draft industrial development corporation automotive & transport equipment unit finance for rail...
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DRAFT
Industrial Development Corporation
Automotive & Transport Equipment UnitFinance for Rail Projects
Transnet Suppliers-WorkshopIDC Building – Sandton15 October 2015
Joseph SitholeIndustry Development Manager: Automotive & Transport Equipment SBU
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Sectors supported by the IDC
Metals
Basic Metals and MiningMachinery and Equipment
Automotive and Transport Equipment
Chemicals and Textiles
Basic and Speciality ChemicalsChemical products and
PharmaceuticalsClothing and Textiles
Agro-ProcessingAgro-Processing and Agriculture
Val
ue
Ch
ain
s
New Industries
Industrial Infrastructure
33
Our focus areas
IDC focus
Black industrialist
Job creation
Women ownedLocalisation
Youth owned
Control or >50% sharesStrategic leadershipOperational involvement
Jobs createdJobs saved
25% plus ownedGovernment procurementInputs into infrastructure
25% plus owned
44
Automotive & Transport Equipment SBU: What do we fund?
Automotive
Manufacturing of motor cycles
Manufacturing of Motor vehicles
Manufacturing of Components
Ships
Building and repair of ships
Building and repair of
pleasure / sporting boats
Rail
Manufacturing of railway
locomotives & rolling stock
Maintenance & Refurbishment of locomotives & rolling stock
Manufacturing of Components
Aeronautics
Manufacturing of aircraft and
space craft
55
-200 000
-180 000
-160 000
-140 000
-120 000
-100 000
-80 000
-60 000
-40 000
-20 000
0
-200 000
-180 000
-160 000
-140 000
-120 000
-100 000
-80 000
-60 000
-40 000
-20 000
0
2000 to 2004 2005 to 2009 2010 to 2014 2025
R'm
R'm
Trade balance: Motor vehicles and Transport Equipment (average per year)
3.8%
1.5% 1.6%
5.1%
5.9%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
2000 to 2004 2005 to 2009 2010 to 2014 2015 to 2025
Avg. Ann
ual G
rowth (%
)
Avg. Ann
ual G
rowth (%
)
GDP Growth: Motor Vehicles and Transport Equipment
History
Baseline forecast
Target forecast
Improved trade balance
A competitive local automotive and transportation industry that manufactures and/or assembles a significant portion of automotive and transportation equipment in SA for the
domestic and export market, and is a key global player for select components
Our planned impact – Automotive and transport equipment
Ind
ustr
y
develo
p-
men
t g
oal
Increase GDP
Impact
Planned impact on GDP in Automotive and equipment by 2025:
R4.9 billion – increase in value add (at 2010 prices) compared to baseline8.7% – Targeted value add in excess of baseline forecast (2014-2025)
Planned impact on trade by 2025:
R15.2 billion – improvement in trade balance compared to baseline18% – improvement in trade balance compared to baseline
66
124
111
102
120
136
60
70
80
90
100
110
120
130
140
60
70
80
90
100
110
120
130
140
End-2004 End-2009 End-2014 End-2025
Num
ber (
thou
sand
s)
Num
ber (
thou
sand
s)
Employment: Motor vehicles and transport equipment
History
Baseline forecast
Target forecast
A competitive local automotive and transportation industry that manufactures and/or assembles a significant portion of automotive and transportation equipment in SA for the
domestic and export market, and is a key global player for select components
Our planned impact – Automotive and transport equipment (2)
Ind
ustr
y
develo
p-
men
t g
oal
Increased levels of employment
Impact
Planned impact on employment in metal products by 2025:
15 500 more people employed in target compared to baseline13% more people employed in target compared to baseline
7
Our Strategy towards developing the Rolling Stock Industry
Getting in early – participating in early stage feasibility funding in support of rail and rolling stock projects in the continent. Regional Integration – promoting the integration of the SA rail industry into the Rest of Africa to create export opportunities for South Africa’s railway goods.Influencing Government Policies - promote policies that deepen industrialisation such as localisation, preferential procurement, sector-designation etc.Supporting and developing a strong competitive supplier base - providing competitive and tailor made funding packages to 1st and lower tier component suppliers. Co-operation with key industry stakeholders – cooperation agreements with the OEMs, Rail Operators and other industry players on the continent in support of their investment plans.
1
2
3
4
5
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Funding products and criteria
Debt
Equity
Quasi-equity
Guarantees
Trade Finance
Security
Own contribution
PRODUCTS CRITERIA
Economic Merit
No refinancing
BEE
R1 mil – R1,5 bill
Start-up and existing
99
• Financial assistance is provided for the development of new businesses, expansions or rehabilitation of existing businesses
• Business case must exhibit economic merit (i.e. it must be profitable)
• IDC finances fixed assets and fixed portion of growth in working capital requirements
• Reasonable contribution expected from promoter/s
• Minimum of R1 million
• Reasonable level of Security
• Environmental compliance
Financing criteria …
1010
• General industrial finance:– Equity– Quasi-equity– Commercial debt – Export/import finance– Short-term trade finance– Bridging finance– Guarantees– Venture capital– Wholesale funding through intermediaries
• Special purpose finance:– Transformation and Entrepreneurial Scheme (TES) (R1 billion)– Risk Capital Facility (RCF) (€55 million)– Isivande Women’s Fund (R50 million)– Support Programme for Industrial Innovation (SPII) (R75 million/year)– Distressed funding (R6.1 billion)
Finance is structured
according to client’s needs – can include
moratoria on repayments to
enable business growth
IDC products and services …
Cross sectoral schemes/funds
1111
Typical Funding Instruments
IDC’s funding structures are customised based on the cash flows of each project following an in-depth due diligence exercise. Capital and interest payment moratorium are given to allow for production ramp-up …
WorkingCapital
• Revolving Credit Facility
• Pre-shipment Export Finance
• Post-shipment Export Finance
• Short term Bridging Finance (contract/order/tender)
Project & Corporate Finance
• Greenfield/start-ups and brownfield/expansion projects
• Plant & Equipment Finance
• Land and Building Finance
• Building Construction Finance
Guarantees
• Bid bonds/ tender Guarantees
• Performance Guarantees
• Advance Payment Guarantees
• Financial Guarantees
• Credit Replacement Guarantees
Equity
• Ordinary shares/ direct shareholding
• Change in Shareholding BBB-EE, Workers, Community Trusts
• Preference Shares
• Quasi Equity Loans
• Shareholder Loans
1212
Funding model What makes our funding structure so unique …
Product offering
IDC puts together the most appropriate financial package for the client, taking into account the IDC guidelines and the client’s requirements by means of, among others:
• Capital and interest moratorium: IDC will allow start-up business or expansion of existing businesses a grace period during which capital is not payable, generally one year, but can be up to 5 years e.g. pro-orchards scheme . In certain instances, even interest payments are capitalised for an average period of 18 months
• Terms of loans : IDC matches the repayment term of the loan with the cash flow generated by the asset acquired or expense incurred. Average term of loans is between 3 and 7 years, but can be up to 15 years (e.g. pro-orchard scheme) or even 25 years (pro-forestry scheme)
• Equity investments: In certain instances, mostly new projects IDC will share the responsibility for a venture by taking up equity in the business to ensure that it is adequately financed.
IDC does not normally seek control in an undertaking but determines the level of participation on an individual basis. It is the IDC's policy to provide the entrepreneur with a buy back option on a mutually acceptable commercial basis.
1313
Funding schemes
The IDC plays a crucial role in growing the
economy and creating jobs. With this in mind, the IDC is investing
R10 billion through its Gro-E Scheme
1414
Gro-E Scheme
Max cost per job of R500 000
Operating / expanding in SA
BBBEE certification
Up to 5 years
Loans at prime – 3%
1515
Manufacturing Competitiveness Enhancement Scheme
Qualify for MCEP
IncentivesLoans
Confirmed contract or purchasing order; OR Order related to state-owned competitiveness suppliers programme, OR product is part of the designated
products value chain
SA entity with existing manufacturing operations
Working capital loanUp to R50 million
4 year termInterest at 4% fixed on 50% of loan
1616
Own unencumbered cash contribution:
• Is determined based on shareholding, capacity to invest, size and assessed risk of the venture and it may be as a low as 2.5% of the transaction value for the BBBEE component of an acquisition transaction
• Is required from clients to demonstrate commitment to project or venture
Pricing and fees:
• Pricing is based on risk and discounted for development impact (i.e. the higher the developmental impact the lower the price would be).
• The IDC’s fees are generally lower than those of other financial institutions (commitment fee an drawing fee, no fee charged for investigation
Funding model
What makes our funding structure so unique …
1717
Cash flow:
• The IDC considers the cash flow of a company and the financial forecasts to demonstrate economic viability and profitability within a reasonable period and sufficient cash flows to repay the investment over a reasonable period of time
• The cash flows are often weak due to start-up nature of most of the projects
Capital security (collateral):
• Is generally low in comparison with other financial institutions
• Lack of security does not preclude approval
• Security by way of underlying assets and/or sureties may be required with the exception of non-profit entities such as workers’ trust
Funding model (cont.) What makes our funding structure so unique …
1818
Business support to entrepreneurs: IDC Business Support Programme was established to assist where appropriate:
• Potential clients in preparing a business plan
• Existing clients where e.g. shortcomings in the management capacity has been identified, if a short-term intervention is required, if it experiences financial difficulties
• The funding for the business support is born partly by IDC
TrainingFundingBusiness support
Entrepreneurial Development
Approach to entrepreneurial development
Monitoring developmental
impact and financial
performance
Business Support
Funding model (cont.) What makes our funding structure so unique …
TrainingIDC offers and sponsors customized demand
driven coursesto empower current and prospective clientsThe courses are aimed at prospective and
current clients.Examples of courses offered:• Basic Business Skills for SMEs
1919
Avera
ge t
urn
aro
un
d
tim
es:
• V
an
illa
tra
nsacti
on
– 4
w
eeks
• E
qu
ity t
ran
sacti
on
– 8
w
eeks
Due Diligence Feasibility Study
Approval of viable transactions at an appropriate committee
Legal Agreements
Disbursement
Post Investment Management
Initial Screening & Basic Assessment
Term Sheet MOU/Co-operation Agreement
Feasibility Completed
Feasibility not fully investigated
Str
uctu
rin
g o
f fu
nd
ing
dep
en
din
g o
n c
lien
t’s n
eed
s.
Con
su
ltati
on
/ i
nte
racti
on
s w
ith
exp
ert
dep
art
men
ts
Inte
rven
tion
s in
b
usin
esses e
xp
eri
en
cin
g
diffi
cu
ltie
s,
inclu
din
g
bu
sin
ess s
up
port
, re
str
uctu
rin
g o
f fa
cilit
ies,
etc
.
Proposal Submission
Applications from existing / prospective businessesProactive identification & development of business opportunities
Pre and post investment process
Project appraisal process …
2020
• A number of the worlds major rolling stock OEMs including GE, South China Rail, North China Rail, Alstom and Bombardier are all participating in South Africa’s rail and rolling stock investment programme bringing foreign technology and expertise into the South African industry.
• South Africa’s deep commercial capital markets and development finance institutions are uniquely positioned to support and co-invest with like minded parties in the African freight growth story.
• South African public and commercial funders already offer tailor made financing solutions to rail utilities and industry on the continent including amongst other rolling stock leasing, take-or-pay agreements and network operating.
Conclusion - Leverage South Africa’s Strengths
As the Continent’s major rail country, the South African rail industry is uniquely positioned to support the growth in freight and passenger rail on the continent…
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• South Africa is the continent’s leading rail country in terms of both freight and passenger rail infrastructure, as well as rolling stock assets.
• The South African rail sector has developed capabilities, skills and expertise as manufacturer, assembler and supplier of rail infrastructure, rolling stock and components, including the refurbishment and rejuvenation of aged rail and rolling stock infrastructure and components.
• South Africa’s own substantial investments in its freight and passenger rail and rolling stock infrastructure over the next decade will further strengthen and deepen its participation in important aspects of the rail industry value chain.
Conclusion - Leverage South Africa’s Strengths
As the Continent’s major rail country, the South African rail industry is uniquely positioned to support the growth in freight and passenger rail on the continent…
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How to apply
OnlineIDC Direct
Call Centre0860 693 888
Emailcallcentre@idc.co.za
Submit your business plan…
Contact your nearest regional office
Call Centre0860 693 888
Emailcallcentre@idc.co.za
Make an enquiry…
DRAFT
Thank you
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