Description
During this criteria around idcs role during distressed times countering the impact of the economic crisis.
IDC’s Role during Distressed Times
“Countering the impact of the economic crisis”
1
Growing sectoral diversity
The Role of IDC in the South African Economy
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To be “the primary driving force of commercially sustainable industrial development and innovation to 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
empowerment 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 empowerment
New entrepreneurs
Growing SME sector Regional equity
Industrialisation in the rest of Africa
Environmentally sustainable growth
3
Differentiation: IDC vs. commercial financiers
Commercial financiers
• Shorter-term view, consolidation
• Tighter credit criteria
• Restructuring portfolios
• Less credit being granted
IDC
• Long-term view on companies’ viability
• Accommodative credit criteria, willing to
consider applications for funding from
new clients in distress for cyclical
reasons
• Assisting existing clients in distress
• Honouring investment budget
Overview of economic crisis/recession
• The growth in real gross domestic product (GDP) slowed to 3,1%in 2008,which was notably lower than the
annual growth rates that varied between 4,9% and 5,3% from 2004 to 2007
• Annualisedquarter-to-quarter real GDP contracted by -6,4% and -3% during the first and second quarters of
2009 respectively.
• In November 2009, South Africa emerged from its first recession in 17 years by achieving 0,9% growth in the
third quarter, primarily driven by a rebound in the manufacturing sector.
• In the first quarter of 2010 real GDP at market prices increased by 4,6 %
• The mining and metals, property and the automotive industry were amongst the worst hit
4
Business
How businesses were affected
Financial institutions
tightening credit
criteria, extending
less credit
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
IDC assists in filling the gap in the market left by financial institutions extending less credit and thereby
ensuring that jobs and capacity at viable businesses are being retained.
Creditors and
debtors under
financial pressure
Excess stock
build-up
Lower levels of
foreign demand
Internal cash flow
pressures
How are the sectors recovering?
• Rising energy costs look to make cost containment difficult
• Rand strength undermines the pace of the recovery
• Government infrastructure spend should increase demand for iron and steel
• Strong economic growth in China bodes well for steel market
• Slow recovery in vehicle sales: Total sales for June 2010 (including non-Naamsafigures) were 39 931,
compared with 33 124 in 2009
• Vehicle export sales grew by 73,6% year-on-year in June 2010 mainly consisting of passenger and light
commercial vehicles (20 434 vehicles were exported in June 2010, 11 768 in June 2009)
• The high debt levels, job losses and deteriorated credit records will be the key constraint to the recovery in
new-vehicle sales
6
Background of the distress fund
• At the onset of the economic crisis in 2008, IDC realisedthat South Africa would not be spared the effects of
the recession. Proactively, it formed a response to assist companies centered on specific themes:
– Funding provision to businesses that were in distress primarily as a result of the economic crisis i.e.
economically viable companies
– Intervention focused on businesses that have the potential to emerge from the crisis and assist in building
a more competitive economy
– Assistance aimed at businesses that have a high developmental impact e.g. job creation
• Assistance is not sector-specific although some sectors were harder hit by the recession than others
• Funding takes place in the form of loans
Objectives in providing funding for Distressed Companies
• To assist companies that were successful before the onset of the economic crisis to withstand the impact of
the recession and have the ability to continue growing once economic conditions improve
• To assist with capacity and saving jobs during the challenging phase of the cycle
• To create and preserve permanent jobs efficiently
• To retain funds in the business to finance working capital requirements, operational and capital expenses
which results in improvement of efficiencies and competitiveness of the business
• To ensure liquidity by providing funds that are not accessible from banks
8
• Bailing out stakeholders
• Normal expansions –covered by normal
IDC finance
• Refinancing existing facilities
• Share buy-backs
• Grant funding
9
Distress Funding is not intended for:
Development impact:
• Being a labour intensive industry, job creationfrom
high to lower levels will naturally follow
• Furniture manufacturing creates linkages, especially
backward to forestry & sawmilling
• Development of rural areas will flow from this higher
forestry demand
• Increased local manufacture is essential for import
replacement
But is intended for example distressed furniture businesses:
Example: Furniture challenges & imports trends
ANALYSIS OF
IMPORTS
2005 2006 2007 2008
R'm R'm R'm R'm
Total imports(R'm) 1,515 2,005 2,399 2,661
Increase in
imports 65% 32% 20% 11%
Wood (R'm)* 350 467 578 590
As a % of total imports 23% 23% 24% 22%
China (R'm) 683 1,557
As a % of total imports 45% 59%
10
Key challenges:
• Dominance of retailers (price, expected profit
margins, payment terms, product specifications)
• Lack of skillsrelated to product costing, quality
monitoring & management skills
• Type of products, lower market-end vsniche
products, product range
• Competition from cheap imports
• Raw materials: price, availability and distance
• Overall market failures are common, lack of
marketing strategies
Combined with economic downturn . . .
Requirements for selecting companies in distress
• The company must have a clear turnaround plan which contributes to the sustainable recovery of the
business –return to acceptable levels of sustainability within a reasonable period
• If the company is in a start-up phase and has not yet achieved profitability, assisting the company could be
considered provided:
– Its performance has been in line with budgets as per its initial business/project plan
– IDC is satisfied that the business was performing in line with what could be expected before the
economic crisis
11
Funding instruments utilised
• Structured depending on business need and capacity
• Short or medium/long term facilities
• Working capital facilities - finance the working capital requirements (stock, debtors and creditors) as well
as operational expenses of the business
• Guarantees - to guarantee outside facilities
• Suspensive sale facility or loan facility - finance capital expenditure which could improve a company’s
viability
• Equity - could be considered where the company is under-capitalised
• Capital deferments and debt conversion (existing clients)
• Capital moratoria and interest capitalisation
12
Special Considerations
• Possible needs from the business:
– To identify areas for business enhancement
– Consolidation or rationalisation –business and industry
– Business support
• Companies’ performance monitored closely
• Buy-in from other stakeholders is essential –shareholders, management, other funders, creditors,
employees
13
Distress Fund progress
• The corporation allocated R6.1 billion over the 2010 and 2011 financial year:
– R1.4 billion of this funding was approved to 28 companies in 2010
– 8 800 jobs expected to be created and saved as a result of funding to companies in distress
• Funding has been dispersed to:
– The mining and primary metals industry as it was hit hard due to commodity prices declining sharply
– The fabricated metals, machinery and motor vehicle industries received the second largest portion of
funding –this was impacted by the slowdown in consumer spending on luxury goods
– Other industries that received a larger portion of distress funding were the forestry, sawmilling and
transport industries
14
Distress Fund progress (continued)
• The role that IDC played in these transactions went beyond that of a financier
– IDC’s participation in the process, frequently involving intense negotiations, gave comfort to other partners
in the business
– Additional funding provided gave companies the lifelineneeded to implement strategies to turn around
their operations and be in a better position to emerge from the recession successfully
• Despite a higher proportion of applications for funding approved when compared to overall funding
applications, the level of uptake for distressed funding has been lower than expected
• Momentum is being gained in assisting the development of ‘green industries’ through participation in early
stage feasibility studies and direct funding approvals
• Steps taken to lower the cost of funding to businesses by establishing a partnership with UIFto source funds
aimed at creating jobs efficiently
15
Applying for finance
• Minimum funding:
– A minimum loan size of R1 million; and
– Minimum equity amount is R5 million
• Maximum Funding:
– Maximum borrowing per transaction will be R100 million
• Latest audited and actual financials
• Your updated business plan focusing on the company turnaround
• A detailed description of the nature of the investment required, related costs and revenues.
• Prove development impact such as:
– BEE, rural and SME development in addition to job creation and preservation
• Transactions with a cost per job of more than R450 000 will not be eligible to receive funding from this fund
16
Conditions attached to funding
• Some restrictions attached to approvals for distressed funding (done on a case-by-case basis):
– Management remuneration
– Payment of dividends
– Repayment of shareholders loans
– Existing shareholders disposing of their shareholding
– Payments to creditors
– Capital repayment of bank loans
– Job losses
17
Contact details
• To apply or for further enquiries, contact:
– IDC call centre –086 069 3888
– Email: [email protected]
– Website: www.idc.co.za
– Address:
19 Fredman Drive, Sandown
PO Box 784055, Sandton, 2146
South Africa
18
doc_191323611.pdf
During this criteria around idcs role during distressed times countering the impact of the economic crisis.
IDC’s Role during Distressed Times
“Countering the impact of the economic crisis”
1
Growing sectoral diversity
The Role of IDC in the South African Economy
V
i
s
i
o
n
M
i
s
s
i
o
n
O
b
j
e
c
t
i
v
e
s
O
u
t
c
o
m
e
s
To be “the primary driving force of commercially sustainable industrial development and innovation to 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
empowerment 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 empowerment
New entrepreneurs
Growing SME sector Regional equity
Industrialisation in the rest of Africa
Environmentally sustainable growth
3
Differentiation: IDC vs. commercial financiers
Commercial financiers
• Shorter-term view, consolidation
• Tighter credit criteria
• Restructuring portfolios
• Less credit being granted
IDC
• Long-term view on companies’ viability
• Accommodative credit criteria, willing to
consider applications for funding from
new clients in distress for cyclical
reasons
• Assisting existing clients in distress
• Honouring investment budget
Overview of economic crisis/recession
• The growth in real gross domestic product (GDP) slowed to 3,1%in 2008,which was notably lower than the
annual growth rates that varied between 4,9% and 5,3% from 2004 to 2007
• Annualisedquarter-to-quarter real GDP contracted by -6,4% and -3% during the first and second quarters of
2009 respectively.
• In November 2009, South Africa emerged from its first recession in 17 years by achieving 0,9% growth in the
third quarter, primarily driven by a rebound in the manufacturing sector.
• In the first quarter of 2010 real GDP at market prices increased by 4,6 %
• The mining and metals, property and the automotive industry were amongst the worst hit
4
Business
How businesses were affected
Financial institutions
tightening credit
criteria, extending
less credit
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
IDC assists in filling the gap in the market left by financial institutions extending less credit and thereby
ensuring that jobs and capacity at viable businesses are being retained.
Creditors and
debtors under
financial pressure
Excess stock
build-up
Lower levels of
foreign demand
Internal cash flow
pressures
How are the sectors recovering?
• Rising energy costs look to make cost containment difficult
• Rand strength undermines the pace of the recovery
• Government infrastructure spend should increase demand for iron and steel
• Strong economic growth in China bodes well for steel market
• Slow recovery in vehicle sales: Total sales for June 2010 (including non-Naamsafigures) were 39 931,
compared with 33 124 in 2009
• Vehicle export sales grew by 73,6% year-on-year in June 2010 mainly consisting of passenger and light
commercial vehicles (20 434 vehicles were exported in June 2010, 11 768 in June 2009)
• The high debt levels, job losses and deteriorated credit records will be the key constraint to the recovery in
new-vehicle sales
6
Background of the distress fund
• At the onset of the economic crisis in 2008, IDC realisedthat South Africa would not be spared the effects of
the recession. Proactively, it formed a response to assist companies centered on specific themes:
– Funding provision to businesses that were in distress primarily as a result of the economic crisis i.e.
economically viable companies
– Intervention focused on businesses that have the potential to emerge from the crisis and assist in building
a more competitive economy
– Assistance aimed at businesses that have a high developmental impact e.g. job creation
• Assistance is not sector-specific although some sectors were harder hit by the recession than others
• Funding takes place in the form of loans
Objectives in providing funding for Distressed Companies
• To assist companies that were successful before the onset of the economic crisis to withstand the impact of
the recession and have the ability to continue growing once economic conditions improve
• To assist with capacity and saving jobs during the challenging phase of the cycle
• To create and preserve permanent jobs efficiently
• To retain funds in the business to finance working capital requirements, operational and capital expenses
which results in improvement of efficiencies and competitiveness of the business
• To ensure liquidity by providing funds that are not accessible from banks
8
• Bailing out stakeholders
• Normal expansions –covered by normal
IDC finance
• Refinancing existing facilities
• Share buy-backs
• Grant funding
9
Distress Funding is not intended for:
Development impact:
• Being a labour intensive industry, job creationfrom
high to lower levels will naturally follow
• Furniture manufacturing creates linkages, especially
backward to forestry & sawmilling
• Development of rural areas will flow from this higher
forestry demand
• Increased local manufacture is essential for import
replacement
But is intended for example distressed furniture businesses:
Example: Furniture challenges & imports trends
ANALYSIS OF
IMPORTS
2005 2006 2007 2008
R'm R'm R'm R'm
Total imports(R'm) 1,515 2,005 2,399 2,661
Increase in
imports 65% 32% 20% 11%
Wood (R'm)* 350 467 578 590
As a % of total imports 23% 23% 24% 22%
China (R'm) 683 1,557
As a % of total imports 45% 59%
10
Key challenges:
• Dominance of retailers (price, expected profit
margins, payment terms, product specifications)
• Lack of skillsrelated to product costing, quality
monitoring & management skills
• Type of products, lower market-end vsniche
products, product range
• Competition from cheap imports
• Raw materials: price, availability and distance
• Overall market failures are common, lack of
marketing strategies
Combined with economic downturn . . .
Requirements for selecting companies in distress
• The company must have a clear turnaround plan which contributes to the sustainable recovery of the
business –return to acceptable levels of sustainability within a reasonable period
• If the company is in a start-up phase and has not yet achieved profitability, assisting the company could be
considered provided:
– Its performance has been in line with budgets as per its initial business/project plan
– IDC is satisfied that the business was performing in line with what could be expected before the
economic crisis
11
Funding instruments utilised
• Structured depending on business need and capacity
• Short or medium/long term facilities
• Working capital facilities - finance the working capital requirements (stock, debtors and creditors) as well
as operational expenses of the business
• Guarantees - to guarantee outside facilities
• Suspensive sale facility or loan facility - finance capital expenditure which could improve a company’s
viability
• Equity - could be considered where the company is under-capitalised
• Capital deferments and debt conversion (existing clients)
• Capital moratoria and interest capitalisation
12
Special Considerations
• Possible needs from the business:
– To identify areas for business enhancement
– Consolidation or rationalisation –business and industry
– Business support
• Companies’ performance monitored closely
• Buy-in from other stakeholders is essential –shareholders, management, other funders, creditors,
employees
13
Distress Fund progress
• The corporation allocated R6.1 billion over the 2010 and 2011 financial year:
– R1.4 billion of this funding was approved to 28 companies in 2010
– 8 800 jobs expected to be created and saved as a result of funding to companies in distress
• Funding has been dispersed to:
– The mining and primary metals industry as it was hit hard due to commodity prices declining sharply
– The fabricated metals, machinery and motor vehicle industries received the second largest portion of
funding –this was impacted by the slowdown in consumer spending on luxury goods
– Other industries that received a larger portion of distress funding were the forestry, sawmilling and
transport industries
14
Distress Fund progress (continued)
• The role that IDC played in these transactions went beyond that of a financier
– IDC’s participation in the process, frequently involving intense negotiations, gave comfort to other partners
in the business
– Additional funding provided gave companies the lifelineneeded to implement strategies to turn around
their operations and be in a better position to emerge from the recession successfully
• Despite a higher proportion of applications for funding approved when compared to overall funding
applications, the level of uptake for distressed funding has been lower than expected
• Momentum is being gained in assisting the development of ‘green industries’ through participation in early
stage feasibility studies and direct funding approvals
• Steps taken to lower the cost of funding to businesses by establishing a partnership with UIFto source funds
aimed at creating jobs efficiently
15
Applying for finance
• Minimum funding:
– A minimum loan size of R1 million; and
– Minimum equity amount is R5 million
• Maximum Funding:
– Maximum borrowing per transaction will be R100 million
• Latest audited and actual financials
• Your updated business plan focusing on the company turnaround
• A detailed description of the nature of the investment required, related costs and revenues.
• Prove development impact such as:
– BEE, rural and SME development in addition to job creation and preservation
• Transactions with a cost per job of more than R450 000 will not be eligible to receive funding from this fund
16
Conditions attached to funding
• Some restrictions attached to approvals for distressed funding (done on a case-by-case basis):
– Management remuneration
– Payment of dividends
– Repayment of shareholders loans
– Existing shareholders disposing of their shareholding
– Payments to creditors
– Capital repayment of bank loans
– Job losses
17
Contact details
• To apply or for further enquiries, contact:
– IDC call centre –086 069 3888
– Email: [email protected]
– Website: www.idc.co.za
– Address:
19 Fredman Drive, Sandown
PO Box 784055, Sandton, 2146
South Africa
18
doc_191323611.pdf