Chile bond issue could become cash-raising model

April 18, 2003

The International Finance Corporation, the private-sector arm of the World Bank, is piloting a bond issue project in Chile that it hopes could be a model for raising money for developing world universities.

The IFC has agreed to provide a partial guarantee underpinning the sale of the bonds by the Universidad Diego Portales, Santiago, one of Chile's leading private universities.

Guy Ellena, IFC health and education department director, said: "This structured bond is the first capital markets transaction for a higher education project undertaken by the IFC, and we hope to replicate its success in other parts of the world." This is the first such future cash flow securitisation by a Latin American university.

The $22 million (£14 million) bond issue will be based on predicted cash flows from tuition fees. Up to $6.6 million of the issue will be guaranteed by the IFC. The project's eight-year bonds have received an AA rating through such credit assistance of a World Bank body.

Nina Shapiro, IFC finance vice-president, said: "This type of innovative form of IFC financing is good for our clients and also helps to develop domestic capital markets."

The university said that it intended to use the bond issue to finance expansion and modernisation, and to provide additional space needed to accommodate increased student enrolment in recently launched programmes in medicine, engineering and the humanities.

The university is working with the municipality of Santiago to create an urban campus with stronger links to the community and neighbouring universities.

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