Finance & Loans
FMO finances commercially viable companies and projects through a variety of finance products and services – designing our funding packages to match each client’s situation, needs and interests.
FMO provides loans to private sector companies and projects, offering direct medium and long-term loans at both fixed and variable interest rates.
Our loans are characterized by:
- Typical maturities of 3 to 12 years at signing.
- A principal repayment grace period where appropriate.
- Denomination in the local currency wherever possible.
FMO limits participation to up to 25% of a company's balance sheet, or 25% of the project’s total estimated investment costs.
But our involvement, reputation and experience often gives incentive for other commercial banks to open up their services, mobilizing substantial long-term capital for private sector companies in high-risk markets.
FMO arranges syndicated loans for its clients to connect them with new financiers and to help them raise larger financing amounts in an efficient way.
Under the A/B-loan syndication program, FMO facilitates the participation of other banks in market-priced loans. These banks share in the credit risk and, where possible, benefit from our status as a bilateral development bank. FMO usually acts as the sole lender of record – always retaining a portion of the total loan.
We have arranged several syndicated loans for financial institutions, large-scale infrastructure projects and corporate clients, enabling participating banks to join us, and thus mobilizing significantly more funding than any single bank could generate on its own.
Local currency financing
Funding in local currency is often crucial for reducing the risks linked to exchange rates and interest rates. FMO makes it its business to provide its funding services in local currencies whenever and wherever this is possible.
Why run the risk?
If a company’s revenue is in its local currency and that currency devalues, or if a foreign currency strengthens, foreign currency borrowing obligations will increase. This will potentially threaten the company’s continuity. As FMO, we can provide local currency financing that reduces your risk of losses from such currency mismatches.
Only few local banks are in a position to manage foreign currency mismatches – and foreign banks often do not have the facilities to offer local currency loans with longer tenures as this requires currency risk management.
For more information please click here to download our leaflet about Managing Your Currency Risk (pdf).
Our credit enhancement products provide guarantee structures to private sector companies and financial institutions in emerging markets.
FMO primarily offers credit guarantees for the following financial instruments:
- Trade facilities/letters of credit
- Capital market transactions (bond issues, securitizations)
We structure our guarantees to meet the needs of the borrower, the market and the targeted creditors. In the case of trade facilities, it is common to share risks with another party such as the confirming bank. As part of our syndicated lending program, FMO may also act as underwriter for (a portion of) the guarantee.
Furthermore, FMO’s credit rating (AAA from Fitch Ratings and AA+ from Standard & Poor's) often stimulates the involvement from both local and international investors – helping our clients gain better access to capital markets.
With demand for trade finance increasing in emerging markets, FMO’s Trade Finance Program offers domestic banks proof of reliability through Letter of Credit (LC) confirmation.
FMO can provide a guarantee to the Confirming Bank with which FMO will share the LC confirmation risk – covering both the country and commercial risks of the issuing emerging-market rooted bank.
Recent market crises have highlighted the critical importance of a sound banking system and a well-developed domestic capital market.
For this reason, FMO’s Financial Institutions department is prepared to look for opportunities that contribute to the development of capital markets in our target countries.
Positive impacts from these services can include:
- Balance sheet management
- Risk transfer
- Potential for lower cost of funding
- The possibility of capital relief
- A new investor base
Examples of such transaction structures include:
- Warehouse facilities
- Microfinance and SME loan securitizations
- Remittance securitizations
- Senior and subordinated bond issues.
- Various structured transactions through Partial Risk Guarantees
Lastly, FMO aims to be a catalyst for further (commercial) investor participation.
Many of our clients often face limited access to funding products most suitable to their needs. For this reason, FMO offers tailored Mezzanine finance options – hybrid forms of finance having features of both debt and equity.
Mezzanine finance forms a bridge between two main types of finance: senior secured debt and pure equity financing, with each having a specific form and characteristic. Common forms include a combination of subordinated and convertible loans.
But there is one thing that our various mezzanine instruments have in common – they can be structured flexibly to provide an innovative, tailor-made answer to the specific financing needs of our client.