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Introduction to IFU Investment Fund for Developing Countries MEGAsteps, Aarhus Investeringsmuligheder - Indien 4. Juni 2013 Ib Albertsen, Senior Investment Manager 1 Financing in emerging markets poses testing challenges… PAGE 2 • Where will you find financing for your planned production site in Ethiopia when your Danish bank looks at you in horror? • How will you manage credit risk and working capital needs to a rapidly expanding customer in Indonesia? • How can you protect yourself from corruption in Bangladesh – one of the most corrupt business environments in the world? • How will you manage transparent decision-making and reporting when cooperating with a Chinese partner who has never been in a partnership with a foreign partner before? ECONOMIC OUTLOOK USA 2012 2013 2014 2.2 pct. 1.9 pct. 3.0 pct. Euro Area 2012 2013 2014 -0.6 pct. -0.3 pct. 1.1 pct. Latin America 2012 2013 2014 3.0 pct. 3.4 pct. 3.9 pct. Sub-Saharan Africa 2012 2013 2014 4.8 pct. 5.6 pct. 6.1 pct. Source: IMF World Economic Outlook, April 2013 PAGE 3 07/07/2015 Event: Add event via 'View' / 'Header & Footer'. Max one line China 2012 2013 2014 7.8 pct. 8.0 pct. 8.2 pct. India 2012 2013 2014 4.0 pct. 5.7 pct. 6.2 pct. The markets of tomorrow will be shaped by new players PAGE 4 Who is IFU? • IFU is a self-governing fund established in 1967 owned by the Danish government • IFU’s purpose is to promote economic activity in developing countries and new emerging markets • IFU will advise and invest together with Danish companies in developing countries in commercially viable projects • IFU operates on commercial terms • IFU’s instruments are equity investments and/or loan financing PAGE 5 • Annual activity: 30-35 new investments 20-25 additional investments DKK 500 – 600m (USD 90 – 110m) • Portfolio: 787 projects/86 countries 223 active Investment countries and offices Investment limit USD 6,138 (2012) Others 5% Beijing Cairo New Delhi Asia 50% Accra Latin America 15% IFU Offices PAGE 6 Nairobi Africa 30% Johannesburg Examples of IFU’s Danish partners SME’s (60%) Big companies (40%) PAGE 7 Financing – an overview of IFU’s guidelines Amount • Maximum of DKK 100 millions per project, though - Max. 30% of total financing for projects (higher for smaller projects) - Max. matching the Danish Partner(s) Equity Loans – secured or unsecured Duration • 5-8 years • 5-7 years in $, EUR, DKK Exit • Put/call agreement with the Danish partner at market value • Repayment, 1-2 years grace • Exit agreement from the start PAGE 8 What does IFU bring to the table? Network & expertise • 40 years of experience from developing countries and emerging markets • Regional offices in Egypt, China, India, Kenya, South Africa and Ghana • Know-how about local investment conditions • Hands-on during preparation and implementation Political “insurance” • “Quality mark” • International network of development finance institutions Financing • Equity and/or loan financing (without recourse to partners) PAGE 9 IFU IN INDIA Active projects: 19 Total projects (1968-2013): 87 Amount invested: DKK 755.7m Expected 4-5 new investments annually Office in New Delhi since 1997 Examples of our partners PAGE 10 07/07/2015 Event: Add event via 'View' / 'Header & Footer'. Max one line Our team in New Delhi Main opportunities when investing in India • High growth (projected economic growth to surpass 6-7% annually) • Large domestic market - growing middle class population • Increasingly well-educated, yet relatively low cost workforce • Young, ambitious population (64% of its population 15-64 years) • English speaking • Multicultural • Growth sectors: infrastructure, clean tech, retail, ICT, manufacturing, agriculture Case I – Danish Steelcluster/Rool Danish Steel, a company engaged in fabrication of metal parts and components, established in 2005 in India •Target Market • • • Initially only exports, supplying mainly to parent company in Denmark Now having a diversified customers base with almost 50% local sales in 2010 Has benefited from high growth in Indian market •Set-up in India • • • • Located in Bangalore, South India Employing a total of 65 people Managed by a local professional CEO Total investment of DKK 20m, IFU’s total investment in SC and Loan is DKK 7m •IFU’s Role • • • PAGE 12 07/07/2015 Establishment and location advice, start up capital, holding 42.3% of the shareholding in the Company Additional financing of the company three times since 2006 with cumulative loan of DKK 5.5m Active participation in the Board, advising on recruitments, regulatory matters, obtaining local financing etc. Case II: Orana India Pvt. Ltd. Activity: Production of fruit compounds Established: 2005 Expected total investment: DKK 11m IFU’s contracted participation: DKK 0.3m PAGE 13 Calculating carbon savings Main challenges when investing in India Bureaucracy Too much paper work! Political interference in larger projects e.g. infrastructure Lack of infrastructure Roads, ports, railways, housing in remote areas, schools Inadequate power supply Lack of warehouse space and cold chains Complicated tax structure and transfer pricing regulations Different taxes and duties across states Quality and reliability Supply chain and business relationships Labour costs Increasing wages with only limited increase in productivity Corruption… Export & Investments – Not conflicting targets • Access to new markets • Creates economic growth at home & abroad PAGE 15 What do we require from our partners? • A strong business case PAGE 16 • Experience within the industry • Solid management experience • Organisational and strategic commitment • Financial strength Corporate Social Responsibility - CSR ■ CSR self assessment - Human Rights & Labour Rights - Occupational Health & Safety - Environment & Climate - Anti-Corruption - Community Development ■ CSR Action Plan PAGE 17 Some key lessons learned from investing with Danish partners • Projects require more money than initially thought and take longer to implement • Good idea to approach IFU at an early stage of the project to ensure flexibility going forward • Pay attention to legal issues • Think through the full value chain requirements of your project – often the suppliers and business partners are not there PAGE 18 How to get IFU involved? – give us a call or send a mail! Ib Albertsen Senior Investment Manager Tel: +45 33 63 75 49 [email protected] IFU Fredericiagade 27 1310 Copenhagen K Denmark 19 Tel. +45 33 63 75 00 Fax +45 33 63 75 99 [email protected] www.ifu.dk