Land Bank of the Philippines:ROLE IN THE DEVELOPMENT OF THE OIL PALM INDUSTRY

9th National Palm Oil CongressKCC Convention CenterGeneral Santos CityAugust 19 – 20, 2015

Topic Outline

• LBP’s Historical Credit Intervention on Palm Oil Industry

• Status of LBP’s Credit Intervention• LBP Financing Program for Oil Palm

• Development of New Plantation• Rehabilitation program • Processing and Marketing

• Business and Financing Models

Expansion to Palawan

1996 Establishment of an Oil Mill PlantTrento, Agusan Sur

1998Financed first coop for oil palm productionBunawan, Agusan Sur

2001Financed coops in Davao Norte

2004Expansion to Bohol

2007

Historical Background of LBP’s Credit Intervention

LBP Financing for Oil Palm Production As of June 30, 2015

BY SECTOR

TYPE OF BORROWERS

NO. OF BORROWERS

TOTAL LOAN RELEASES

OUTSTANDING BALANCE

SMEs 9 47,773,179 41,395,468COOPs 30 512,499,613 478,227,303CORP 6 803,328,558 647,497,541CFI 3 12,211,280 12,211,280Total 48 1,371,812,630 1,179,331,5912

Island Group Loans Outstanding,

Php Billion

% to Total

Luzon 0.1238 10.49Visayas 0.6475 54.90Mindanao 0.4081 34.60Total 1.1793

LBP Financing for Oil Palm Production As of June 30, 2015

BY ISLAND GROUP

BASIC LENDING PARAMETER

Eligible Borrowers

•Cooperatives•Small and Medium Enterprises•Non-Government Organizations•Large Agribusiness Enterprises•Local Government Units

Eligible Projects •Development and maintenance of oil palm plantation

•Trading/Marketing•Acquisition of Fixed Assets

FINANCING PROGRAM FOR OIL PALM

BASIC LENDING PARAMETERLoanable Amount Generally, maximum of 80% of Total Project Cost

which shall be based on the following:a.Actual need and market condition of the borrowerb.LBP agricultural commodity modulesc.Data available with other government agenciesd.Specific requirement stipulated in the PTMA

Interest Rate Prevailing market benchmark rate + applicable spread

Term of the Loan Production - up to 10 years, inclusive of a grace period of up to 5 years.

Working Capital – 1 yearFixed Asset – depends on cash flow projections, but not more than the economic useful life of the asset

FINANCING PROGRAM FOR OIL PALM

BASIC LENDING PARAMETERAmount of Financing Per Hectare

P160,000.00 plus insurance premium for 5 years amounting to P17,679.00

For partially damaged plantation, new loans to be granted shall depend on the extent of damage.

Term 12 years, inclusive of up to 5 years grace period on principal and interest.

Principal and interest for the 1st 5 years shall be amortized over the remaining term of the loan

LBP-AGRI REHAB PROGRAM FOR OIL PALM

A. New Loan Structure

BASIC LENDING PARAMETER (NEW LOAN)Term (cont’d) For partially damaged plantation

12 years, inclusive of 3 years grace period on principal and interest or based on projects cash flow projections of the borrower, whichever is shorter.

B. Existing Account

Existing oil palm production loans will be restructured following the same terms and conditions of the of the loan under the rehab program, or based on cash flow projections.

LBP-AGRI REHAB PROGRAM FOR OIL PALM

Articles of Incorporation and certificate of Filing with SEC DTI Registration and current year Business Permit Certified List of Stockholders, Board of Directors and Key Officers

together with subscribed and paid-up capital Bio-data of Key Officers Customer Information Sheet BIR-stamped/filed Audited Financial Statement for the last three

(3) years together with the Income Tax Return Latest Interim Financial Statement Regular documentary requirements pertaining to offered

collaterals Business Plan (if start-up)

CORPORATIONS

DOCUMENTARY REQUIREMENTS

Photocopy of Registration with Articles of Cooperation/Incorporation and By-Laws

Bio-data of Officers and Board of Directors Board Resolution authorizing the Coop/NGO to borrow and

designating the authorized signatories Audited Financial Statement for the last three ( 3) years Feasibility Study

COOPS/NGOs

DOCUMENTARY REQUIREMENTS

Sanggunian Resolution Authorizing the Local Chief Executive (LCE) to borrow funds,

negotiate, sign documents and enter into a loan with LANDBANK

Approving the projects to be financed in accordance with the Approved Local Development Plan and Public Investment Program or Approved Annual Procurement Program, as the case may be

COA-Audited Financial Statement for the past three (3) years Approved Budget for the current year List of Elected Officials and Key Officers Schedule of LGU’s IRA for the past two (2) years Feasibility Study BLGF Certification on the Net Borrowing Capacity (NBC) for current

year Monetary Board Opinion issued by the Bangko Sentral ng Pilipinas (BSP)

DOCUMENTARY REQUIREMENTS

LGUs

Nucleus estate -oil palm plantation-oil mill

Smallholders Farm

Smallholders Co-op

• Plantation development - cost transferred to the coop thru bank loan - management transferred to coop

at the time the palm begins to yield fruits)

BANK

• Technical training & knowledge transfer

• Capacity buildingPMA

NUCLEUS ESTATE AND SMALLHOLDERS SCHEMEIndonesian Business Model

Members

• Land• Labor

Loan

• Services• Fees

Smallholders Farm

SmallholdersOil Mill Company

Sales Contract (12-14 Years)

Loans; Sales Proceeds, net of 30%

loan amortization

FFBs (starting on the 4th year)

Seedlings TA;

CONTRACT FARMING(COSTA RICA MODEL)

Farm management,under the supervision of the Mill

LBP OIL PALM PRODUCTION, PROCESSING AND MARKETING CHAIN FINANCING

(Commodity and Funds Flow)

Co-op Consolidator /

Conduits

Oil Palm Growers

Oil Mill(Palm Oil

Milling Co.

Oil Refinery(Palm Oil

Milling /Refining Co.)

Market(local/international)

- Refined oil- Other processed products

Fresh Fruit Bunches

Crude palm oil

Fresh Fruit Bunches

Funds Flow(loans/repayment)

LEGEND

Commodity Flow

RepaymentWorking Capital/Production loan

Fixed assetLoan/WorkingCapital

Repayment

•Sales (Net of Loan Repayment)•TA

Repayment/SalesRelending

Fixed asset loan/Working capital

Sales

Sales

Repayment

FEATURES:•Farm Management by Company•Set up Debt Service Reserve Account•Hierarchy of payment (from net sales proceeds):•Maintenance of DSRA•Loan amortization to LANDBANK•Coop share (5-7% net of FFB sales proceeds)•Loan amortization to Anchor Firm•Payment of management fee of Anchor Firm

LAND BANK OF THE PHILIPPINESLANDBANK Plaza, 1598 M. H. del Pilar corner Dr. J. Quintos Streets, Malate, Manila 1004 Philippine

www.landbank.com