IDC Funding for Industry Development, Upgrading, Expansion & Transformation

Presentation to the MEMSA01 Aug 2018

Ganief BardienSenior Industry Development ManagerMachinery and Equipment SBU

CONFIDENTIAL AND PROPRIETARYAny use of this material without the specific permission of the IDC is strictly prohibited

Contents

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§ Overview of the IDC

§ Application Process

§ Funding Schemes and Requirements

§ Corporate Plan and Objectives

The IDC is SA’s largest DFI that providing funding for industry growth across key industrial sectors

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National footprint with offices in all regions Performance Impact 2017/18

R16.7BnNet approvals of 202 transactions

29 885Jobs created or saved

R15.4BnFunding disbursed to industry

R8BnApproved for the manufacturing sector

R8BnApproved for BEE and Black Industrialist companies

Source: IDC Annual Financial Results

IDC relies on borrowings, internal profitability, capital growth and exits from mature investments to maintain and expand its funding ability

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Equity funding

Loan funding

Capital growth

Interest repayments Capital repayments

Dividend payments

Exits of mature investments

IDC Funds• Borrowings• Balance sheet• Mature investments• Retained earnings

The IDC is structured to serve the country’s core primary and manufacturing sectors

Mining & Metals Value Chain

Chemicals Value Chain

Agricultural Value Chain

§ Basic Metals and Mining

§ Machinery and Equipment

§ Automotive and Transport Equipment

§ Basic and Specialty Chemicals

§ Chemical Products and Pharmaceuticals

§ Clothing and Textiles

§ Agro-processing and Agriculture

§ New Industries§ Industrial

Infrastructure

High Impact Sectors

§ Heavy Manufacturing

§ Light Manufacturing

§ Tourism§ Media and Motion

Pictures§ Rest of Africa

Value Chains are earmarked for special attention including proactive project development, whilst High Impact Sectors are exclusively reactive

5Source: IDC Corporate Plan 2017/18

Funding activities are aimed at addressing catalytic project development, supporting industrial capabilities, transformation and risk funding for entrepreneurs

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Core Activities Key Customers Project Lifecycle

Sectoral Involvement

Funding Mechanisms

Regional Development

§ Development Finance

§ Project Development

§ Research and Input into Policy

§ Management of Ring-fenced Funds

§ Business Support Services

§ Capacity Building for Other DFIs

§ Large OEMs§ Small to Medium

Companies§ Other DFIs

§ Concept and Scoping

§ Pre-feasibility Studies

§ Bankable-feasibility Studies

§ Product Commercialis-ation

§ Plant Commissioning

§ Expansions

§ Mining and Metals Beneficiation

§ Agriculture and Agro processing

§ Basic and Specialty Chemicals

§ Machinery and Equipment

§ Automotive and Transport

§ Clothing and Textiles

§ Tourism§ ICT§ Media and

Motion Pictures§ Renewable

Energy§ New Industries

§ Debt§ Equity§ Quasi-equity§ Export-Import

Finance§ Short-term Trade

Finance§ Bridging Finance§ Guarantees§ Wholesale

Funding through Intermediaries

§ Rest of Africa§ Export Focus of

SA Manufactured Capital Equipment

Source: IDC Corporate Plan 2017/18

Contents

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§ Overview of the IDC

§ Application Process

§ Funding Schemes and Requirements

§ Corporate Plan and Objectives

Over the next 5 years the IDC aims to leverage its balance sheet to approve R100Bn of funding into the economy

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Basic Metals and Mining, Machinery & Equipment, Automotive

Basic and Specialty Chemicals, Chemical Products, Pharmaceuticals

Industrial Infrastructure

Agriculture and Agro-processing

Clothing and Textiles

High Impact Industries

New Industries

The IDC’s key funding objectives are:

§ Industrial Capacity Development‒ Start Ups‒ Expansions‒ Localisation‒ Regional Integration

§ Job Creation‒ New Jobs‒ Saved Jobs

§ Economic Transformation‒ Black Industrialists‒ Women‒ Youth

§ Competitiveness‒ Innovation‒ Upgrading‒ Commercialising R&D

Source: IDC Corporate Plan 2017/18

Mining, beneficiation and downstream metals sectors are key focus areas for investment by the IDC due to their strong economic linkages

The Metals Value Chain Division value chain and industry development goals (IDGs)

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A local machinery and equipment industry that

fulfils a demand for machinery and equipment

in SA and RoA

Machinery & Equipment

Ensure globally/domestically competitive mining, metals industry and downstream manufacturing of: automotive, machinery & equipment, fabricated metals and other downstream metal products

A diversified local metal products industry that

produces metal products consumed in SA, in

addition to developing strong export markets

Basic metalsA local steel and metal industry that produces a range of basic metals at prices, specification and quality that will enhance the competitiveness

and stimulate growth of downstream industries

To increase supplier Manufacturing Value Add(MVA) in support of

producing vehicles in SA, increasing local content and advancing

transformation; and transportation industry that manufactures and/or

assembles transportation equipment for domestic and export market, and

is a key global player for components

Automotive &Transport Equipment

Metal Products

A competitive sustainable modern, innovative and social responsible mining industry

Mining

• Strategic minerals supporting other strategic sectors

• Large mines with a sustainable positive impact on communities

Contribute to a competitive mining and metals beneficiation industries including downstream manufacturing

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Basic Metals and Mining

Machinery and Equipment

Automotive and Transport Equipment

Focus Areas: Selected Key Projects:§ Security of supply of energy minerals§ Mining in transition – towards a 21st

century mining model§ Inputs for downstream metals sectors§ Competitively priced basic metals for

downstream industry development

§ Development of Waterberg Coalfields§ Introduction of steel mini-mills§ Scrap replacement for steel production

§ Power generation, transmission and distribution equipment

§ Mining, quarrying and construction§ Bulk materials handling and heavy lifting § Oil & gas, water handling, storage and

distribution

§ Gas cylinder manufacturing§ Low to medium voltage cables§ Instrumentation cables§ Solar panel manufacturing§ Mine drilling equipment

§ Expand local vehicle manufacture and assembly

§ Expand local rail and rolling stock industry§ Expand local and regional aviation industry§ Expand ship and boat building industries

§ Coega IDZ BAIC project§ Multi-OEM automotive assembly§ Complete knock-down bus assembly§ Automotive grade aluminium body sheets§ Forged train wheels

Contents

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§ Overview of the IDC

§ Application Process

§ Funding Schemes and Requirements

§ Corporate Plan and Objectives

The IDC manages a number of concessionary development funds available for industry

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UIF II

MCEP

Downstream Steel Industry Competitiveness Fund

SUNREF Fund

§ Size R5Bn§ R750k per job (150 jobs does not

apply)§ Pricing between 8.4% and 10.94%§ Limit R50m per applicant

§ To contribute towards sustainable job creation and retention by supporting job creating transactions while providing concessionary funding

§ Blended with 30% IDC risk priced funding

Key Objective: Size:

§ To assist manufacturing companies with working capital and Black Industrialists with capex

§ Blended with 20% IDC risk priced funding

§ Size R1Bn§ Pricing 4%§ R50m per applicant§ 48 months/ 84 months

§ To assist struggling metals and engineering sector with an interest rate subsidy to normal IDC risk pricing

§ Size R1.5Bn§ Pricing subsidy 1.5% - 2%§ Maximum investment R75m

§ To provide finance to renewable energy and energy efficiency projects § Size US$80m§ Pricing prime + 1.6%§ Technical assistance

component (grant)

Technology Venture Capital

§ To provide finance to SME’s for the commercialisation phase of their locally developed innovative projects with the aim of increasing South Africa’s global competitiveness.

§ Size R145m§ RATIRR of 3%§ R1 to R5m

Exports§ To fund for South African manufacturers to fulfill export orders§ Extending credit lines to other DFIs – usually conditional that

equipment sourced in SA

§ Case-by-case§ IDC risk pricing§ Ring-fenced funding up to

75% of contract cost

Our funding objectives are to invest in productive capabilities, facilitate industry transformation and value chain development

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Industrial Expansion

Contract Finance

Ownership Transformation

Supplier Development

Start Ups

§ Expansion of a current business§ Expanding of product line / R&D§ Funding plant and equipment

§ Working capital for large orders (Ring fenced)§ Local – 100% of contract cost; Export – 75% of

contract cost

§ BEE score 4 or higher§ Meaningful stake 26%; 51% or 100%§ Valuation methodologies: EBITDA x 4 / NAV / DCF

§ Provide consolidated off-take; we will fund supplier expansion§ Youth Scheme – preferential rates

§ Market / off-take§ IDC Equity / Debt role and delayed repayments

The IDC’s overriding criteria is a consideration of the economic merit of the transaction or project

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§ Projects or existing business must be self-sustainable and show economic merit (profit or profit potential)

§ Typical shareholder contribution requirements‒ Greenfield projects ~ 40% to 50%‒ Existing going-concern entities ~ 35%

§ Deviation to above consider depending on the risks and impacts (jobs and other development criteria) of the project/going-concern entity

§ Available debt/equity instruments‒ Preference secured senior debt‒ However other forms of debt, quasi-equity and/or equity‒ Equity high impact expected turnover > R200m

§ Other Criteria‒ Interest rated for debt is prime-linked and risk-based payable monthly after first draw‒ Repayment period of between 3 and 10 years‒ Capital moratorium of one year applies‒ BEE criteria of 4 or a viable transformation plan‒ Minimum funding amount R5 million if below refer to SEFA

Contents

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§ Overview of the IDC

§ Application Process

§ Funding Schemes and Requirements

§ Corporate Plan and Objectives

IDC funding process determined by the complexity of the application

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Basic Assessment

Signing of Legal Agreements

Due Diligence

Credit Committee Approval

Post Investment Monitoring

Disbursement

§ Shareholder/management information§ Financing requirement§ Market information§ Technical information§ Development impact§ Non-complex transactions – 15 day turnaround§ Project development – scoping → pre-feasibility →

bankable feasibility → implementation § Ownership transformation through acquisition– BEE criteria

score level 4 or higher or viable transformation plan§ Black industrialist – 51% or higher

Submission of mandatory information one of the main reasons for holding up applications

The Industrial Development Corporation19 Fredman Drive, SandownPO Box 784055, Sandton, 2146South AfricaTelephone (011) 269 3000Facsimile (011) 269 2116E-mail callcentre@idc.co.za

Thank You

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Key Element Charter 2004 Charter 2010 Charter 2017 Charter 2018

Procurement

§ Commit to procure capital goods, consumables and services from HDSA

§ Procure 40% of capital goods from BEE entities by 2014

§ Foreign multinational suppliers of capital goods must contribute 0.5% of annual income generated from local mining companies to socio-economic upliftment

§ Procure 70% of services and 50% of consumer goods from BEE entities by 2014

§ Holders must procure 70% of mining goods on SA manufactured goods (60% local content) as follows:‒ 21% SA manufactured goods

must be sourced from Black Owned companies

‒ 5% SA manufactured goods must be sourced from female Black Owned and/or Youth Black Owned

‒ 44% SA manufactured goods must be sourced by BEE compliant companies

§ Holders must procure 100% of services from SA based companies as follows:‒ 65% of services must be sourced

by Black Owned companies‒ 10% from Black Owned female

companies‒ 5% from Black Owned youth

companies

§ A Holder must use SA companies to do 100% of sample analysis locally

§ A Holder must provide proof of local content from the SABS – suppliers of goods and services must provide local content certification

§ 70% of total mining goods must be locally procured (with 60% + local content)

‒ 21% of on goods manufactured by Black entrepreneurs

‒ 5% on goods manufactured by BEE woman entrepreneurs or 51% on goods manufactured by youth owned enterprises, and

‒ 44% on goods on a BEE compliant companies

§ 80% of total spend must be services

from South African companies which in turn is broken down into sub-categories:

‒ 60% on BEE entrepreneurs; ‒ 10% on BEE women or 51%

youth owned enterprises; ‒ 10% on BEE compliant

companies.

§ 5% of a procurement budget and 10% of a services budget may be off-set by investing in enterprise and supplier development

§ 100% of samples must be analysed locally

§ 70% of rights holders R&D budget must be spent in SA

§ Foreign suppliers must contribute 0.5% of local turnover to Mandela Mining Equipment Precinct

§ Rights holder must provide annual proof of local content verification