United States: The New US International Development Finance Corporation (DFC): Enhancing Opportunities For Emerging Market Sponsors And Investors (Updated)

The New US DFC

In October 2018, the landmark bipartisan Better Utilization of Investments Leading to Development (BUILD) Act¹ was signed into law. It has been described as "the most significant [US] foreign assistance legislation in 15 years."² The BUILD Act implements a reorganization of US government development finance and aid programs, creating a single, consolidated development agency called the US International Development Finance Corporation (DFC). Grounded by legislation that allows it to participate in private sector, market–based transactions,³ the DFC's mission is to address both "development challenges and foreign policy priorities of the United States."⁴

In September 2019, Adam S. Boehler was confirmed by the US Senate as the first CEO of the DFC, and on January 2, 2020, DFC officially commenced operations.⁵ Just two months later, on March 12, 2020, the DFC Board of Directors approved $881 million in financing and political risk insurance for multiple projects in several regions of the globe.⁶

Structurally, the DFC merged the programs (and personnel) of the existing primary sources of US government development finance—OPIC (the US Overseas Private Investment Corporation) and the Development Credit Authority of USAID (the United States Agency for International Development).⁷ Further, the DFC is able to offer new development finance products that have not been previously available to OPIC or other US government agencies.

DFC Policies and Support Criteria

The DFC offers support under a variety of statutory directives applicable to its programs.⁸ Investors and sponsors will want to be aware of these considerations and their impact on the availability of DFC support for any specific project or investment:

• Targeting Lower–Income Countries Lowand lower–middle income countries (as defined by the World Bank,⁹ and previously the recipient of about 46 percent of OPICbacked financing)¹⁰ are the express priority of the DFC by the terms of the BUILD Act.¹¹ This will initially mean a focus on the 78 countries with 2018 per capita gross national income below US$3,996 as shown in Table 1¹² (attached to this article).
• Preference for US Sponsors The BUILD Act retains a US nexus, modified from OPIC's requirement of a "US connection" based on US citizenship or US equity ownership¹³ to a 2 Mayer Brown | The New US DFC: Enhancing Opportunities for Infrastructure Investors (Updated) "preferential" consideration of projects involving private sector entities that are "US persons" (US citizens or entities owned or controlled by US citizens).¹⁴
• Additionality Requirement DFC support must not compete with or supplant available sources of private–sector support or crowd–out private sector lending.¹⁵
• Policies Supporting Private Sector The DFC is directed to give preferential consideration to projects in countries where the government supports private–sector economic principles, including marketbased economic policies, protection of private property rights, respect for the rule of law and systems to combat corruption.¹⁶
• International Trade Obligations The DFC is directed to provide preferential consideration to investments in countries in compliance (or making substantial progress in coming into compliance) with their international trade obligations.¹⁷
• International Terrorism and Human Rights The DFC is prohibited from providing support to a foreign government—or an entity owned or controlled by a foreign government—if such government has repeatedly supported international terrorism or engaged in serious human rights violations.¹⁸
• Women's Economic Empowerment The DFC is required to consider the impact of potential investments on, and seek to improve, women's economic opportunities.¹⁹
• Boycott Restriction The DFC must take into account whether a project is sponsored by or substantially affiliated with persons involved in boycotting a country that is "friendly" with the United States and is not subject to a boycott under US law or regulation.²⁰
• Continuing Requirements—Worker Rights, Child Labor, Environmental and Social, Sanctions, Small Business The DFC will operate under similar considerations as OPIC in several areas: The DFC can only support projects in countries taking steps to protect worker rights and prevent child labor²¹ and must not support projects that have a significant adverse environmental or social impact.²² The DFC also is prohibited from all dealings with projects involving persons or entities subject to US sanctions laws or regulations.²³ The DFC must afford preferential consideration to projects sponsored by or involving small business and ensure that small business–related projects are not less than 50 percent of all DFC–supported projects involving US persons (an increase from OPIC's 30– percent target).²⁴

DFC Offerings—Enhanced Capability and Flexibility

The DFC offers new or enhanced financial tools, as well as continue to provide existing support offerings that have long been favored by emerging market investors and project sponsors. As with the predecessor OPIC and USAID programs, the DFC's obligations are backed by the full faith and credit of the US government.²⁵ Importantly, the DFC is authorized for an initial seven–year term²⁶ (as opposed to the recent annual cycle for OPIC²⁷), affording market participants with reassurance of its continued existence and program availability. A summary comparison of the DFC's major programs with OPIC's major programs is provided in Table 2 below. As these details show, the DFC can provide investors and sponsors seeking capital for emerging market projects with enhanced resources and flexibility.

To read the full article click here

Footnotes

1 BUILD Act of 2018, H.R.. 302-1, 115^th Cong., 2^nd Sess. Division F of the FAA Reauthorization Act of 2018, H.R. 302-1, 115^th Cong., 2^nd sess., signed into law October 5, 2018. Public Law No: 115-324 (10/05/2018) (hereafter, "BUILD Act").

2 Strategic Directions for the United States International Development Finance Corporation (DFC), Daniel F. Runde, Romina Bandura and Owen Murphy, Center for Strategic & International Studies, September 2019.

3 The Build Act Has Passed: What's Next, Daniel F. Runde and Romina Bandura, Center for Strategic & International Studies, October 12, 2018, available at: https://www.csis.org/analysis/build-act-has-passed-whatsnext

4 Overseas Private Investment Corporation, THE BUILD ACT, available at https://www.opic.gov/build-act/overview.

5 See https://www.dfc.gov/media/press-releases/usinternational-development-finance-corporation-beginsoperations

6 See https://www.dfc.gov/media/press-releases/dfcapproves-nearly-900-million-global-development-projects

7 BUILD Act: Frequently Asked Questions About the New U.S. International Development Finance Corporation, Shayerah Ilias Akhtar and Marian L. Lawson. Congressional Research Service, R45461, January 15, 2019 (hereafter, "CRS Report").

8 Per the BUILD Act, additional criteria will apply to a number of DFC programs depending upon the amounts requested or DFC portfolio considerations.

9 BUILD Act, Sec. 1411. For 2020, the World Bank defines Low-Income Countries as those with Gross National Income (GNI) per capita of US1,025 or less and Lower Middle Income-Countries as those with a GNI per capita of between US$1,026 and US$3,955. A complete list of countries by income classification can be found at: https://datahelpdesk.worldbank.org/knowledgebase/artic les/906519 (hereafter, "World Bank Country Data"). Also, see Table 1.

10 Can the US Development Finance Corporation Compete?, Charles Kenney, Center for Global Development, CGD Policy Paper 158, October 2019, p.1., available at: https://www.cgdev.org/sites/default/files/Kenny-CanUSDFC-Compete-Formatted.pdf (hereafter "Kenney").

11 BUILD Act, Sec. 1411.

12 DFC support for countries with greater income economies is restricted unless the President can make certain certifications of need and transactional impact value. See BUILD Act, Sec. 1412(c).

13 An overview of OPIC's 'U.S. Nexus" requirements can be found at: https://www.opic.gov/sites/default/files/files/usnexus-fact-sheet-2017.pdf.

14 BUILD Act, Sec. 1451(b).

15 BUILD Act, Sec. 1452(b).

16 BUILD Act, Sec. 1451(g).

17 BUILD Act, Sec. 1451(c).

18 BUILD Act, Sec. 1453(a).

19 BUILD Act, Sec. 1451(f).

20 BUILD Act, Sec. 1451(h). This provision would address circumstances such as boycotts of Israel.

21 BUILD Act, Sec. 1451(d).

22 BUILD Act, Sec. 1451(e).23 BUILD Act, Secs. 1453(b) and (c).

24 BUILD Act, Sec. 1451(i).

25 BUILD Act, Sec. 1434(e).

26 BUILD Act, Sec. 1424(a).

27 See https://www.devex.com/news/inside-the-fight-foropic-reauthorization-89612.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.