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Yulgilbar Field Day

Lending to Australian Agriculture Financing the Farm &

The Outlook

Geoff Rose Head of Agribusiness NSW/ACT

1st August 2014

Financing Australian Agriculture

Today we will cover three topics:

1. What does a Lender look for? Agribusiness lending

2. Lending to Agriculture: What does the Outlook look like?

3. Current economic trends & the Beef Industry.

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Note: Each red dot represents a NAB Agribusiness Banking Centre (>600 nab agribusiness bankers and 110 locations !)

Five “C’s” of Financing The Farm____________________________________________________________________________

The Five Cs

Collateral

Capability Cashflow

Capital

Character

Lending – It’s not just about Ratios …….____________________________________________________________________________

Cashflow, Leverage /Equity, Interest Coverage & Balance Sheet Strength

Financial Analysis

• Equity Levels (Surplus Assets level / trends)

• Interest coverage (>1.5-2.0x)

• Cost to income (65-70%)

• Cash position (net cash surplus)

• Debtors & Creditors

• Trend and key driver analysis

Facility Agreement and Structure

• Undertakings

• Negative pledge

• Material Adverse Change Clause

•Dividend Restrictions

• Equity participation - ring fencing of project finance

• Related party arrangements (e.g. Director’s loans)

• Concentration Risk & Funding Mix

Security

• ‘Primary’ Security = cash flow to met repay

• ‘Secondary’ (security 1st RM deeds / fixed & floating charge)

• Guarantees (Full Recourse & All Monies)

• Loan to Valuation Ratio (LVR – key focus here)

Reporting & Governance

• Financial Reporting

• Frequency (quarterly)

• Quality (P&L, BS, CF)

• Board / Senior Management & Key Person Structures

• Compliance obligations - statutory payments

• Risk Management Document

____________________________________________________________________________Agricultural Lending – Growth Since 94’

Since 94’ 3 distinct periods of growth in lending to agriculture.

Sep 94’ to June 02’

Average Annual Growth Rate = 8.8%

June 02’ to Dec 08’

Average Annual Growth Rate = 12.4%

Dec 08’ & Sep 11’

Average Annual Growth Rate = 3.7%

Agricultural Lending – composition by %____________________________________________________________________________

US Unemployment

•                                                                                           

7

• Unemployment rate dropped to 6.1% from 6.3% with an unchanged participation rate

• It also shows that a cumulative 1,385,000 jobs have been created in the first 6 months of this year. Annualising this (by simply doubling it) would give a 2,770k annual pace. If sustained, his would be the highest annual total since 1999, greater than the 2,506k in 2005 or the 2,085k at the height of the boom in 2006.

If the US stops printing money, what happens?

The US Fed have been pumping money into the economy since 2008. There have been 3 rounds of QE, with the latest (QE3) commencing in September 2012.

The US Fed started tapering QE in late 2013 and therefore a slowdown in Bond purchases. If the US continues to withdraw stimulus, term interest rates will likely rise around the world.

Daily - Rates 4/01/2011 - 2/09/2014 (GMT)

3 Yr Fixed

1 Yr Fixed

5 Yr Fixed

Price

AUD

.1234

4.8

5.2

5.6

6

6.4

6.8

7.2

7.6

8

8.4

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014

ChinaThe economy has clearly slowed – shifting to a new normal?

9

0

4

8

12

Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15

China - Real GDP%

Source: CEIC, NAB Economics

Current NAB Fcst

NAB Forecasting

Model

China a longer term positive story and Australia’s links to China increasingly dominant.

10

For Australia, main game Asia: about 75% of Australia’s exports

11

Japan18%

Korea, Republic of7%

European Union5%

India4%

Singapore2%

Hong Kong1%

Other18%

New Zealand3%

Taiwan3%

United States of America

4%

China35%

Source: ABS, NAB Economics

Australia's Top Export Destinations for Goods in 2013

Exposures by Industry

NAB Agribusiness Q1 FY 14’

Forecasts

13

Disclaimer

Rates are indicative only & subject to market movements.

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Looking forward to any

Questions you may have

Thank you