How we operate

1. Initiation Stage

The Initiation Stage, whose goal is to identify operations that may enter the Bank’s Operation Cycle, includes the following sequential steps:

• Identification of the operation
• Eligibility Review
• Clearance of the operation’s concept by the Credit Committee

The Bank accepts proposals from public agencies, private sector firms, and other entities, including special purpose companies, financial institutions and non-governmental agencies. The Eligibility Review will determine whether an operation’s objectives and benefits are consistent with the Bank’s main eligibility criteria specified in the Establishing Agreement and in the Rules and Regulations for Financing Projects and Commercial Activities. 

Upon approval of the Eligibility Review, the Operation Leader will request from the relevant Bank departments and units the provision of all necessary support in a timely manner in order to prepare the Concept Clearance Document (CCD), which includes preliminary information on the operation’s feasibility and consistency with the Bank’s mandate, country and sector strategy. The CCD has a validity period of nine months.

Following CCD approval by the Bank’s Credit Committee, the Operation Leader will send to the client a formal letter, the Mandate Letter, confirming the Bank’s interest in considering the financing request and establishing that the costs incurred by the Bank will be paid for or reimbursed by the client, regardless of whether the Bank proceeds with the client’s financing or not.

Until the CCD is approved and the Mandate Letter (Request Letter for public sector operations) is signed, the Bank will refrain from devoting substantial resources for the preparation of an operation.

2. Appraisal & Due Diligence stage

Once an operation passes Concept Clearance and the Client has signed and returned the Mandate Letter/ Request Letter, the Operation Leader carries out the operation’s appraisal and due diligence, which is designed to:

• define the Bank’s prospective involvement;
• identify and elaborate upon key issues, including necessary information on the operation, the client, the financing plan, the market, and;
• capture all major risk areas and ensure they are properly evaluated. 

To assist the Bank’s review of technical, financial, legal and other aspects of the Operation, the Operation Leader may utilize appropriate external consultancy services, following selection in accordance with the Bank’s relevant policies.The principal output of the Appraisal and Due Diligence Stage is the Final Review Document (FRD), which includes detailed information about:

• operation objectives/ targets;
• the client, sponsors, guarantors, and co-financiers, including an assessment of their creditworthiness;
• analysis of the market;
• terms, conditions, and covenants of the Operation;
• implementation arrangements;
• creditworthiness and financial returns;
• economic development and regional cooperation impact;
• presentation of the risks, risk mitigants, and security arrangements, and
• other key strategic issues involving shareholder value, procurement, environmental issues, corporate governance issues, etc.

The FRD is presented to the Credit Committee for approval, accompanied by the signed Term Sheet, which includes the principal terms and conditions under which the Bank is prepared to provide financial support to the operation. A completed and signed Letter of Information (LOI), describing the financial condition of the client, its legal structure and principal directors as well as the nature of the requirements for financing should also be in the Bank’s possession at this stage.

3. Board Approval and Signing Stage

Upon approval of the Final Review document by the Credit Committee, the Operation Leader prepares the submission of the operation to the Board of Directors for approval or rejection. Board approval is valid for a period of nine months, during which time the signing of the Operation must take place for the approval to be considered valid.

Following Board Approval, the Office of the General Counsel, in coordination with the Operation Leader, works to finalize the legal documentation for the operation. If, during the preparation of the legal documentation, material changes arise to the terms, conditions, and covenants presented for Final Review to the Credit Committee, and, subsequently, to the Board of Directors, the Credit Committee and the Board of Directors must approve the changes and authorize final negotiation of the operation’s legal documentation.

Following finalization of the operation’s legal documentation, the Bank and the Client will proceed with the signing of the operation. The essential purpose of the operation’s legal documentation is to achieve the best legal protection of the Bank’s interests and to represent accurately the legal structure of the operation, as described in the Term Sheet. The legal documentation may include, without limitation, any of the following:

• Operation Agreement (e.g. loan or equity agreement, guarantee facility agreement, fund agreement)
• Security Agreements
• Co-financing Agreement
• Agency Agreement
• Other contractual arrangements

For public sector operations, effectiveness is declared when the conditions of effectiveness set out in the legal documentation have been fulfilled. No drawdown is made until the relevant legal documentation has been declared effective. For private sector operations, the disbursement of the Bank’s funds takes place when all provisions of the relevant legal documentation, including fulfillment to the Bank’s satisfaction (or waiver) of conditions precedent.

4. Implementation Supervision and Monitoring stage

This stage covers the period between the effectiveness of a public sector operation- or disbursement of a private sector operation- and the completion of the operation (or termination of a revolving facility). Completion of the operation is generally defined as the date at which the technical execution, or physical implementation, of the operation is completed.

Because of the need to monitor repayments and the fulfillment of all financial obligations, supervision and monitoring will continue until the Closing Date of the operation. Closing Date is defined as the date at which any liabilities of the Bank, and liabilities or financial obligations of the Client(s) to the Bank, have been fulfilled (e.g. full repayment of a loan, completion of exit from an equity investment, or expiration of a guarantee).

The main activities on the part of the Bank during this stage involve:

• review and ‘no-objection’ processes in accordance with the legal documentation;
• execution of the disbursement schedule;
• supervision and monitoring of the implementation;
• remedial actions where the quality of an operation or the financial status of the Client (Sponsor/ Guarantor) is deemed to have deteriorated below an acceptable level;
• being aware of possible fraudulent practices, with procedures and inspections geared to detecting and reacting to unusual or suspect events, decisions or documents.

The Client will prepare regular reports on the implementation of the operation, which may conform to its own formats and standards, but which must contain the required information concerning the implementation of the operation. The Bank will prepare regular internal Supervision/Monitoring Reports (SMRs) on the basis of information provided by the Client and information received during supervision trips to the site by the Operation Leader as well as information obtained from sources within and outside the Bank.

5. Completion & Evaluation Stage

Following Operation Completion, the Bank undertakes a post-evaluation assessment of its operational performance. This provides an independent analysis of the outcome of completed operations against the objectives and results envisaged at the time of appraisal. Post-evaluation serves two key functions:

• accountability to the Bank’s Management and Boards that reveals the level of fulfillment of BSTDB’s mandate and
• learning-based improvement of future operations through the feedback of lessons learned from evaluated operations.

 The evaluation process has two aspects:

• self-evaluation, performed by the operation teams and outlined in Operation Completion Reports, typically within 2 years of operation repayment;
• independent evaluation, conducted by the Evaluation Office and outlined in Operation Performance Evaluation Reports and respective Annual Evaluation Overviews, presented to the Management and Boards.

This Operation Performance Evaluation Reports and the Annual Evaluation Overviews provide comprehensive information on the following:

• relevance vis-à-vis the Bank’s mandate and strategies;
• success in reaching the operation’s main goals and objectives, i.e. operation effectiveness;
• the cost of achieving operation effectiveness, i.e. operation efficiency;
• the development, cooperation and other impacts;
• the operation’s commercial viability/ sustainability;
• Feedback and recommendations on possible improvements;
• Achievements and shortcomings attributable to the Bank and its clients;
• Lessons Learned and recommendations relevant to future similar operations.