IFC Launches Inaugural Trade Finance Synthetic Securitization, Mobilizing Private Capital to Support Jobs and Trade in Emerging Markets

The World Bank Group, through its private sector arm, the International Finance Corporation (IFC), today announced the signing of its inaugural Trade Finance Synthetic Securitization (TFSS), a first of its kind transaction that will mobilize private capital to support trade and jobs in emerging markets. The TFSS complements the successful launch of IFC's recent Emerging Market Securitization Program (EMSP), part of the World Bank Group's effort to crowd private capital into emerging markets.

The transaction is composed of a portfolio of $500 million of trade assets originated under IFC's Global Trade Finance Program (GTFP). More than half of the portfolio is in low-income and fragile and conflict-affected states, underscoring IFC's increased focus on the most challenging markets. In the last two decades, the GTFP program has supported transactions totaling nearly $137 billion in trade finance across more than 100 emerging markets.

The transaction's private capital mobilization ratio would be up to [1:19], meaning for every dollar of risk retained by IFC, up to $19 are taken up by private investors. By transferring credit risk to private investors, IFC creates additional capacity to originate new trade finance guarantees where they are needed most.

"Trade and supply chain finance is one of the most effective ways to close the financing gap faced by small and medium-sized enterprises in emerging economies, a critical driver of job creation," said IFC Managing Director Makhtar Diop. "This securitization demonstrates that, with the right structuring and standardization, investor demand can be mobilized at scale and with measurable impact, even in the most challenging markets."

The TFSS transaction involves short-term trade assets with an average tenor of six months. By structuring it over a three-year horizon with a two-year replenishment mechanism, IFC ensures that private risk participation is available to support new trade flows for up to three years.

The synthetic securitization structure features three tranches, reflecting investor risk appetite. It consists of a $340 million senior tranche, a $110 million mezzanine tranche, and a $50 million junior tranche.

The transaction garnered strong investor interest. The senior and mezzanine tranches were placed privately on an unfunded basis with five investors - Deutsche Bank, Santander CIB, AXA XL, AXIS Capital, and Liberty Specialty Markets - with Deutsche Bank acting as arranger and placement agent for both tranches. The junior tranche was placed separately with Newmarket.