41223 - DCM HKL LCY Bond

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Summary of Investment Information

Project Number

41223

Company Name

HATTHA BANK PLC.

Date SPI Disclosed

May 2, 2018

Country

Cambodia

Region

East Asia and the Pacific

Projected Board Date

Jun 15, 2018

Environmental Category

FI-3 - No Impact

Status

Completed

Last Updated Date

Dec 24, 2021

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jun 7, 2018
Signed : Oct 19, 2018
Invested : Nov 13, 2018

Sector

Microfinance and Small Business - Non Commercial Banking

Additional Project Attributes

Blended Finance

Project Description

The proposed project involves IFC investment in the first local currency bond of up to US$20 million equivalent issued by Hattha Kaksekar Limited (“HKL” or the “Company”), which will help create the debt capital markets in Cambodia (the “Project”). HKL is an existing portfolio client of IFC and one of leading microfinance deposit taking institutions (“MDI”) in Cambodia. HKL started operations in 1994 and as of December 31, 2017, operates with an asset base of around US$691 million, serving close to 118,000 borrowers. HKL provides loans, savings, and other inclusive financial services countrywide, in particular to women and farmers in rural areas. The funding shall be used to support the growth of the its lending program to micro borrowers.

The Project will potentially be supported by the Local Currency Facility of the International Development Association (“IDA”) 18 IFC-MIGA Private Sector Window, created by the Word Bank Group to catalyze private sector investment in IDA countries, with a focus on fragile and conflict-affected states.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	20.0
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Straight Senior Loan	Loans to Microfinance Borrowers

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

Stakeholder Impact: - The Project shall support HKL's financial capacity to increase local currency ("LCY") financing therefore leading to improved quality of finance better suited to the needs of MSMEs particularly women, farmers and borrowers in rural areas leading to increased economic activity. Hence it will likely help create indirect employment and jobs and contribute towards the World Bank Group's goal of reaching Universal Financial Access by 2020. Market Impact Assessment: - Integration: The Project will help develop a corporate bond market in Cambodia through market enabling channel, which will help mobilize domestic savings in LCY, and promoting local currency usage. - IFC's investment in the first LCY bond issued by a MDI would support the creation of the domestic corporate bond market through demonstration of a new viable source of medium to long term LCY debt instrument. The local currency bond issuance would create a bond pricing benchmark in KHR. Additionally, an IFC offshore KHR issuance would also help to catalyze capital market development. - Increased usage of LCY financing would help lead to gradual de-dollarization. A high level of dollarization (i) increases the vulnerability of banks with respect to liquidity risk and (ii) limits the scope of the country's exchange rate and monetary policies. Promoting the use of LCY indirectly helps contribute towards a higher degree of exchange rate flexibility in the medium term, which would help the economy regain competitiveness in the context of US Dollar appreciation under dollarization.

- Financing Structure: The Project aims to help the Company develop a new source of funding in LCY, which can be replicated by HKL and other players to help develop the local debt capital markets and increase access to LCY financing thus contributing towards de-dollarization. IFC will leverage its global experience in local bond issuances to help HKL issue the first bond in the country. Through the bond issuance, HKL will be able to diversify its sources of funding, thereby reducing the liquidity and FX risks, and adding stability to its funding base. With access to LCY, HKL will be able to offer LCY loan product which are better suited to the needs of its borrowers. - Catalyzing Policy Framework: The Project shall be the first to test the legal framework for issuing LCY bonds in the market. IFC will bring its global expertise (partnered with World Bank) to test the local bond market infrastructure for this initial transaction, and to ensure that it is a successful benchmark for other transactions going forward. - Knowledge, Innovation and Capacity Building: Given the nascent capital markets in Cambodia, IFC's engagement with HKL to structure the bond and set the pricing benchmark will build capacity in a manner not currently available with offerings form other financial institutions. The structure will provide a major signal of confidence to the local capital markets that would encourage other issuers and investors to follow suit.

E&S Category Rationale / Risks and Mitigation

The proposed Project is an investment in HKL's bond to support its lending program in Cambodian Riel to micro and SME borrowers including rural farmers and women and has been categorized as FI-3 in accordance with IFC Sustainability Policy. HKL is a Cambodian microfinance institution providing financing services to predominantly to individuals and micro enterprises. This bond will also support HKL is expending its offering to SME customers. The key sectors supported under HKL's lending include agribusiness, trade, services and land & house purchase. The E&S risk associated with the lending is considered as medium-low and can generally be readily addressed through standard mitigation measures. The Project will be required to comply with IFC Exclusion List and host country E&S laws and regulations.

Contacts

For Inquiries About the Project, Contact

Hattha Kaksekar Limited
Hout Ieng Tong
President and CEO

iengtong.h@hkl.com.kh

www.hkl.com.kh

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