impaired loan advisory services (ilas) - kpmg international · brasil canada china czech republic...

Impaired Loan Advisory Services (ILAS)São Paulo, Brasil10 April 2008

CORPORATE FINANCE

ADVISORY

1© 2008 KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Brazil.KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

There are NPL Opportunities Across the Globe

AustraliaArgentinaBangkokBrasilCanada China Czech Republic GermanyGreeceHong Kong India Indonesia

ItalyJapan Korea MalaysiaMexico Philippines PolandSingapore Thailand TurkeyUKUSA

We have recently seen NPL portfolios and single name transactions in the following jurisdictions:

Greece

Turkey

Poland

Germany

ItalySpain

China

South Korea

PhilippinesMalaysia

Thailand

India

Brazil

Argentina

Mexico

KeyEmergingCurrently activeInactive/in declineHot prospect


Market Size

3.9Argentina

116.0Brasil

12.0Malaysia

30.0India

2.5Philippines

194.0China

102.5Japan

93.5Indonesia

11.2Taiwan

9.0Poland

7.3Thailand

7.3Korea

2.6Czech Republic

Total NPLs(US$bn)

Largest known concentrations of NPLs(estimates at May 2007)

Source: KPMG LLP

204.9Germany


NPL Drivers

Portfolio composition

Disposal structure

Disposal options

Number/volume of assets and classes:− Corporate− Small medium

enterprise− RetailCurrent or agedSecurityRegional or nationalSector

Portfolio compositionLevel of demandSellers involvement in workoutSize of portfolioMaturity of marketAccess to capital market

Portfolio auction:− Cash sales − Deferred

considerationInvitation only - Bilateral or small group


Key Issues

Methodologydifferences in

pricing

Investor relevant

information

Maturing NPL market

Sale structures Taxation Price erosion

Secondary market

opportunity

Servicing capabilities


Key Buyers

Investment banks Special situation funds

Developing buyers


Buyers Perspective

… all impact value

Buyers have given feedback on those issues …

Buyer issues

Access to credit and account

officers

Timing of release of SPA

Adequacy of sellers representations and warranties

Breakdown of principle, interest and

penalty charges

Quality of data room information


Current Situation of NPL Brazilian Market

kpmg


0%

10%

20%

30%

40%

50%

60%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

*

GD

P%

Credit/ GDP Public debt/ GDP* Jul/ 2007

Source: Central Bank of Brazil

Public debt X Credit (GDP%)

Brazil Current SituationMacroeconomic Overview


Country Risk - Brazil (Embi+)

0

500

1000

1500

2000

2500

Jan00

Jan01

Jan02

Jan03

Jan04

Jan05

Jan06

Bas

is p

oint

s

Record down


Jan07

Brazil Current SituationMacroeconomic Overview (cont.)


Consumer35%

Industry23%

Commercial10%

Rural9%

Public Sector2%

Real State5%

Services16%

NFS total credit – R$ billion

300

400

500

600

700

800

900

1000

Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08

R$

billi

on

A - C (0 - 60 days past due) D - H (61 - 360 days past due)

CAGR = 22.5%

958


Brazil current situationMacroeconomic overview (cont.)


0%

30%

60%

90%

120%

150%

180%

Ireland

England

China

Spain

Chile

India

Bulgaria

Brazil

Russia

Zimbabwe

Venezuela

Argentina

Credit/GDP

Source: INEPAD and FMI Global Financial Stability Report 2005

Brazil current situationMacroeconomic overview (cont.)

35%


17%

46%

37%

Commerce

Industries

Services14.3%14.1%

12.5%13.1%

13.8%

10%

11%

12%

13%

14%

15%

2002 2003 2004 2005 2006*

% G

DP

Trade credit/GDP Trade credit breakdown (2006)

100% = R$297 billionSource: SERASA

Credit Portfolio Growth

ServicesIndustriesCommerce

Segment

20%27%

13%14%

Revenues Growth

30%28%

Growth revenues and credit portfolio –2002 to 2006*

Credit card, checks or trade notes - that are on the company balance sheets.

Over the last four years, this portfolio has expanded by 30% while revenues grew 28%. Since 2002, credit extended by industry has grown 20%, lower than revenues expansion which increased 27%.

* September 2006

* September 2006.

Source: SERASA

Brazil Current SituationTrading Credit

Source: SERASA



Risk weighted total credit of the NFS - February/08 (R$ million)

Aging Public Sector Industry Real

Estate Rural Commercial Consumer Services Total

AA 8,590 87,761 7,369 19,981 23,871 33,181 52,402 233,156 A 4,665 72,733 16,312 25,831 36,623 182,739 54,482 393,385 B 2,336 38,787 7,692 20,285 22,419 44,360 29,297 165,175 C 1,002 12,724 10,576 13,360 9,544 27,499 13,150 87,856 D 748 1,994 1,344 4,773 1,805 10,700 2,370 23,733 E 1,255 827 408 1,785 919 4,883 1,970 12,047 F 5 778 393 875 751 4,129 675 7,606 G 0 632 231 957 384 3,338 490 6,032 H 185 2,276 2,727 2,733 2,226 15,334 3,111 28,592

Total 18,787 218,512 47,051 90,579 98,544 326,162 157,945 957,581

Brazil Current SituationEvolution of Delinquency Within the NFS

D-H78,010


52.674

60.96068.115

75.06578.010

8%8%9%10%11%

0

40

80

2004 2005 2006 2007 2008

R$

(bill

ion)

0%

10%

20%

30%

40%

Credits between 61-360 days past due % of total credits

CAGR = 13%

Credits between 61 to 360 days past due


Brazil Current SituationEvolution of Delinquency Within the NFS (cont.)

*

* February 2008


3% 8%

7%

14%

8%

11%

49%

Public SectorIndustryReal StateRuralCommercialConsumerServices

Break down of credits between 61 to 360 days past due – February/08


Brazil Current SituationEvolution of Delinquency Within the NFS (cont.)


SellerSeller FIDCFIDC Investor’s AMC

Investor’s AMC

Purchase Price

Target asset for sale

Asset Management

InvestorInvestor

Purchase PriceABS(Bond, Stock)

SellerSeller FIDCFIDC Bank as AMC

Bank as AMC

Purchase Price


Asset Management

InvestorInvestor

Purchase PriceABS(Bond, Stock)

Outright Sale

Outright Sale (bank as a servicer)

Transaction Structures - Brazil


partnership

SellerSeller JV-FIDCJV-FIDC JV asAMC

JV asAMC

X% of Purchase Price


Asset Management

InvestorInvestor

100% - Y% ABS(Bond, Stock)

Investment SellerSeller

100% - X% of PurchasePrice

Y% ABS(Bond, Stock)

Joint Venture

Transaction Structures - Brazil (cont.)


Bank

FIDCInvestor Custodian

Administrator

Audit

Services

Master Servicer Auctioneer

RemarketingCredit bureau

Lawyer Collectors

Debtors

Representation Services

Sale

Restrictive

Judicial Extra Judicial

Plaintiff

Defender

Master ServicerManaging the cycle of recovery credits;Strategy of collection and reports;Definition with the investor the total budget of collection process.

FIDC Structure for NPL Deals


Judgmental vs statisticalSingle accumulation vs portfolio benchmarkingCorporate vs retail

PURE JUDGEMENT

“SCORESHEET” PURE MODEL

I

“TEMPLATE”

II III IV

Typical Bank

Practices

Large average loan sizeComplex, non-standard product structureLow frequency of credit reviewJudgment-oriented credit culture

Large average loan sizeComplex, non-standard product structureLow frequency of credit reviewJudgment-oriented credit culture

Small average loan sizeSimple, homogeneous product structureHigh frequency of credit reviewModel-oriented credit culture

Small average loan sizeSimple, homogeneous product structureHigh frequency of credit reviewModel-oriented credit culture

Credit CardsConsumer Lending

Small BusinessLarge Corporate

Pricing Methodologies


KPMG

kpmg


KPMG’s Service Offering

KPMG have identified three service offerings for buyers and sellers of distressed loan portfolios:

Portfolio management

Portfolio acquisition

Portfolio divestment


We Use Specialist Experience Across the Firm

Skills/Experience Area

Due diligence expertiseEstablished process

Transaction Services

In depth knowledge of recovery frameworksExperience of distressed assets and recovery against those assetsRelationships with large number of potential buyers

Restructuring

Acquisition/disposal expertiseNegotiation assistanceExperience of deal structuring

Corporate Finance/ Real Estate

Technical expertiseFRM solutions

Global experience in tax both pre and post transactionTax/Regulatory


We Use Specialist Experience Across the Firm

Transaction Services

Restructuring

Corporate Finance Real Estate

FRM solutions

Securitisation Services

Tax/Regulatory

Portfolio management

Portfolio transfer

Dataroom based portfolio

assessment

Pre-data room portfolio

assessment


Why KPMG?

Global experience and local knowledge

Proven ability to provide

robust opinions

Depth of relevant market and functional

experience

Proven ability in our

deliverables, including global

expertise, if required

Our team is committed and

available

Available specialists for any follow on


Co-ordination

The teamTo maximise value to clients we team local knowledge with global experience.

Global Sponsor (Mick McLoughlin)

Co-ordination role (David Burlison/Marykay Fuller/

Josie Richardson)

AmericasTodd Martin

Salvatore Milanese

ASPACChino San

Jannie Wong

EuropeTammo Andersch

Frank Nagel

TS SponsorGopal RamanathanYannick de Kerhor

Marketing supportJonathan Lavender


Questions

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Presenters’ contact detailsDavid BurlisonKPMG LLP+44 (0) 20 7694 [email protected]

Marykay FullerKPMG LLP+44 (0) 20 7311 [email protected]

Salvatore MilaneseKPMG Corporate Finance Ltda. (Brazil)+55 11 3245 [email protected]•The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. •The services mentioned herein are offered by member firms of KPMG network of independent member firms affiliated with KPMG International.

impaired loan advisory services (ilas) - kpmg international · brasil canada china czech republic...

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