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Annual Report 2002 : Operations

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Private sector operations portfolio

ADB’s private sector portfolio continued in 2002 to leverage and catalyze other funding sources. Cumulative approval since ADB’s first private sector investment in 1983 amounted to $2.2 billion in the form of direct loans and equity investments, financing 155 projects, mobilizing $18.4 billion in total resources, and leveraging ADB investments by a ratio of 7.4 times. Of these approvals, cumulative disbursements amounted to $1.5 billion.

In 2002, the portfolio amounted to $1.2 billion, consisting of $759.4 million in loans and $474.1 million in equity (62% and 38%, respectively, of the portfolio). Infrastructure projects continued to hold the largest composition of the portfolio at $619.8 million (50.2%), followed by investment funds and financial institutions at $464.9 million (37.7%), with the balance accounted for by other sectors at $148.8 million (12.1%).

To free up capital resources for new investments, ADB actively sought the full and partial divestments of equity shareholdings in 14 project companies, resulting in net returns of 68% over investment cost. Five loans totaling $65.5 million in approvals were fully repaid during the year.

At the end of 2002, 91 private sector projects were under administration, net of repayments, cancellations, and divestments. Of the total number of projects, 16 were in regional financial entities and funds. Operationally, 65 companies demonstrated strong financial performance, 6 performed marginally, and 20 underperformed. Risk management continued to be directed toward resolving underperforming accounts. Two projects were liquidated and foreclosed, two projects were restructured, and one project was repaid in full.

Interest, net realized capital gains, and other income earned on the private sector portfolio decreased to $29.8 million in 2002, relative to the $32.7 million level of 2001. Dividend income decreased from $13.2 million (4.9% yield) in 2001 to $8.6 million in 2002.

Allowance for possible losses on the portfolio decreased from $144.5 million in 2001 to $137.3 million in 2002. The loss reserve ratio was at 20.1% of the outstanding portfolio as at end-2002, compared with 21.1% in 2001.

In its private sector operations, ADB continues to strengthen risk management by implementing an independent credit review process at every stage of project processing prior to approval. Project administration is enhanced by more rigorous reviews. Investments that exhibit early signs of vulnerability are given special attention to arrest further deterioration of project quality. Intensive recovery efforts on impaired and nonperforming investments, mostly of earlier discontinued investments in manufacturing and industry, have achieved substantial results with the closure of two such projects in 2002. ADB’s experience from these impaired investments provides crucial lessons for future investment activities. For details, see tables 10–13 in the Statistical Annex.

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