Directory of Innovative Financing: Jordan

Jordan

Project Title: Telecommunications Corp. of Jordan Eurobond

Country: Jordan

Issue Amount: $50 million

Sector: Telecommunications

Status: Successfully sold in international capital markets, September, 1995.

Sponsors/Lead Manager: Telecommunications Corp. of Jordan (TCC) with World Bank guarantee, using Paribas Capital Markets and ANZ Grindlays Bank as lead managers.

Purchaser: International institutional investors.

Financing Package: Seven-year floating rate notes priced at 110 bp over LIBOR.

Innovation: The World Bank guarantee covered principal repayment only on a non-accelerable basis, allowing state-run basic service monopoly TCC to become the first Jordanian issuer in the Eurobond markets. Without the guarantee, TCC would not have been able to borrow hard currency on such favorable terms from the broad pool of institutional investors found in the Euro markets and would have had to stick with aid donor financing or borrowing on credit markets at maturities of no more than two years.

The issue carried debt-equity conversion terms so that in the event TCC undergoes privatization, bondholders can be offered a share conversion option - at which time the World Bank guarantee would fall away. Those terms are expected to help establish a potential equity investor base for the future TCC, as almost none of the purchasers of the Euro issue had ever bought Jordanian paper before and would not have without the presence of the World Bank guarantee. To obtain that guarantee TCC paid the World Bank a fee of 25 bp per annum, discounted back to net present value at the time of purchase in September, 1995.

Brief: The World Bank designed this operation to attract private sector cofinancing for its $20 million 1994 loan to TCC, which is undergoing an expansion program intended to double its number of installed lines by 2001. The state-run entity is also undergoing commercialization as a first step to eventual full privatization. The World Bank was only willing to issue the guarantee after growing satisfied with the government's sectoral reforms and new regulatory policy designed to begin opening up telecom service provision to competition and make TCC an autonomous corporate entity. With the guarantee, TCC entered the Euro markets on favorable terms, and is expected to reduce its traditional dependency on donor assistance.

The transaction was structured in similar fashion to the World Bank's first guarantee for a capital market financing, the Philippine National Power Corp.'s July, 1994 $100 million, 15- year combined Euro and US 144a markets issue that priced at 250 bp over US Treasuries. That deal carried a put option fee of 0.5% per year on the $100 million World Bank exposure. The guarantee will be used to generate private cofinancing for the World Bank's related $227 million loan for the $1.3 billion, 440Mw Leyte-Luzon geothermal power project. With the guarantee, the issuer was able to price its bonds at a full 100 bp lower than the country's top corporate, Philippine Long Distance Telephone Co., had received in its most recent 10-year international bond offering.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07