, or privatizing companies. OPIC-supported investment funds leverage finan-cial support for local businesses of all sizes, helping to de-velop varying sectors of the host economy. These funds have invested millions of dollars in ventures in a variety of indus-tries. Fund investments have been made in Georgia, Kazakhstan, Russia, Tajikistan, and Ukraine.

 

Tips for Seeking Help from OPIC

When exploring the possibility of securing OPIC financ-ing for a project in the NIS, investors should recognize that an understanding of the following conditions will expedite review of the project:

-          OPIC provides financing for investments that are wholly owned by U.S. companies or that are joint ventures in which the U.S. sponsor firm is a partici-pant.

-          The U.S. investor is expected to assume a mean-ingful share of the risk, generally through ownership of at least 25 percent of the equity in the project. Investors are required to establish sound debt-to-equity relationships that will not jeopardize the success of the project through insufficient equity or excessive leverage. The typical project should have a debt-to-equity ratio of 1.5 (or 60:40 percent). The financing plan should provide funds to meet all costs, such as plant, equipment, working capital, and contingencies.

-          OPIC normally requires that the principal sponsors enter into a completion agreement under which theyare obligated to guarantee payment of debt service to OPIC as well as to cover cost overruns prior to project completion (which is defined to include cer-tain financial and operating tests, as well as physical and legal completion).

 

OPIC Assistance to Small Businesses

A significant percentage of OPIC’s finance and insur-ance clients are small businesses, and more than half of all identified suppliers to OPIC-backed projects are small busi-nesses. While OPIC’s products are already generally avail-able to small businesses, OPIC has also tailored several prod-ucts to meet small business financing and insurance needs. All companies, both service and industrial, with annual sales of less than $250 million (taking into account the con-solidated sales of the parent company) qualify as small busi-nesses.

Entities with no revenues per se, such as individual private investors or newly formed companies, with net worth

or stockholders’ equity of less than $67 million also qualify. In addition to new investments, privatizations, expansions,

and modernizations, types of small business projects eligible for OPIC support include:

-          formation of a new branch office, sales office, or service center; warehousing or small assembly operations;

-          and contracting to provide construction, advisory or tech-nical assistance services, and exporting equipment.

 

Current OPIC-Supported Projects in the NIS

OPIC is currently providing insurance and financing support to a number of projects of various sizes in the NIS

countries, including the following:

-          Thanks to OPIC’s reduced minimum loan size, a $250,000 OPIC loan is helping Russian Dairy Farms, Inc., of Minne-apolis, MN, expand and upgrade its Razdolye Dairy Farm, which is located 75 miles northeast of Moscow. The loan is allowing the farm to acquire additional dairy cows and mod-ernize milk production techniques. The expansion is expected to increase milk production and will showcase modern prac-tices to other local dairy farmers.

-          OPIC is supporting MCT Investors, L.P., a small busi-ness based in Alexandria, VA, with nearly $16 million in political risk insurance for its two telecommunications joint ventures in Russia. MCT has established 900 GSM cellular telephone networks in Yekaterinburg, as well as in the re-mote city of Chita in southeastern Siberia. Also with OPIC support, MCT is working to establish similar networks throughout Uzbekistan. Backed with $33 million in OPIC political risk insurance, the company has established tele-communications projects in Tashkent and Samarkand.

 

Bobbi A. Paulson is an Investment Development Assistant at

OPIC in Washington, DC. For additional information on

OPIC, visit its website at www.opic.gov.