Bancomext Emergency Liquidity and Working Capital Programs
This summary covers an application made by Banco Nacional de Comercio Exterior (Bancomext) to cover a proposed lending facility to be provided to Bancomext by lender(s) yet to be identified.
MIGA’s coverage has been sought in relation to a Non-Honoring of Sovereign Financial Obligations by a State-Owned Enterprise (NHFO-SOE) guarantee for up to US$800 million to cover an up to US$600 million US dollar debt financing structure with a tenor of up to 6.6 years.
The MIGA-guaranteed loan(s) will be used by Bancomext to finance companies under (i) the Emergency Liquidity Program that the bank recently launched in response to the COVID-19 crisis, as well as (ii) other facilities that will provide working capital to companies across key exporting sectors of the Mexican economy, including the tourism, manufacturing, automobile and aeronautic industries. The liquidity provided by Bancomext through the MIGA-guaranteed loan(s) would provide much needed working capital to help Mexican companies, mainly to (i) preserve employment, (ii) pay expenses related to the upkeep of assets, (iii) make payments to suppliers to maintain the supply chain, and (iv) cover costs related to restarting operations.
As described above, the proposed Project involves targeted loans under the (i) Emergency Liquidity Program and (ii) other facilities that will provide working capital to companies across key exporting sectors of the Mexican economy. The additional working capital lines will also cover operational costs of companies in key sectors, including the tourism, manufacturing, automobile and aeronautic industries. Given the targeted use of proceeds in business activities that are expected to have low to moderate Environmental and Social (E&S) risks, this Project has been categorized as FI-2 according to MIGA’s Policy on Environmental and Social Sustainability (2013).
The Project will not support any corporate/project financing activities with significant E&S impacts such as (a) involuntary resettlement, (b) risk of adverse impacts on Indigenous Peoples, (c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, or (d) significant occupational health and safety risks. It will also not support any activities related to coal such as coal mining, coal transportation, coal-fired power plants, or infrastructure services dedicated to support any of these activities.
Bancomext is a Mexican state-owned bank established in 1937 with the objective of promoting and developing foreign trade activities of Mexican companies and fostering the expansion of the productive capacity of Mexican export firms. Bancomext operates as the national export credit agency, focusing on financing export and import activities to the private sector, both directly (approximately 89% of total loans) where the MIGA facility will be used and via other financial institutions (22%) (out of scope of the Project).
MIGA analyzed the portfolio of Bancomext for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. As of December 2019, Bancomext portfolio composition per segment was 61% corporates, 28% Project finance and 11% via financial institutions that support Small and Medium Enterprises (SMEs). The bank’s largest industry exposures (corporate and project finance) include tourism, energy (utilities, renewable energies), aeronautic industries, automotive, transport and logistics, telecommunications, mining and metallurgy, among others. Bancomext does not have exposure to sectors on the MIGA Exclusion List, coal-related activities or palm oil. There is also very little exposure to upstream oil ang gas.
The potential risks in these types of investments revolve around occupational health and safety, pollution prevention and mitigation, and community health, safety and security. Bancomext will be required to assess all loans within the relevant financing operations against the MIGA’s Exclusion List, applicable E&S laws and regulations, and the MIGA Performance Standards.
In 2017, Bancomext implemented a comprehensive Environmental and Social Management System (ESMS) in line with MIGA’s Performance Standard 1 to identify, manage and avoid E&S risks. The ESMS states the Bank’s commitment to environmental and social management and includes the following: 1) screening transactions against Bancomext’s exclusion list (overall aligned with MIGA’s Exclusion List); 2) categorize transactions based on their E&S risk, 3) conduct E&S due diligence and 4) monitor the client’s E&S performance. The Bank has a qualified team of 5 staff trained to manage E&S risks and impacts covering its direct credit line (project finance and corporate lending).
Bancomext publicly discloses in its annual report the E&S risk composition of its Portfolio including the total number of transactions that were screened including the E&S risk categorization and in which sectors. Bancomext also publicly discloses a summary of its ESMS on the Bank’s website.
MIGA also considered the business continuity, emergency response plan and human resources and labor policies and practices of Bancomext and determined that these are being managed in line with the requirements of MIGA Performance Standards 1 and Performance Standards 2. Bancomext Human Resource policies and procedures include conditions of employment and compensation, working time, benefits and performance management, non- discrimination, grievance redress, provisions for the employees’ organizations.
Based on MIGA’s review, Bancomext is in compliance with MIGA’s E&S requirements. Bancomext will report periodically to MIGA on the breakdown of the portfolio, implementation of the ESMS and all applicable E&S requirements.
The Project provides timely support to Bancomext, the Mexican government’s export credit agency, in the face of the COVID-19 crisis. Mexico’s exporters have been suffering from the effects of the crisis given the weak global external demand and widespread supply shocks in regional and global value chains. Export revenues, which account for about 40% of GDP, have been contracting sharply. The MIGA-backed facility will be directed to Mexican exporters under liquidity stress, providing financing that is expected to support working capital needs, thereby helping preserve employment amongst other economic benefits. The facility will contribute to Bancomext’s broader COVID-19 response programs, while supporting its funding strategy.