TEXT - S&P affirms International Finance Corp

Thu Dec 27, 2012 9:32pm GMT

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Overview
     -- Following a review of the International Finance Corporation (IFC) 
under our revised criteria for multilateral lending institutions (MLIs), we 
have affirmed our long- and short-term issuer credit ratings on IFC at 
'AAA/A-1+'.
     -- The stand-alone credit profile for IFC is 'aaa', reflecting our 
assessment of its "very strong" business profile and "extremely strong" 
financial profile, as our criteria define these terms.
     -- The stable outlook reflects our view that IFC's capital position and 
liquidity are strong enough to withstand a period of severe financial distress 
affecting private sector entities in its countries of operations.

Rating Action
On Dec. 27, 2012, Standard & Poor's Ratings Services affirmed its 'AAA/A-1+' 
long- and short-term issuer credit ratings (ICRs) on the International Finance 
Corporation (IFC). The outlook is stable.

Rationale
The ratings on the IFC are based on its "very strong" business profile and 
"extremely strong" financial profile, as our criteria define these terms. Its 
stand-alone credit profile (SACP) is 'aaa'. We outline these factors in our 
revised criteria, "Multilateral Lending Institutions And Other Supranational 
Institutions Ratings Methodology," published Nov. 26, 2012, on RatingsDirect 
on the Global Credit Portal.

Our "very strong" assessment of IFC's business profile rests on our view of 
its role, mandate, strength of its relationship with shareholders, governance, 
and preferential treatment by shareholders vis-a-vis commercial lenders. IFC 
is a member of the World Bank Group, along with the International Bank for 
Reconstruction and Development (IBRD), the International Development 
Association (IDA), the Multilateral Investment Guarantee Agency, and the 
International Centre for Settlement of Investment Disputes. Although it 
cooperates closely with IBRD, the IFC is legally and financially independent 
of other World Bank Group entities, with its own Articles of Agreement, 
shareholders, financial structure, management, and staff. It was established 
in 1956 to complement the activities of IBRD by encouraging the growth and 
development of the private sector in developing member countries. IFC has 
gradually increased its number of shareholders during the past 56 years: It 
began with 56 members, and currently has 184 members -- second only to IBRD, 
among rated MLIs, in terms of the breadth of global representation among 
shareholders.

IFC pursues its mandate principally by lending to and investing in 
private-sector entities, without government guarantees. Although in the past 
IFC obligors have been exempted from exchange controls when debtors of 
commercial external creditors have not and although the IFC has greater 
influence on governmental policy formation regarding the members' business 
environment, it does not benefit from preferred creditor treatment in the same 
manner as an MLI lending only to the public sector, in our view. 

Our assessment of IFC's financial profile is "extremely strong". IFC had US$76 
billion in total assets at fiscal year-end 2012, of which US$23 billion was 
loans and debt issued by clients and US$10 billion was equity investments. In 
addition, IFC had US$3 billion in guarantees outstanding, bringing its 
purpose-related exposure (PRE) to US$36 billion, or 46% of total assets plus 
guarantees. This relatively low percentage for an MLI is mirrored by IFC's 
unusually high holdings of cash, deposits, and liquid securities, which 
equaled 49% of total assets.

As a global institution, IFC's geographic exposure is well diversified, both 
within countries and aggregating exposures at the country level. In terms of 
aggregate country level exposures, the Republic of India has been IFC's 
largest country of exposure for several years, with about 9% of its disbursed 
investment portfolio at fiscal year-end June 30, 2012. Its five largest 
country PREs totaled less than 33% of total exposure. IFC's high level of 
geographical and sectorial diversification accounts in part for our 
calculation of risk-adjusted capital (RAC) after adjustments of 31% being 
higher than our figure of 18% before adjustments. The main cause of the higher 
ratio after adjustments is, however, the cap to the risk weight for high risk 
exposures, so that the capital allocated does not exceed the exposure amount. 
In addition, IFC's loss experience has been modest. The IFC wrote off US$69 
million in loans during the past two years (less than 0.5% of total loans as 
of fiscal 2012 year-end, and partially offset by recoveries of US$6 million).

We expect IFC to be able to finance a large part of its growth through 
internal capital generation, given its profitable record. IFC recorded net 
income of US$1.3 billion in fiscal 2012, and US$1.5 billion before net losses 
on non-trading financial instruments; the latter measure represented a return 
on equity of more than 5% in each of the past 10 years except fiscal 2009 (in 
which IFC lost about 3.5%, by this measure). Although habitual grants to IDA 
and other board of governors approved transfers (US$330 million in fiscal 
2012) reduce the flow from income to retained earnings, we still expect the 
latter to continue to grow, as they have in each of the past 10 years except 
fiscal 2009.

In addition, on March 9, 2012, IFC's board of governors approved a US$200 
million increase in paid-in capital, to be paid in over a number of years. 

Our funding and liquidity ratios for IFC indicate that it would be able to 
fulfill its mandate for at least one year, even under extremely stressed 
market conditions, without access to the capital markets. Moreover, we 
estimate that it would not need to reduce the scheduled disbursements of its 
loan commitments, even if half of the total commitments were to be drawn in 
one year. We believe IFC benefits from strong access to capital markets, 
bolstered by frequent issuance in many markets and currencies.

IFC has no callable capital, unlike most MLIs, so our ICRs reflect our 'aaa' 
SACP.

Outlook
The outlook on IFC is stable. We expect IFC's capital position and liquidity 
to be strong enough to withstand severe financial distress in its countries of 
operation. The most recent capital increase, while small, nevertheless shows 
continued shareholder commitment to the MLI. If -- contrary to our 
expectations -- either IFC's capitalization or liquidity ratios were to 
decline materially, or we were to come to the view that shareholder support 
for its public policy importance had diminished, the ratings could come under 
pressure.

Related Criteria And Research
Multilateral Lending Institutions And Other Supranational Institutions Ratings 
Methodology, Nov. 26, 2012

Ratings List
Ratings Affirmed

International Finance Corp.
 Issuer Credit Rating
  Foreign Currency                      AAA/Stable/A-1+    
 Senior Unsecured                       AAA                
 Senior Unsecured                       cnAAA
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