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Microsoft PowerPoint - U Roode presentation_TMA-SA_210409_ver4_Final
Presented to TMA-SA by Ulendo Roode
Clothing & Textiles SBU
Industrial Development Corporation of SA Limited
The role of Development Finance Institutions
in Turnarounds
21 April 2009
Discussion Items
Development Finance Institutions (DFI);
IDCs role as a DFI:
P
rofile
;
A
ppro
ach/a
ppetite
for tu
rnaro
unds;
C
ase s
tudie
s;
N
on-fin
ancia
l fo
rms o
f busin
ess s
upport;
Discussion
Development Finance Institution (DFI)
defined
Development Finance is a specialised sectorof the financial industry, usually majority owned by national governments;
It aims to bridge the gapbetween commercial investments and State development aid;
DFIs typically invest in either public or private-sector projects and expansions;
DFIs play an important role in servicing the investment needs ofspecifically developing countries and emerging markets;
The financial support DFIs bring to relatively high-riskprojects/expansions help to mobilise the involvementof private capital,
bringing in commercial banks, investment funds or private businesses and companies;
In addition, DFIs often act in co-operation with governments and other organisations from feasibility studyphase to project
implementation;
DFIs provide funds, either as equity participation, loans or guarantees;
DFIs source their capitalfrom national or international development funds or benefit from government guarantees which
ensures their credit-worthiness;
The investment activities of DFIs, which focus mainly on economic perform
ance and return on investment, not only mark a
departure from the past in a bid to reduce dependence on development aid, but encourage the entrepreneurial spirit.
Source: European Development Finance Institutions
Growing sectoraldiversity
The IDC: Vision, mission, objectives &
outcomes
Vision Mission Objectives Outcomes
To be the primary driving force of commercially sustainableindustrial development
and innovationto the benefit of South Africa and the rest of the African continent
The IDC is a self-financing national development finance institution whose primary
objectives are to contribute to the generation of balanced, sustainable economic growth in
Africa and to the economic empowerm
ent of the South African population, thereby
promoting the economic prosperity of all citizens. The IDC achieves this by promoting
entrepreneurship through the building of competitive industries and enterprises based on
sound business principles.
Supporting industrial development capacity
Promoting entrepreneurship
Sustainable employment
Broad-based black economic empowerm
ent
New entrepreneurs
entering the economy
Growing the SME sector
Regional equity
Industrialisation in the rest of Africa
Environmentally sustainable growth
The IDC: Corporate profile
Established in 1940, the IDC is a self -
financing, State-owneddevelopment
finance institution;
IDC addresses market failures / gapsby
supporting investments, which may otherwise
not happen, in partnership with private sector
companies;
IDC investm
ents are for development
purposes, ideally generating developmental
as well as financial returns, within an
acceptable risk profile;
Provides financing to entrepreneurs
engaged
in competitive industries and enterprises
based on sound business principles;
Pays income taxat corporate rates and
dividendsto the shareholder;
IDCs Leadership in Development
strategy underpins the creation of
sustainable employmentas one of the
most important outcomes that the
corporation aims to achieve in its
investm
ent activities;
The IDC is self-sustainingand does not
rely on government
guarantees in
accessing capital;
Self-fundingthrough:
internal
profitability
(retained
earnings)
divestm
ents from mature assets
borrowings in international markets
domestic bond market
Agriculture
Mining
Manufacturing
Service-related sectors
Energy
Tourism
IT
Telecoms
Motion pictures
Healthcare & education
Transport & storage
Venture capital
Government / corporate tenders
Franchising
Financial services
Construction
2010
Other
Public private partnerships
Development agencies
The IDC: Sectoral involvement
The IDC: Financial instruments
Flexible deal structuring
Equity
Quasi-equity
Commercial debt
Wholesale & bridging finance
Share warehousing
Export/import finance
Short-term
trade finance
Venture capital
IDC offers a wide array of financial
instruments, including :
These may be provided alone or in
combination
The IDC: Handling clients in distress
Clients w
ith high-risk profilesare identified and given special attention to
manage the IDCs exposure, minimise potential losses and maximise
sustainable development returns;
The IDC assists companies in recoveringfrom difficulties in order to limit
any losses in jobsdue to business closures;
One of the m
ain objectives is preventing financial failure of identified high
risk clients who are unable to meet their financial commitments:
by initiating the restructuring and turnaround of such client (subject to the
client displaying potential economic viability)
to ensure that the clients are able to continue with their norm
al business
operations and thereby prevent the loss of job opportunities, technology,
exports, etc.
safeguard IDCs position
The IDC: Turnaround approach
Form
al methodology?
Underpinned by detailed due diligence process;
Financial restructuring:
M
ora
torium
on c
apital re
paym
ent
D
efe
rment of capital (a
nd inte
rest)
Takin
g o
f equity
C
onvers
ion/w
rite
-off o
f lo
ans
Strategy review;
New projects;
Integrations/consolidation/operational restructuring, and
Management & Board representation.
The IDC: Case Study 1
Background:
Yarn
spin
ner from
im
ported raw
mate
rial;
Fore
ign p
artner esta
blis
hed in S
A w
ith ID
C, D
TI and local govern
ment support;
Fore
ign p
artner supplie
d a
ssets
and a
ccess to m
ark
ets
as c
ontrib
ution;
C
hin
ese flo
oded the inte
rnational m
ark
et w
ith the a
bolis
hm
ent ofth
e M
ulti Fib
re A
gre
em
ent;
S
ignific
ant glo
bal lo
sses b
y the F
ore
ign p
artner, e
ventu
ally
withdra
win
g fro
m S
A o
pera
tion;
ID
C d
ecid
ed to take u
p m
ajo
rity
control to
save jobs a
nd s
econded a
n inte
rim
CE
O;
Early warning signals:
A
s p
er above;
C
ontinued losses;
N
egative p
erc
eption in the m
ark
et com
bin
ed w
ith q
ualit
y p
roble
ms;
C
ash flo
w p
roble
ms;
O
bsole
te s
tock, hig
h m
ain
tenance s
pare
s levels
;
Turnaround options:
S
trate
gy v
s o
pera
tions turn
aro
und (re
define the b
usin
ess ito
vertic
al in
tegra
tion a
nd revenue
enhancem
ent, b
ut m
ain
ly c
ost-cuttin
g/e
ffic
iency im
pro
vem
ents
in functional are
as);
C
ash m
anagem
ent needed (re
ceiv
able
s, payable
s, in
vento
ry, in
centives)
The IDC: Case Study 1 (cont.)
Reasons/causes for distress situation:
A
ssets
were
over-
valu
ed a
nd n
ot necessarily
in b
est conditio
n;
Local pro
duction o
f ra
w m
ate
rial fa
iled;
A
sin