World Bank’s arm seeks to prevent wave of bankruptcies

Bloomberg

The World Bank Group’s arm for the private sector is working to stave off widespread bankruptcies in developing nations that could be even worse than the coronavirus’s impact in advanced economies, according to its chief.
The International Finance Corp. (IFC) has $8 billion to lend in its initial pandemic response for emerging nations, Chief Executive Officer Philippe Le Houerou said in an interview on. The total consists of $2 billion to lend directly to businesses that need more cash and $6 billion of loans through banks. The institution had about $43 billion of outstanding loans as of December 31.
The IFC has received 315 requests for financing from companies and small- and medium-sized enterprises in 70 countries, Le Houerou said. The goal is to keep those businesses afloat to prevent mass layoffs that could fuel a social crisis. The institution can move fast on approvals because the loans are limited to existing borrowers who are already vetted, Le Houerou said.
Philippe Le Houerou, executive vice president and chief executive officer of International Finance Corp., speaks during the World Economic Forum on Latin America in Buenos Aires, Argentina, on Friday, April 7, 2017. The World Economic Forum on Latin America will explore the challenges, risks and opportunities for Latin America in this transitional period.
“There will be a lot of companies that will have a liquidity problem,” said Le Houerou, who has led the IFC since 2016. “If they are not helped, they may be pushed into bankruptcy, and in some countries the bankruptcy law is very tight, very difficult, and it’s very hard to recover. So the thing is to keep them alive.”
The IFC funds are part of up to $160 billion that the broader World Bank group plans to deploy over 15 months to support virus measures, President David Malpass said last week. Of $14 billion in fast-track financing announced so far, $6 billion has come from the World Bank for governments, and the rest from the IFC for businesses.
The IFC sold its biggest ever social bond for $1 billion last month in the middle of the market rout, something that could be repeated in the future, Le Houerou said. He added that he’s comfortable with the institution’s current funding.
The IFC typically offers advisory services, investment, and in the past few years has been increasing activity in project design for industries including infrastructure, manufacturing and agribusiness. Its focus now is on alleviating the squeeze on borrowers after more than $90 billion in capital was withdrawn from emerging markets. Le Houerou said he also expects a drop-off in foreign direct investment. “The working capital, the liquidity issue, is starting to bite,” he said.