AmCham partners with ISEL to bring in US investment to Sri Lanka

 By Cheranka Mendis

 The American Chamber of Commerce (AmCham) in Sri Lanka yesterday signed an agreement with International Executive Service Corp (IESL) to promote investment in the country by offering fixed rate low cost financing for businesses.

IESL acting as a loan originator for Overseas Private Investment Corporation (OPIC) have picked Sri Lanka as the country has been noted as a fast developing market which has secured the position of the world’s fourth best growing country. Capable of financing up to US$ 250 million for projects in Sri Lanka, on long term, fixed interest rates scheme, the loans will have relative low rates such as 4-7% on up to 10-year loans and 4.75-7.75% on longer-term loans.

The time period of loans extended through the agreement are long term loans of 3-15 years on corporate and project loans and three to eight years on franchise loans.

Sectors such as clean energy and energy efficiency, financial services and micro finance, education, water, housing, franchising, infrastructure and tourism have been identified as key priority sectors.

IESL Vice President Charles Conconi noted that the time is now right to put Sri Lanka in the global map for investment in the USA which has been skittish to do so till the recent past.

With returns on investment in USA being dismal at the moment; Sri Lanka is looking really good for the market according to Conconi who said: “Sri Lanka’s exchange rate is favourable and the friendliness and ease of operation in the country supports investment plans from overseas parties.”

IESL providing long term fixed rate loans to US companies interested in investing overseas and Political Risk Insurance to protect US investments in host countries tied up with AmCham for its strong membership network (many with US ownership) and members being already attuned to US investor needs among others.

AmCham will support the endeavour by identifying possible investment opportunities, informing the business community, and liaising with potential investors and introducing top quality Sri Lankan companies. The Chamber will also assist in providing investment climate and business environment information to interested investors and assist in the formalities of the application process.

For the loan to pass through, the country generally requires 25% US equity participation with a preferred debt to equity ratio of 60/40. Conconi stated that the companies looking for loans should be environmentally and socially sustainable, have no negative impact on the US economy and encourage positive development effects in Sri Lanka.

“It takes on average about 9-12 months to complete a transaction. The only setback is the bureaucracy; but we think we know how to handle it.” 25% US equity participation and the preferred debt to equity ratio of 60/40 are somewhat negotiable – particularly for “priority” investments (e.g. alternative energy), franchise investments, or the expansion of a successful business, he admitted.

“Eligible investment for the loan includes Greenfield investments, expansions and modernisations of existing plants, privatisation, and acquisitions of existing operations.”

OPIC does not offer financing of export sales unrelated to long-term investment. Conconi noted: “For Sri Lankan organisations with a robust, profitable business idea, but lacking the required US equity, IESC and AmCham are offering their services to help identify US partners. These could include US citizens or permanent residents (green card), US companies, US subsidiaries in the region and investment funds. We use our networks of US enterprises and investment funds to do this.”

The fee structure of the loan program is that IESL/OPIC will charge a service fee of 2-3% of the total loan amount for loans valued US$3 million and up. This is broken down as retainer fee ($5,000 - $10,000) upon signing the agreement, monthly progress fee ($2,500 - $5,000), success fee payable only upon completion of the loan

On political risk insurance provided through the scheme, up to 90% for equity investment is covered while the maximum compensation is US$250 million per project. He noted that the term of coverage is up to 20 years for equity or for the term of loan, lease or underlying agreement for the insured investment. Premium rates are fixed for term of OPIC insurance contract.

When asked how the case of expropriation law which has caused agitation among investors will affect the loan scheme, Conconi noted that a larger risk premium will be charged in industries that IESC might consider as risky.

AmCham President Vijaya Ratnayake stated that the AmCham through the program will assist in getting direct investment to Sri Lanka, and will, “Assist our members and Sri Lankan companies to carry forward their projects for the development of the country.” He noted that a special six member committee has been appointed to handle the ISESC partnership. Keith Bernard is to act as advisor. “The Chamber is ready to help member and non member companies and other companies to increase trade and investment between the two countries.”

    Pic by Upul Abayasekara