Reshaped and cashed up, IIC plans a big year for lending

Reshaped and cashed up, IIC plans a big year for lending

Bonds Structured Finance Funds Interviews

After a merger, a hiring spree and a year of soul-searching, the new Inter-American Investment Corporation is set for an even busier year ahead. It plans to increase lending by 25%, to around $3 billion, roll out a range of new investment activities, and invert its Washington-heavy footprint, chief executive James Scriven says.

“Even though we had a very good year in business last year, this year it’s going to be amazing,” he tells LatinFinance. “The uncertainties that are happening for different reasons in the region are calling upon our institution in a catalytic role, in a counter-cyclical role. If you had thought in the past we would have had time to transition over a few years, now we don’t have that luxury. Our transition was last year, we’re up and running and we’re ready for business, because our clients need us.”

The institution has dramatically reshaped over the past year, as the Inter-American Development Bank merged its four private-sector operations into a single unit. Human talent and looking after clients were two of the main focus areas during the transition, says Scriven.

“When I joined the institution, we were bringing together two different cultures that had suffered from the merger process. By suffered, I mean the uncertainty of job security. So bringing those two cultures together — that was the former private sector of the IDB called the [structured and corporate finance department] plus the IIC — in addition to the new people coming in.

“There was a big effort there including what we called a 'knowledge week', where we brought the whole group, over 400 people, together in October. There were a lot of mini-town halls.”

When it comes to looking after the client base, Scriven says the first priority was to make sure the 330-plus clients did not feel worse-off during the transition. But it also involved a new strategy, which is to be executed this year, of rebalancing the location of staff. Historically, around 90% of staff were based in Washington DC. That is set to change.

“We’re going to have a presence in all our 26 member countries. We’re going to concentrate support staff in four hubs: Port of Spain, Panama, Bogotá and Buenos Aires. In addition to that, we’re going to expand significantly two offices: one in Mexico and one in Brazil. And in Brazil, the IDB’s office was in Brasília and we’re opening an office in São Paulo. That’s going to be launched in May.”


Expanding the product base

In the months ahead, the IIC plans to expand the pool of financing options it offers to clients.

“We want to be a solutions bank to our clients,” says Scriven. “It’s difficult to say you’re a solutions bank if the solutions to all your problems are a dollar loan. When we have a wider range of products to offer, that interaction with clients is stronger.”

For a start, it’s increasing its range of local currency disbursements. The IIC has lent money in Brazilian reais, and Mexican and Colombian pesos in the past. This year, it hopes to add Paraguayan Guaraníes and Dominican pesos to the list.

“We plan to launch a bond in Gauraníes during the annual meetings, to be able to on-lend to clients that are requesting local currency. Shortly after that, the Dominican Republic is coming in the pipeline. And we’re also exploring other countries in which we can do that.

“We don’t issue just to create a yield curve, we issue because we on-lend. The investor base has to match with the pipeline generated.”

At the same time, it is looking beyond pure loans, to consider equity and hybrid capital solutions.

This article was published in the March/April 2017 issue of LatinFinance magazine. Read more from the latest magazine issue here.

“This has been a traditional product that we have not developed. Our experience has been small compared to other institutions. We’ve hired a group of people and consultants who can help us develop this. So we have this product available, but our capacity is going to grow with our knowledge of that sector.”

Hybrid and convertible instruments are on the table not just for financial institutions in Latin America, but also for corporate clients, he says.

“Many companies approach us or are interested in longer term capital at risk, and not only loans. They ask us to be part of their shareholding structure, or to be on their board of directors. And that’s where we interact much more with the client on a longer term basis. Before we did not have that available and now we do.”

Scriven also has new industries in his sights. Of the disbursements in the year just gone, 45% went to infrastructure projects. That’s more than twice the typical proportion. And where transport and energy have been the mainstays of the IIC’s infrastructure lending in the past, now it will also focus on social infrastructure — in health and education — and water and sanitation.

“We’ve done a few deals last year, one in Ecuador for example, in Guayaquil, in the water sector. But this is going to be much more present than before.”

Additionally, tourism, technology, media and telecoms are on the agenda for funds this year. That expands the IIC’s traditional focus on manufacturing and agribusiness specialties for corporate lending.

“Tourism is going to be critical for our engagement and interaction in the Caribbean and Central America. And TMT is where we’re seeing new disruptive investments that would help us in our impact.” LF


James Scriven on…

Prudent growth

“While we were growing our balance sheet, prudent growth and financial sustainability is a fourth axis of our strategy for the year. There, we’re happy to see an upgrade that we got of our Moody’s rating and also recently Fitch reaffirmed our triple-A rating. But what we’re most proud in the document is it says that our risk management group is excellent. I’ve never seen that in writing —  not even at the best banks in the world.”

Development power

“Historically, the IDB group internally has seen that it wasn’t as effective in the private sector as it was in the public sector. So a lot of the thinking is: what is our strategy? How do we want to interact and have an impact on the region? And as part of that, we created a tool called DELTA, which is an ex-ante development tracking system. Basically, what we do is rate the development of the work we plan to do. That has been a very rewarding tool to view the trade-offs between risk and development. ”

Investment criteria

“When we look at an investment, there are three things that we look at. One is the impact of the work we do. We go for highly developmental investments. Things that can be done by others, we don’t do. We don’t crowd out the private sector. We opt for things that the private sector is not willing or able to do. And we don’t subsidize. We price at market rates. The deals we leave off the table don’t go through those three things.” LF