Microsoft PowerPoint - U Roode presentation_TMA-SA_210409_ver4_Final

Presented to TMA-SA by Ulendo Roode

Clothing & Textiles SBU

Industrial Development Corporation of SA Limited

The role of Development Finance Institutions

in Turnarounds

21 April 2009

Discussion Items

Development Finance Institutions (DFI);

IDCs role as a DFI:

P

rofile

;

A

ppro

ach/a

ppetite

for tu

rnaro

unds;

C

ase s

tudie

s;

N

on-fin

ancia

l fo

rms o

f busin

ess s

upport;

Discussion

Development Finance Institution (DFI)

defined

Development Finance is a specialised sectorof the financial industry, usually majority owned by national governments;

It aims to bridge the gapbetween commercial investments and State development aid;

DFIs typically invest in either public or private-sector projects and expansions;

DFIs play an important role in servicing the investment needs ofspecifically developing countries and emerging markets;

The financial support DFIs bring to relatively high-riskprojects/expansions help to mobilise the involvementof private capital,

bringing in commercial banks, investment funds or private businesses and companies;

In addition, DFIs often act in co-operation with governments and other organisations from feasibility studyphase to project

implementation;

DFIs provide funds, either as equity participation, loans or guarantees;

DFIs source their capitalfrom national or international development funds or benefit from government guarantees which

ensures their credit-worthiness;

The investment activities of DFIs, which focus mainly on economic perform

ance and return on investment, not only mark a

departure from the past in a bid to reduce dependence on development aid, but encourage the entrepreneurial spirit.

Source: European Development Finance Institutions

Growing sectoraldiversity

The IDC: Vision, mission, objectives &

outcomes

Vision Mission Objectives Outcomes

To be the primary driving force of commercially sustainableindustrial development

and innovationto the benefit of South Africa and the rest of the African continent

The IDC is a self-financing national development finance institution whose primary

objectives are to contribute to the generation of balanced, sustainable economic growth in

Africa and to the economic empowerm

ent of the South African population, thereby

promoting the economic prosperity of all citizens. The IDC achieves this by promoting

entrepreneurship through the building of competitive industries and enterprises based on

sound business principles.

Supporting industrial development capacity

Promoting entrepreneurship

Sustainable employment

Broad-based black economic empowerm

ent

New entrepreneurs

entering the economy

Growing the SME sector

Regional equity

Industrialisation in the rest of Africa

Environmentally sustainable growth

The IDC: Corporate profile

Established in 1940, the IDC is a self -

financing, State-owneddevelopment

finance institution;

IDC addresses market failures / gapsby

supporting investments, which may otherwise

not happen, in partnership with private sector

companies;

IDC investm

ents are for development

purposes, ideally generating developmental

as well as financial returns, within an

acceptable risk profile;

Provides financing to entrepreneurs

engaged

in competitive industries and enterprises

based on sound business principles;

Pays income taxat corporate rates and

dividendsto the shareholder;

IDCs Leadership in Development

strategy underpins the creation of

sustainable employmentas one of the

most important outcomes that the

corporation aims to achieve in its

investm

ent activities;

The IDC is self-sustainingand does not

rely on government

guarantees in

accessing capital;

Self-fundingthrough:

internal

profitability

(retained

earnings)

divestm

ents from mature assets

borrowings in international markets

domestic bond market

Agriculture

Mining

Manufacturing

Service-related sectors

Energy

Tourism

IT

Telecoms

Motion pictures

Healthcare & education

Transport & storage

Venture capital

Government / corporate tenders

Franchising

Financial services

Construction

2010

Other

Public private partnerships

Development agencies

The IDC: Sectoral involvement

The IDC: Financial instruments

Flexible deal structuring

Equity

Quasi-equity

Commercial debt

Wholesale & bridging finance

Share warehousing

Export/import finance

Short-term

trade finance

Venture capital

IDC offers a wide array of financial

instruments, including :

These may be provided alone or in

combination

The IDC: Handling clients in distress

Clients w

ith high-risk profilesare identified and given special attention to

manage the IDCs exposure, minimise potential losses and maximise

sustainable development returns;

The IDC assists companies in recoveringfrom difficulties in order to limit

any losses in jobsdue to business closures;

One of the m

ain objectives is preventing financial failure of identified high

risk clients who are unable to meet their financial commitments:

by initiating the restructuring and turnaround of such client (subject to the

client displaying potential economic viability)

to ensure that the clients are able to continue with their norm

al business

operations and thereby prevent the loss of job opportunities, technology,

exports, etc.

safeguard IDCs position

The IDC: Turnaround approach

Form

al methodology?

Underpinned by detailed due diligence process;

Financial restructuring:

M

ora

torium

on c

apital re

paym

ent

D

efe

rment of capital (a

nd inte

rest)

Takin

g o

f equity

C

onvers

ion/w

rite

-off o

f lo

ans

Strategy review;

New projects;

Integrations/consolidation/operational restructuring, and

Management & Board representation.

The IDC: Case Study 1

Background:

Yarn

spin

ner from

im

ported raw

mate

rial;

Fore

ign p

artner esta

blis

hed in S

A w

ith ID

C, D

TI and local govern

ment support;

Fore

ign p

artner supplie

d a

ssets

and a

ccess to m

ark

ets

as c

ontrib

ution;

C

hin

ese flo

oded the inte

rnational m

ark

et w

ith the a

bolis

hm

ent ofth

e M

ulti Fib

re A

gre

em

ent;

S

ignific

ant glo

bal lo

sses b

y the F

ore

ign p

artner, e

ventu

ally

withdra

win

g fro

m S

A o

pera

tion;

ID

C d

ecid

ed to take u

p m

ajo

rity

control to

save jobs a

nd s

econded a

n inte

rim

CE

O;

Early warning signals:

A

s p

er above;

C

ontinued losses;

N

egative p

erc

eption in the m

ark

et com

bin

ed w

ith q

ualit

y p

roble

ms;

C

ash flo

w p

roble

ms;

O

bsole

te s

tock, hig

h m

ain

tenance s

pare

s levels

;

Turnaround options:

S

trate

gy v

s o

pera

tions turn

aro

und (re

define the b

usin

ess ito

vertic

al in

tegra

tion a

nd revenue

enhancem

ent, b

ut m

ain

ly c

ost-cuttin

g/e

ffic

iency im

pro

vem

ents

in functional are

as);

C

ash m

anagem

ent needed (re

ceiv

able

s, payable

s, in

vento

ry, in

centives)

The IDC: Case Study 1 (cont.)

Reasons/causes for distress situation:

A

ssets

were

over-

valu

ed a

nd n

ot necessarily

in b

est conditio

n;

Local pro

duction o

f ra

w m

ate

rial fa

iled;

A

sin