IFC eyes non-performing assets

The International Finance Corp. (IFC) is looking for other possible investments in the market for non-performing assets (NPAs) following the successful acquisition of the bad loans of the National Home Mortgage Finance Corp. (NHMFC).

The IFC said yesterday that the NHMFC deal was a replicable model for the NPA market that could be used for similar acquisitions of bad loans that could be rehabilitated by asset management companies.

IFC country manager Vipul Bhagat said the IFC has signed a commitment letter to provide about $30 million worth of loans for the Balikatan Housing Fund, the asset management company that bought the non-performing loans of the NHMFC.

According to Bhagat, however, the NPA and NPL market still had ample room for similar arrangements where multilateral agencies and private asset management funds could pool together to acquire similar portfolios.

"The good thing about the NHMFC deal is that it fit very well with our other major concern, namely housing," Bhagat said. "We are very pleased to play the role of an honest broker in this project."

The IFC has been in negotiation with several domestic banks since last year to explore the possible acquisition of bad loans and bad assets under the Special Purpose Vehicles Act (SPVA).

IFC, the World Bank’s investment arm, participated as a creditor and equity investor in BHF which acquired the bad loans of the NHMFC.

Bhagat said, however, that there were more opportunities in the market.

"None of them are advance enough for me to identify but we are talking with several and we are optimistic," Bhagat said. "We think it is necessary to demonstrate that this scheme is workable and even profitable."

The IFC said earlier that the negotiations that were on-going involved significant transactions that would cover the sale of a significant portfolio of NPAs and NPLs.

"It doesn’t make sense to do it small so these transactions are, I would say, significant in terms of portfolio size," he said.

As a rule of thumb, IFC’s participation in investment ventures was usually up to 20 percent equity and 50 percent of the debt financing.

Philippine officials have been trying to persuade the cash-rich organization to help jumpstart the unloading of bad loans in the financial system under the SPVA.

IFC reported earlier that they have so far invested a total of $120 million in the Philippines, the third largest investment it had in East Asia.

IFC’s largest exposure was in China, amounting to $300 million, followed by Indonesia where its exposure amounted to $150 million.

IFC was even interested in a possible currency swap similar to the one undertaken by the Asian Development Bank (ADB) although the NHMFC was the first of such deals to be completed.

NHMFC’s total portfolio was estimated to be at P42 billion and its total NPL was estimated at 30 percent of this portfolio. NHMFC could apply the sale of the NPL portfolio for incentives under the SPVA program which would allow the corporation to book its losses arising from the discounted sale over a period of seven years.