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  • Extended Annual Review Report

    Project Number: 41914-014 Equity Number: 7274 Loan Number: 2418 September 2016

    Loan and Equity Investment Housing Development Finance Corporation Plc. (Maldives) This is an abbreviated version of the document which excludes commercially sensitive and confidential business information that is subject to exceptions to disclosure set forth in ADB's Public Communications Policy 2011

  • CURRENCY EQUIVALENTS Currency Unit rufiyaa (Rf)

    At Appraisal At Project Review

    1 July 2016 $0.06489 Rf15.40

    1 February 2008 Rf1.00 = $0.07813 $1.00 = Rf12.80


    ADB Asian Development Bank BML Bank of Maldives CAGR compound annual growth rate DMF design and monitoring framework ESMS environmental and social management system GDP gross domestic product HDFC Housing Development Finance Corporation HDFC-I HDFC Investments Limited of India IFC International Finance Corporation IFI international financial institution IPO initial public offering LIBOR London interbank offered rate NPL nonperforming loan PFI participating financial institution PSOD Private Sector Operations Department TA technical assistance TEAP Tsunami Emergency Assistance Project XARR extended annual review report

    NOTE In this report, $ refers to US dollars.

    Vice-President D. Gupta, Private Sector and Cofinancing Operations Director General M. Barrow, Private Sector Operations Department (PSOD) Director C. Roberts, Private Sector Portfolio Management Division, PSOD Team leader Team members

    I. Chua, Senior Investment Officer, PSOD A. Cheema, Investment Specialist, PSOD M. Gunawardhena, Investment Specialist, PSOD J. Gomez, Safeguards Officer, PSOD V. Ramasubramanian, Safeguards Specialist, PSOD

    In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgment as to the legal or other status of any territory or area.




    A. Project Background 1 B. Key Project Features 2 C. Progress Highlights 2


    A. Project Rationale and Objectives 3 B. Development Results 4 C. ADBs Additionality 8 D. ADB Investment Profitability 8 E. ADB Work Quality 9 F. Overall Assessment 10


    A. Issues and Lessons 11 B. Recommended Follow-Up Actions 11

    APPENDICES 1. Maldives Housing Market Overview 13 2. Design and Monitoring Framework 14 3. Estimation of Return on Invested Capital 16 4. Business Performance 17 5. Financial Statements 21 6. Results and Ratings for Project Contributions to Private Sector Development

    and ADB Strategic Development Objectives Financial Intermediaries 22


    Loan and Equity Investment Housing Development Finance Corporation

    (Loan No. 2418 and Equity Investment No. 7274 Maldives)

    Key Project Data

    As per ADB Loan Documents ($ million)

    Actual ($ million)

    Total Project Cost: 12.00 9.75 Total Investment:

    Loan: Committed 7.50 7.50 Disbursed 7.50 Outstanding NIL

    Equity: Committed 4.50 4.50 Disbursed 2.25

    Key Dates Actual

    Concept Clearance Approval 17 April 2007 Board Approval 08 April 2008 First Disbursement (Equity) 09 February 2009 First Disbursement (Loan) 10 February 2009 Loan Agreement 23 July 2008 Shareholders Agreement 23 July 2008 Loan Effectiveness 23 July 2008

    Financial and Economic Internal Rates of Return (%) Appraisal XARR

    Financial Internal Rate of Return (project financial rate of return on equity)

    21.2% ($) 19.2% ($) 22.7% (Rf)

    Economic Return on Invested Capital (EROIC) 13.8%

    Project Administration and Monitoring Number of Missions

    No. of Person-Days

    Due Diligence Mission 3 11 Project Administration 1 2 XARR Mission 1 3 = data not available, ADB = Asian Development Bank, XARR = extended annual review report

  • EXECUTIVE SUMMARY In February 2008, the Board of Directors of the Asian Development Bank (ADB) approved a $4.5 million equity investment and a $7.5 million senior secured loan to the Housing Development Finance Corporation (HDFC) in the Maldives. The Housing Development Finance Corporation (HDFC) was established in 2004 as a wholly owned government institution to provide long-term housing finance in the country. The government decided to privatize the company due to strong demand for housing finance and the inability of the government to source long-term funding for HDFC. Three international investors participated in HDFCs privatization in 2009, leaving the government with 49% of HDFCs capital. ADB and the International Finance Corporation (IFC) own 18% each, and Indias HDFC Investments Limited (unrelated to HDFC in the Maldives) owns 15%. ADB and IFC have each provided a loan of $7.5 million. The governments employment of a publicprivate partnership model in the privatization of HDFC transferred the controlling interests in government and majority shares to international shareholders. At the time of this extended annual review, HDFC remained the only specialized housing finance company in the country and held 50.9% of the housing finance market share. HDFC is a household name in the countrys housing finance sector and helps deliver solutions for the growing housing needs of the population. It made a significant contribution to the housing market in helping the government create a legal framework that allowed freehold title to a single unit of housing. In this way it became possible that a standalone house or an apartment could be purchased through a mortgage facility. This was a paradigm shift in a market where houses were traditionally built on shared land allocated for the family many generations earlier. The transactions development results are rated satisfactory overall. The effect of the ADB loan and equity investment on private sector development and ADB strategic objectives is rated excellent. The privatization helped transform HDFC into a commercially viable, private sector-led company that could compete, grow, and develop effective ways to meet the mortgage financing needs of the people of the Maldives. The project contributed measurably to (i) meeting an urgent need for housing in the Maldives (ii) increasing the availability of mortgage lending and strengthening the financial sector, and (iii) generating jobs and additional revenue. The economic performance of the project is rated satisfactory. HDFCs inclusive business model helped cultivate the products and services of small and medium-sized enterprises in the value chain as suppliers of construction materials and services. HDFC also helped deepen the financial sector through pioneering the issuance of domestic corporate bonds that were subscribed to by institutional and retail investors. Economic return on invested capital of the project was calculated at 1.3 times the weighted average cost of capital. Environmental, social, health, and safety performance is rated satisfactory. HDFC established policies for an environmental management system in accordance with ADBs guiding principles. No involuntary resettlement occurred and no impacts on indigenous peoples were observed as a result of ADBs investment in HDFC. Business success is rated satisfactory. During its 7 years of operation since privatization, HDFC has grown to become the dominant player in the housing finance market. Its active loan portfolio has reached Rf1 billion, but its nonperforming loan ratio was a sound 2% as of the end of 2015. With the introduction of Islamic banking products, repricing of interest rates, and extension of

  • housing loan tenors to 20 years, HDFC is poised to continue its success through 2016 and beyond. The return on invested capital for the project was calculated at 1.1 times the weighted average cost of capital. ADBs additionality is rated satisfactory. ADBs investment came at a time when the government needed long-term funding to sustain the operations of HDFC. ADB could have provided only a long-term loan, which would have satisfied HDFCs immediate debt funding needs. However, a long-term loan coupled with an equity investment that helped in the privatization of HDFC proved to be a more sustainable solution and had a discernible impact on HDFCs development. The infusion of additional equity and its expanded capitalization enabled HDFC to increase leverage during 20112016. It has not needed additional equity during this period. ADBs investment has encouraged other international financial institutions and commercial banks to fund HDFCs debt funding requirements since 2011. ADB investment profitability is rated satisfactory. The financial internal rate of return for ADBs equity investment is calculated at 22.7%, equivalent to 1.3 times the cost of equity. ADB work quality is rated satisfactory. This is based on ADBs (i) screening, appraisal, and structuring of the project; and (ii) its monitoring and supervision. In 2005, ADB contributed $600 million to the Asian Tsunami Fund, which provided a grant of $20 million and a loan of $1.8 million to finance tsunami relief in the Maldives. Although the housing sector was not a priority under this assistance, ADB believed that an investment in housing finance would complement the assistance. For this reason, ADB structured and proposed a loan and equity investment in HDFC to improve housing and atoll development and strengthen the countrys financial sector as well. The combination of the loan and equity structure proposed by ADB not only allowed H


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