Project financing in Iraq

GERMAN – IRAQI Business Forum

April 21, 2010

GERMAN – IRAQI Business Forum

April 21, 2010

Munich, 21.04.2010

Ralph Eckle Trade Risk Facilitation

AGENDA

n GERMANY & IRAQ

n TRADE FIGURES

n IRAQI BANKING SYSTEM

n TRADE BANK OF IRAQ / the consortium

n FINANCING

n ECAs & MULTILATERAL DEVELOPMENT BANKS

n EXPORT CREDIT AGENCIES / long-term financing

n PERSPECTIVES

2

n GERMANY & IRAQ

n TRADE FIGURES

n IRAQI BANKING SYSTEM

n TRADE BANK OF IRAQ / the consortium

n FINANCING

n ECAs & MULTILATERAL DEVELOPMENT BANKS

n EXPORT CREDIT AGENCIES / long-term financing

n PERSPECTIVES

Munich, 21.04.2010

GERMANY & IRAQhistorical overview

nlong lasting cordial relationship between the two countries for decades.

nGermany has always been on of the main trading partners to Iraq

nClose bilateral relationship of HypoVereinsbank to Iraqi governmental banks (Central Bank, Rafidain Bank and Rasheed Bank).

nFor years Hypovereinsbank was one of the leading German banks using the oil-for-food program to Iraq (in place until 21.11.2003).

nHypoVereinsbank was the sole German banking institution participating in the consortium for Trade Bank of Iraq ("participating bank" in 2004 and "operating bank" from 2005).

n In 2004 Germany agreed to a debt relief of 80 % amounting to EUR 4,7 bn.

GERMANY & IRAQ

3

nlong lasting cordial relationship between the two countries for decades.

nGermany has always been on of the main trading partners to Iraq

nClose bilateral relationship of HypoVereinsbank to Iraqi governmental banks (Central Bank, Rafidain Bank and Rasheed Bank).

nFor years Hypovereinsbank was one of the leading German banks using the oil-for-food program to Iraq (in place until 21.11.2003).

nHypoVereinsbank was the sole German banking institution participating in the consortium for Trade Bank of Iraq ("participating bank" in 2004 and "operating bank" from 2005).

n In 2004 Germany agreed to a debt relief of 80 % amounting to EUR 4,7 bn.

Munich, 21.04.2010

TRADE FIGURESGermany / Iraq

TRADE FIGURES

100.000

200.000

300.000

400.000

500.000

600.000

700.000

exports to Iraq in thsd. EUR

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

imports from Iraq in thsd. EUR

4

0

100.000

0

20.000

main Iraqi import goods machinery, transport equipment 43% main Iraqi export goods crude oil 90%

food, agricultural products 11%

fuel, energy 10%

main trading partners Syria 26% main trading partners USA 47%

Turkey 20% Italy 11%

USA 12% Canada 6%

German exports electrical equipment German imports crude oilmachinerypower plant / gas

Munich, 21.04.2010

IRAQI BANKING SYSTEMoverview - general

IRAQI BANKING SYSTEM

nRestructuring of Rafidain Bank and Rasheed Bank still in process (supported by World Bank)

nInternational business predominantly arranged through Trade Bank of Iraq

nPrivate banks more and more active as well

nIn order to decrease the workload in TBI and to increase the private banks overall reputation in international markets public sector l/c's upto USD 2 mn to be provided by them backed by irrevocable reimbursement undertaking (IRU) by TBI. Cover through account of Ministry of Finance with TBI to be replenished with not less than USD 250 mn for such "small credits"

(Council of Ministers – 28.01.2008)

nAbout 500 bank branches throughout the country only (which makes 50.000 customers per branch)

5Munich, 21.04.2010

nRestructuring of Rafidain Bank and Rasheed Bank still in process (supported by World Bank)

nInternational business predominantly arranged through Trade Bank of Iraq

nPrivate banks more and more active as well

nIn order to decrease the workload in TBI and to increase the private banks overall reputation in international markets public sector l/c's upto USD 2 mn to be provided by them backed by irrevocable reimbursement undertaking (IRU) by TBI. Cover through account of Ministry of Finance with TBI to be replenished with not less than USD 250 mn for such "small credits"

(Council of Ministers – 28.01.2008)

nAbout 500 bank branches throughout the country only (which makes 50.000 customers per branch)

IRAQI BANKING SYSTEMoverview - banks

IRAQI BANKING SYSTEM

Central Bankregulatory functions

public-sector banks (7) private-sector banks (33)

commercial (3) commercial (22) Foreign Banks (4)

Rafidain Bank Bank of Baghdad (a) Arab Banking CorporationRasheed Bank Commercial Bank of Iraq (b) Turkish Agricultural Bank

Iraqi Middle East Investment Bank Bank Melli IranTrade Bank of Iraq Investment Bank of Iraq Bank Byblos Lebanese

United Bank for InvestmentDar Es Salam Investment Bank

special purpose (4) Mosul Bank for Development and Investment Islamic Banks (7)

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Dar Es Salam Investment Bankspecial purpose (4) Mosul Bank for Development and Investment Islamic Banks (7)

Babylon BankIndustrial Bank Basra International Bank for Investment Iraqi Islamic BankAgricultural Cooperative Bank National Bank of Iraq (c) Ilaf Islamic BankReal Estate Bank Credit Bank of Iraq (d) Kurdistan International BankIraq Bank (former Socialist Bank) Economy Bank Islamic National Bank

Sumer Commercial Bank Tigris and Euphrates BankGulf Commercial Bank Islamic Bank of Regional CooperationWarka Bank for Investment & Finance Al-Bilad Islamic BankNorth Bank of IraqUnion Bank of IraqAshur International Bank for Investment (a) Burgan Bank / Kuwait 50,6 %Al-Mansur Bank (b) Ahli United Bank / Bahrain 49 %TransIraq Bank (c) Capital Bank of Jordan 59 %Emerald Bank (d) National Bank of Kuwait 75 % +Al-Huda Bank IFC 10 %

IRAQI BANKING SYSTEMopening of letters of credits – procedure / public sector

IRAQI BANKING SYSTEM

nSectoral Ministries and Govenorates approach Ministry of Finance by official letter incl. original / coloured copy of the contract to confirm proper contracting process

nMoF approaches the Central Bank to open the letter of credit, with copy to TBI

nTrade Bank of Iraq

q provides l/c reference no. after own review process to Central Bank,

q asks for transfer of the funds from Central Bank and is

q approaching AML Department to verify status of contracting company

nCentral Bank requests transfer of funds from the Development Fund for Iraq (DFI) to Trade Bank of Iraq to cover the credit. DFI recently been extended by Security Council until 31.12.2010

nTimeframe should be 2-3 weeks, in reality it takes 2-3 months

7Munich, 21.04.2010

nSectoral Ministries and Govenorates approach Ministry of Finance by official letter incl. original / coloured copy of the contract to confirm proper contracting process

nMoF approaches the Central Bank to open the letter of credit, with copy to TBI

nTrade Bank of Iraq

q provides l/c reference no. after own review process to Central Bank,

q asks for transfer of the funds from Central Bank and is

q approaching AML Department to verify status of contracting company

nCentral Bank requests transfer of funds from the Development Fund for Iraq (DFI) to Trade Bank of Iraq to cover the credit. DFI recently been extended by Security Council until 31.12.2010

nTimeframe should be 2-3 weeks, in reality it takes 2-3 months

IRAQI BANKING SYSTEMTrade Bank of Iraq

IRAQI BANKING SYSTEM

nTBI commenced operations in 2003 through consortium led by JP Morgan.

nTBI is the most prominent bank in international business, doing "only" abt. 30 % of total number of l/c's but more than 90 % in volume.

nTBI is providing the private banks with an IRU for "small credits".

nClose cooperation with Central Bank and Ministry of Finance

nExclusicve role for huge projects (infrastructure, power etc.)

nRecently TBI is acting through correspondent banking network with UniCredit Bank AG Munich being one of their EUR - & USD-banking partners.

8Munich, 21.04.2010

nTBI commenced operations in 2003 through consortium led by JP Morgan.

nTBI is the most prominent bank in international business, doing "only" abt. 30 % of total number of l/c's but more than 90 % in volume.

nTBI is providing the private banks with an IRU for "small credits".

nClose cooperation with Central Bank and Ministry of Finance

nExclusicve role for huge projects (infrastructure, power etc.)

nRecently TBI is acting through correspondent banking network with UniCredit Bank AG Munich being one of their EUR - & USD-banking partners.

TRADE BANK OF IRAQ The consortium

nTBI was established on July 17, 2003 by order of the Coalition Provisional Authority (CPA) and operational in December 2003

nOwnership: 100 % Government of Iraq

nRun by a banking consortium led by JPMorgan Chase

nConsortium banks could issue letters of credit on behalf of Trade Bank of Iraq enabling TBI to start operations immediately after commenced operations.

nHypoVereinsbank acted as the sole German banking institutions being a member of this consortium.

q "participating bank" (from 2003, operative in 2004)

q "operating bank" (from 2005 to date)

nconsortium terminated with effect at March 31, 2010

TBI CONSORTIUM

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nTBI was established on July 17, 2003 by order of the Coalition Provisional Authority (CPA) and operational in December 2003

nOwnership: 100 % Government of Iraq

nRun by a banking consortium led by JPMorgan Chase

nConsortium banks could issue letters of credit on behalf of Trade Bank of Iraq enabling TBI to start operations immediately after commenced operations.

nHypoVereinsbank acted as the sole German banking institutions being a member of this consortium.

q "participating bank" (from 2003, operative in 2004)

q "operating bank" (from 2005 to date)

nconsortium terminated with effect at March 31, 2010Munich, 21.04.2010

FINANCING

FINANCING

private sector projects public sector projects

Public investments funded by the DFI ("DevelopmentFund for Iraq"). DFI legally based on UN resolutions 1483/2003 + 1546/2004.Disposition of the funds verified by international gremiumIAMB (International Advisory Monitoring Board).

Trade Bank of Iraqupto USD 2mn selected Iraqi private banks

Iraqi Private banks backed by a reimbursementundertaking provided by TBI

10Munich, 21.04.2010

undertaking provided by TBIseveral Middle East banks acting as cooperation partneron behalf of Private banks exceeding USD 2 mn Trade Bank of Iraq / exclusively

"state-of-the-art" instrument: letter of creditto be confirmed by bank of exporter

standard payment terms: "at sight"usually with a 10-20 % final payment covering the warranty period

ECAs & MULTILATERAL DEVELOPMENT BANKS

nIn November 2005 German EulerHermes signed a framework agreement with Ministry of Finance, Baghdad and Trade Bank of Iraq to cover short-term export transactions to Iraq with a maximum tenor of 12 months. L/C's to be opened by TBI, guaranteed by the Iraqi Ministry of Finance

nIn October 2009 EulerHermes improved the conditions for coverage:

navailable also for mid-/long-term export transactions (upto 5 years)

nfor short-term transactions upto 1 year: L/C's from Iraqi banks acceptable, guarantee from Ministry of Finance no longer required.

nIn March 2005 the International Finance Corporation, the private sector arm of the World Bank Group, acquired a minority stake of 10 % in Credit Bank of Iraq. IFC’s investment will be undertaken in partnership with National Bank of Kuwait.

nDiscussion with IFC to get Iraqi banks member of their Global Trade Facilitation Program.

ECAs & MDBs

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nIn November 2005 German EulerHermes signed a framework agreement with Ministry of Finance, Baghdad and Trade Bank of Iraq to cover short-term export transactions to Iraq with a maximum tenor of 12 months. L/C's to be opened by TBI, guaranteed by the Iraqi Ministry of Finance

nIn October 2009 EulerHermes improved the conditions for coverage:

navailable also for mid-/long-term export transactions (upto 5 years)

nfor short-term transactions upto 1 year: L/C's from Iraqi banks acceptable, guarantee from Ministry of Finance no longer required.

nIn March 2005 the International Finance Corporation, the private sector arm of the World Bank Group, acquired a minority stake of 10 % in Credit Bank of Iraq. IFC’s investment will be undertaken in partnership with National Bank of Kuwait.

nDiscussion with IFC to get Iraqi banks member of their Global Trade Facilitation Program.

Munich, 21.04.2010

Purpose:

Financing of individual supply contracts for the deliveries of capital goods from

Germany or other European/overseas countries to Iraq. Loans concluded within

this scheme will be mainly insured by international Export Credit Agencies (ECAs).

Export Credit Agencies (ECAs)

Export Credit Agencies (ECAs)long-term financing

Concluded between a local borrower (e.g. Public Company, Ministry or Trade Bank of Iraq) and UniCredit Bank

Financing Agreement

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Concluded between a local borrower (e.g. Public Company, Ministry or Trade Bank of Iraq) and UniCredit Bank

Provided by the Ministry of Finance of the Republic of Iraq

Cover given by the respective Export Credit Agency (ECA) in the country of the Exporter

q upto 85 % of eligible project value

q upto 5 years repayment structure

Financing Agreement

Guarantee

ECA Cover

Munich, 21.04.2010

Export Credit Agencies (ECAs)structure of an ECA backed facility

Export Credit Agencies (ECAs)

Buyer in Iraq Supplier

Supply Contract

Exporter’s CommitmentCredit line

Shipment

Disbursment

of the facility

Ministry of Finance

of Iraq

13Munich, 21.04.2010

ECA

Public company /

Iraqi Ministry / TBI Financing Agreement

Cover

Credit line

ECA

Ministry of Finance

of Iraq

PERSPECTIVES

nThe general economic picture has substantially improved. Iraq’s trade volumes continue to grow and substantial investment opportunities are emerging. However no external rating (Fitch, Moodys's, S&P) available so far.

nAs a major step in June 2009 Iraq startet to sell licences on Iraqi oil/gas production for the first time after a period of more than 4 decades (Rumaila) to get "fresh money" to the country. First awarded company was British BP and Chinese CNPC. By another auction in December 2009, Shell/Petronas was awarded for one of the worlds largest unexploited oil field (Madschnun).

nBy a very positive & favourable investment law paired with an enormous need in infrastructure, capital goods and reconstruction, Iraq is an attractive country for investments.

nUniCredit is well postioned to manage the commercial business and to develop and implement a suitable, simple and cost-efficient financing scheme based on ECA cover to promote and finance European/Iraqi trade.

PERSPECTIVES

14

nThe general economic picture has substantially improved. Iraq’s trade volumes continue to grow and substantial investment opportunities are emerging. However no external rating (Fitch, Moodys's, S&P) available so far.

nAs a major step in June 2009 Iraq startet to sell licences on Iraqi oil/gas production for the first time after a period of more than 4 decades (Rumaila) to get "fresh money" to the country. First awarded company was British BP and Chinese CNPC. By another auction in December 2009, Shell/Petronas was awarded for one of the worlds largest unexploited oil field (Madschnun).

nBy a very positive & favourable investment law paired with an enormous need in infrastructure, capital goods and reconstruction, Iraq is an attractive country for investments.

nUniCredit is well postioned to manage the commercial business and to develop and implement a suitable, simple and cost-efficient financing scheme based on ECA cover to promote and finance European/Iraqi trade.

Munich, 21.04.2010

PERSPECTIVES

PERSPECTIVES

15Munich, 21.04.2010

Iraq is open for business

with thanks taken from TBI

UniCredit Corporate & Investment BankingUniCredit Bank AG

Ralph EckleDirector

Trade Risk Facilitation Manager Iraq UCI Group coordinator – Multilateral Development BanksGlobal Financial Institutions & Trade Finance Global Transaction Banking

Tel. +49 89 378 26597 – Fax +49 89 378 26598 Mobile +49 170 7930085Ralph.Eckle@unicreditgroup.de

Imprint

UniCredit Corporate & Investment BankingUniCredit Bank AGGTB4F2Tucherpark 180538 Munich

Your contact

Chapter Title – Chapter Section Title

16

UniCredit Corporate & Investment BankingUniCredit Bank AG

Ralph EckleDirector

Trade Risk Facilitation Manager Iraq UCI Group coordinator – Multilateral Development BanksGlobal Financial Institutions & Trade Finance Global Transaction Banking

Tel. +49 89 378 26597 – Fax +49 89 378 26598 Mobile +49 170 7930085Ralph.Eckle@unicreditgroup.de

Imprint

UniCredit Corporate & Investment BankingUniCredit Bank AGGTB4F2Tucherpark 180538 Munich

Munich, 21.04.2010