Guarantee firm set up to help Asian companies

JAKARTA (JP): The International Finance Corporation (IFC), an affiliate of the World Bank, and the Financial Security Assurance (FSA) will soon establish a financial guarantee company to operate in Asia.

The planned guarantee firm, to be named the Global Guaranty Association, is expected to be headquartered in Singapore, the two financial companies said in a joint press statement made available yesterday.

The association's primary business would be to provide guarantees for infrastructure financing and security measures in emerging markets with an initial focus on Asian countries.

"FSA and IFC plan to approach several major institutions to discuss the feasibility of the proposed venture," the statement said.

The Financial Security Assurance is the first financial guarantor outside the United States, providing a guarantee for the first British residential mortgage-backed transaction in 1987, while the International Finance Corporation, a member of the World Bank Group, is the largest multilateral source of equity and loan financing for private sector projects in developing countries.

Since their inception in the early 1970s, the use of financial guarantees have been an effective means of lowering costs and achieving access to capital markets. For investors, such guarantees offer credit protection and enhances liquidity in the secondary market.

Among the kinds of transactions the association will provide are credit enhancement for power projects, toll roads and water treatment plants, as well as asset categories such as residential mortgage loans, credit card receivables, automobile loans and leases, trade receivables, equipment leases and personal consumer loans.

"These transactions could be structured for distribution in both the public and private domestic sectors and international capital markets," the statement said. (hen)