Industrial Development Corporation Automotive &
Description: Industrial Development Corporation Automotive Transport Equipment Unit Finance for Rail Projects Transnet Suppliers-Workshop IDC Building Sandton 15 October 2015 Joseph Sithole Industry Development Manager: Automotive Transport
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slide1. Industrial Development Corporation Automotive & Transport Equipment Unit Finance for Rail Projects Transnet Suppliers-Workshop
IDC Building – Sandton
15 October 2015
Joseph Sithole
Industry Development Manager: Automotive & Transport Equipment SBU<br>
slide2. Sectors supported by the IDC Metals
Basic Metals and Mining
Machinery and Equipment
Automotive and Transport Equipment Chemicals and Textiles
Basic and Speciality Chemicals
Chemical products and Pharmaceuticals
Clothing and Textiles Agro-Processing
Agro-Processing and Agriculture Value Chains New Industries Industrial Infrastructure<br>
slide3. Our focus areas Control or >50% shares
Strategic leadership
Operational involvement Jobs created
Jobs saved 25% plus owned Government procurement
Inputs into infrastructure 25% plus owned<br>
slide4. Automotive & Transport Equipment SBU: What do we fund?<br>
slide5. 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 Industry develop-ment goal 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 baseline
8.7% – 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 baseline
18% – improvement in trade balance compared to baseline<br>
slide6. 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) Industry develop-ment goal Increased levels of employment Impact Planned impact on employment in metal products by 2025:
15 500 more people employed in target compared to baseline
13% more people employed in target compared to baseline<br>
slide7. 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<br>
slide8. 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<br>
slide9. 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 …<br>
slide10. 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<br>
slide11. 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 …<br>
slide12. 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.<br>
slide13. 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<br>
slide14. Gro-E Scheme Max cost per job of R500 000 Operating / expanding in SA BBBEE certification Up to 5 years Loans at prime – 3%<br>
slide15. Manufacturing Competitiveness Enhancement Scheme Qualify for MCEP Incentives Loans 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 loan
Up to R50 million
4 year term
Interest at 4% fixed on 50% of loan<br>
slide16. 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 …<br>
slide17. 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 …<br>
slide18. 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 Training Funding Business 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 … Training
IDC offers and sponsors customized demand driven courses
to empower current and prospective clients
The courses are aimed at prospective and current clients.
Examples of courses offered:
Basic Business Skills for SMEs<br>
slide19. Pre and post investment process Project appraisal process …<br>
slide20. 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…<br>
slide21. 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…<br>
slide22. How to apply Online
IDC Direct Call Centre
0860 693 888 Email
callcentre@idc.co.za Submit your business plan… Contact your nearest regional office Call Centre
0860 693 888 Email
callcentre@idc.co.za Make an enquiry…<br>
slide23. Thank you<br>
IDC Building – Sandton
15 October 2015
Joseph Sithole
Industry Development Manager: Automotive & Transport Equipment SBU<br>
slide2. Sectors supported by the IDC Metals
Basic Metals and Mining
Machinery and Equipment
Automotive and Transport Equipment Chemicals and Textiles
Basic and Speciality Chemicals
Chemical products and Pharmaceuticals
Clothing and Textiles Agro-Processing
Agro-Processing and Agriculture Value Chains New Industries Industrial Infrastructure<br>
slide3. Our focus areas Control or >50% shares
Strategic leadership
Operational involvement Jobs created
Jobs saved 25% plus owned Government procurement
Inputs into infrastructure 25% plus owned<br>
slide4. Automotive & Transport Equipment SBU: What do we fund?<br>
slide5. 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 Industry develop-ment goal 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 baseline
8.7% – 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 baseline
18% – improvement in trade balance compared to baseline<br>
slide6. 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) Industry develop-ment goal Increased levels of employment Impact Planned impact on employment in metal products by 2025:
15 500 more people employed in target compared to baseline
13% more people employed in target compared to baseline<br>
slide7. 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<br>
slide8. 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<br>
slide9. 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 …<br>
slide10. 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<br>
slide11. 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 …<br>
slide12. 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.<br>
slide13. 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<br>
slide14. Gro-E Scheme Max cost per job of R500 000 Operating / expanding in SA BBBEE certification Up to 5 years Loans at prime – 3%<br>
slide15. Manufacturing Competitiveness Enhancement Scheme Qualify for MCEP Incentives Loans 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 loan
Up to R50 million
4 year term
Interest at 4% fixed on 50% of loan<br>
slide16. 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 …<br>
slide17. 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 …<br>
slide18. 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 Training Funding Business 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 … Training
IDC offers and sponsors customized demand driven courses
to empower current and prospective clients
The courses are aimed at prospective and current clients.
Examples of courses offered:
Basic Business Skills for SMEs<br>
slide19. Pre and post investment process Project appraisal process …<br>
slide20. 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…<br>
slide21. 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…<br>
slide22. How to apply Online
IDC Direct Call Centre
0860 693 888 Email
callcentre@idc.co.za Submit your business plan… Contact your nearest regional office Call Centre
0860 693 888 Email
callcentre@idc.co.za Make an enquiry…<br>
slide23. Thank you<br>