35030 - DARP Ursa

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Summary of Investment Information

Project Number

35030

Company Name

ProsperoCapital S.a.r.l

Date SPI Disclosed

Jul 31, 2015

Country

Eastern Europe Subregion

Region

Europe

Projected Board Date

Sep 1, 2015

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Sep 21, 2022

Department

Regional Industry FIG LAC & EUR

Industry

Financial Markets

Previous Events

Approved : Nov 5, 2015
Signed : May 20, 2016
Invested : Aug 4, 2016

Sector

Distressed Assets SPV

Project Description

The proposed project consists of an investment in one or more Special Purpose Vehicles (“SPVs”) funded alongside local partner-servicer in Romania. The SPV will purchase a portfolio of non-performing loans (“NPLs”) issued by the Romanian subsidiary of a large regional bank. The NPLs consist of small and medium enterprise (“SME”), small business, and retail. Through the proposed project, IFC would play an important role in (i) providing an attractive mechanism for NPL resolution in the region; (ii) assisting with balance sheet management of the selling bank, increasing liquidity; (iii) mobilize funding from the private sector.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	22.78
Equity

Development Impact

(i) Economic Development: The successful implementation of the project would improve the secondary market for distressed assets in the countries of investment and could catalyze investment interest on the part of other investors. A developed secondary market in NPL trading and servicing is a stabilizing factor in financials systems. This allows the financial institutions selling DAs to reallocate capital to other activities, hopefully, new lending.
(ii) Business Environment: As banks in the region increase the sale of their distressed assets to independent private investors, the transparency of those institutions'' balance sheets should improve as the assets sold would be priced according to market conditions.
(iii) Financial Infrastructure: IFC''s involvement in this project would positively impact the market place by building NPL servicing capacity in the financial markets. The project is expected to increase the ability of financial intermediaries in the country to offload their assets, particularly non-performing ones, improve liquidity and devote resources to originating new transactions

(i) Market Support: Through this project, IFC would support the strengthening of the local financial system by working with a systemically important bank to sell NPLs through (a) the identification of co-investors who have regional risk as well as NPL asset appetite and (b) by working with the bank and co-investors to structure a transaction that works for all.
(ii) Knowledge Transfer: The transaction would transfer best practices for DA collection and resolution, corporate governance and environmental and social management. This is especially important in ECA markets, many of which are experiencing their first financial crisis of significance following the break-up of the former Soviet Union and their first experience with large DA sales.
(iii) Liquidity: The Project would provide liquidity for DA investments, important as liquidity is still scarce for such investments in the Balkans at reasonable rates of return. IFC would, therefore, play a counter-cyclical role by supporting reputable investors with experience in DA internationally as well as growing experience regionally. IFC''s participation in the Project should encourage other private sector players to consider DA investments in the region.
(iv) Local Knowledge: IFC is active in the region and has relationships with local banks as well as regulators. IFC would support the Project through its local contacts and knowledge of local policies and procedures.
(v) Transparency: IFC''s presence should provide comfort as to the transparency of asset pricing in markets where regulators are sensitive to distressed asset sales prices.

E&S Category Rationale / Risks and Mitigation

This project involves creating a SPV to purchase and service a pool of foreclosed and non-performing assets of a Romanian subsidiary of a regional bank. The portfolio includes mostly retail NPLs (above 80%) and collaterized SME NPLs in sectors such as agriculture, construction, retail, and transportation. Based on the indicative portfolio, most SME NPLs are expected to be in legal process and most E&S risks are likely associated with obtaining and selling collateral. However, if SME debtors are still in operations, potential E&S risks and impacts include non-compliance with relevant environmental, health, safety and labor laws, such as not-renewed permits and workers’ benefits not being provided. The project has been categorized FI-2 according to IFC’s Environmental and Social Review Procedure. The servicer is generally found to be in compliance with the IFC Performance Standard 2: Labor and Working Conditions. The seller bank is an existing IFC client for its Romania branch and its SME assets were screened against IFC Exclusion List and local laws prior to becoming NPLs. The SPV will be required to cause the servicer(s) to develop and implement an ESMS to work with the debtors and assets to achieve compliance with the IFC Exclusion List and national E&S laws and regulations, and apply the key principles of IFC Performance Standards if applicable.

Most SME NPLs are expected to be non-operational and not expected to have non-compliance issues with relevant environmental, health, safety and labor laws. However, if SME debtors are still in operations, they may have non-compliance issues with relevant environmental, health, safety and labor laws. While SME NPLs comprises a small part of the portfolio, pursuing collateral of SME NPLs may involve dealing with environmental liabilities (both properties and equipment), forced eviction (properties), and safety and labor issues of ongoing construction sites (properties).

Contacts

For Inquiries About the Project, Contact

Ms. Marta Mueller Guicciardini
Email: mailto:MGuicciardini@ifc.org
Tel: +33 140 693 191

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This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein. It is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following SII is disclosed in accordance with IFC's Access to Information Policy (AIP) that went into effect on January 1, 2012.

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Task Title & Description	Anticipated Completion Date
Nominate officers	08/31/2015
Establish SEMS	08/31/2015

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