idc presentation
TRANSCRIPT
AIDC Automotive Investor Conference MTN Expo Centre, NASREC
Moroasereme Ntsoane
SBU Head: IDC
Financing and Investment Support for Industry
Investment and Financing Support Available
Introducing the IDC
• Established in 1940, the IDC is a self-financing, State-owned development finance institution
• Provides financing to entrepreneurs engaged in competitive industries and enterprises based on sound business principles
• Pays income tax at corporate rates and dividends to the shareholder
• The vision of the IDC is to be the primary source of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent
• Aims to maximise developmental and financial returns within an acceptable risk profile
Industrial development approach
• IDC addresses market failures / gaps by supporting investments, which may otherwise not happen, in partnership with private sector companies
• IDC investments are for development purposes, with the ideal investment being one that generates developmental as well as financial returns
• This entails taking a higher risk profile than commercial financiers in order to support the development of sectors and new entrepreneurs
Development
impactFinancialreturn
Risk
Financing criteria
• Greenfield projects, expansions & rehabilitations
• Minimum financing in South Africa R1 million
• Profitability & sustainability within a reasonable time frame
• Developmental impact (jobs, value addition, exports)
• Fixed assets and the fixed portion of growth in working capital requirements
• Reasonable financial contribution from owners
• Security
• Environmental, Health and Safety
• Corporate Governance
Financial instruments
Flexible deal structuring
– Equity
– Quasi-equity
– Commercial debt
– Wholesale finance
– Venture capital
– Guarantees
– Export and import finance
– Credit lines to DFIs
• IDC offers a wide array of financial instruments, including :
• These may be provided singly or in combination
Local EV Industry
Automotives, Components, Commercial VehiclesIn
dust
ry
Goa
ls
1.2 million units produced locally by 2020 and doubling of local content in components
IDC
Goa
ls
To increase local content of locally produced vehicle
Key
Str
ateg
ies
Automotives Assembly
Commercialisation of Joule
Components Manufacture
MHCV, Buses & Taxis
Other Special Funds in IDC
• Distress Funds
• UIF Funds
• Grow E Scheme
Assisting companies in distress
The economic crisis is impacting businesses on various levels
Financial institutions
tightening credit criteria, extending
less credit
Firm
Consumer confidence lower,
spending less
Business confidence lower, cutting costs and
investing less
Unable to source finance from traditional
sources
Lower demand for products and
services
The IDC is assisting in filling the gap in the market left by financial institutions extending less credit to businesses and in so doing ensuring that jobs and capacity of viable businesses are being retained.
The IDC is budgeting R11.4 billion of funding for approvals in the current financial year, R2.9 billion specifically to assist distressed businesses.
Creditors and debtors under
financial pressureExcess stock
build-up
Lower levels of foreign demand
Internal cash flow pressures
Assisting companies in distress (continued)
• R6.1 billion set aside to assist distressed companies over the next two years
• Approach to funding companies in distress:
– To ensure long term sustainability of enterprises: interventions on a firm by firm basis.
– Focussed on companies that are experiencing difficulties/distress due to cyclical downturn
– Business must prove historical viability, and demonstrate structural improvements that will enhance long term competitiveness.
– Business should demonstrate that the business case re-emerges within a reasonable timeframe, once global/domestic conditions improve.
– Interventions should be to the benefit of the company being assisted and not relieve existing shareholders or other financiers from their obligations.
– Distress Funds recipients should seek to save jobs, without sacrificing viability, and proper consultative procedures must be observed where job losses are unavoidable.
– Risk sharing must be demonstrated between all stakeholders (viz. shareholders, creditors, debtors, employees and management) – enable the IDC to leverage its balance sheet further
“UIF” Fund
• Fund size is R2 billion, ring-fenced;• The Fund’s main objective is to contribute towards sustainable job creation and retention;
• IDC will through this facility be able to enhance its developmental mandate by passing
concessionary funding to job creating transactions;
• All eligible IDC transactions in South Africa with cost per job of up to 450,000 will be eligible;
• Pricing will be approximately between 7.0% - 10.0% fixed; to revert to floating after 2015
• A maximum of R100m per transaction /business partner; Only debt instruments will be
considered;
• The Fund will invest either on a standalone basis or on a co-funding basis with IDC or other
financial institutions;
• Client is expected to drawdown within 7 months after approval;
Grow E Scheme – Growing the Economy and Employment Scheme
• Key objective– To encourage employment creation
• Size of Scheme– R10 bn ring-fenced on-balance sheet funds
• Duration of Sheme– 5 years availability or until funds are exhausted
• Development Pricing– Prime less 3% for loan products, for 5 years, thereafter reversion to normal IDC pricing– Equity to attract rate of return and/or upside sharing depending on development impact of
business• Qualifying Criteria
– Economic merit– Cost per job created/saved during funding period must not exceed R500 000 – Drawdown to occur within 12 months of approval, or reversion to IDC normal pricing– Minimum funding amount R1 million, and Maximum R1 bn
•
Non-financial forms of business support
• Training of entrepreneurs
• Business support to entrepreneurs: IDC Business Support Programme was established to assist where appropriate:
– potential clients in preparing a business plan; and
– 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 borne partly by IDC
• Support for community groups
• Encouraging investments to address certain goals through incentives
