DRAFT

Industrial Development Corporation

Automotive & Transport Equipment UnitFinance for Rail Projects

Transnet Suppliers-WorkshopIDC Building – Sandton15 October 2015

Joseph SitholeIndustry Development Manager: Automotive & Transport Equipment SBU

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Sectors supported by the IDC

Metals

Basic Metals and MiningMachinery and Equipment

Automotive and Transport Equipment

Chemicals and Textiles

Basic and Speciality ChemicalsChemical products and

PharmaceuticalsClothing and Textiles

Agro-ProcessingAgro-Processing and Agriculture

Val

ue

Ch

ain

s

New Industries

Industrial Infrastructure

33

Our focus areas

IDC focus

Black industrialist

Job creation

Women ownedLocalisation

Youth owned

Control or >50% sharesStrategic leadershipOperational involvement

Jobs createdJobs saved

25% plus ownedGovernment procurementInputs into infrastructure

25% plus owned

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Automotive & Transport Equipment SBU: What do we fund?

Automotive

Manufacturing of motor cycles

Manufacturing of Motor vehicles

Manufacturing of Components

Ships

Building and repair of ships

Building and repair of

pleasure / sporting boats

Rail

Manufacturing of railway

locomotives & rolling stock

Maintenance & Refurbishment of locomotives & rolling stock

Manufacturing of Components

Aeronautics

Manufacturing of aircraft and

space craft

55

-200 000

-180 000

-160 000

-140 000

-120 000

-100 000

-80 000

-60 000

-40 000

-20 000

0

-200 000

-180 000

-160 000

-140 000

-120 000

-100 000

-80 000

-60 000

-40 000

-20 000

0

2000 to 2004 2005 to 2009 2010 to 2014 2025

R'm

R'm

Trade balance: Motor vehicles and Transport Equipment (average per year)

3.8%

1.5% 1.6%

5.1%

5.9%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

2000 to 2004 2005 to 2009 2010 to 2014 2015 to 2025

Avg. Ann

ual G

rowth (%

)

Avg. Ann

ual G

rowth (%

)

GDP Growth: Motor Vehicles and Transport Equipment

History

Baseline forecast

Target forecast

Improved trade balance

A competitive local automotive and transportation industry that manufactures and/or assembles a significant portion of automotive and transportation equipment in SA for the

domestic and export market, and is a key global player for select components

Our planned impact – Automotive and transport equipment

Ind

ustr

y

develo

p-

men

t g

oal

Increase GDP

Impact

Planned impact on GDP in Automotive and equipment by 2025:

R4.9 billion – increase in value add (at 2010 prices) compared to baseline8.7% – Targeted value add in excess of baseline forecast (2014-2025)

Planned impact on trade by 2025:

R15.2 billion – improvement in trade balance compared to baseline18% – improvement in trade balance compared to baseline

66

124

111

102

120

136

60

70

80

90

100

110

120

130

140

60

70

80

90

100

110

120

130

140

End-2004 End-2009 End-2014 End-2025

Num

ber (

thou

sand

s)

Num

ber (

thou

sand

s)

Employment: Motor vehicles and transport equipment

History

Baseline forecast

Target forecast

A competitive local automotive and transportation industry that manufactures and/or assembles a significant portion of automotive and transportation equipment in SA for the

domestic and export market, and is a key global player for select components

Our planned impact – Automotive and transport equipment (2)

Ind

ustr

y

develo

p-

men

t g

oal

Increased levels of employment

Impact

Planned impact on employment in metal products by 2025:

15 500 more people employed in target compared to baseline13% more people employed in target compared to baseline

7

Our Strategy towards developing the Rolling Stock Industry

Getting in early – participating in early stage feasibility funding in support of rail and rolling stock projects in the continent. Regional Integration – promoting the integration of the SA rail industry into the Rest of Africa to create export opportunities for South Africa’s railway goods.Influencing Government Policies - promote policies that deepen industrialisation such as localisation, preferential procurement, sector-designation etc.Supporting and developing a strong competitive supplier base - providing competitive and tailor made funding packages to 1st and lower tier component suppliers. Co-operation with key industry stakeholders – cooperation agreements with the OEMs, Rail Operators and other industry players on the continent in support of their investment plans.

1

2

3

4

5

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Funding products and criteria

Debt

Equity

Quasi-equity

Guarantees

Trade Finance

Security

Own contribution

PRODUCTS CRITERIA

Economic Merit

No refinancing

BEE

R1 mil – R1,5 bill

Start-up and existing

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• Financial assistance is provided for the development of new businesses, expansions or rehabilitation of existing businesses

• Business case must exhibit economic merit (i.e. it must be profitable)

• IDC finances fixed assets and fixed portion of growth in working capital requirements

• Reasonable contribution expected from promoter/s

• Minimum of R1 million

• Reasonable level of Security

• Environmental compliance

Financing criteria …

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• General industrial finance:– Equity– Quasi-equity– Commercial debt – Export/import finance– Short-term trade finance– Bridging finance– Guarantees– Venture capital– Wholesale funding through intermediaries

• Special purpose finance:– Transformation and Entrepreneurial Scheme (TES) (R1 billion)– Risk Capital Facility (RCF) (€55 million)– Isivande Women’s Fund (R50 million)– Support Programme for Industrial Innovation (SPII) (R75 million/year)– Distressed funding (R6.1 billion)

Finance is structured

according to client’s needs – can include

moratoria on repayments to

enable business growth

IDC products and services …

Cross sectoral schemes/funds

1111

Typical Funding Instruments

IDC’s funding structures are customised based on the cash flows of each project following an in-depth due diligence exercise. Capital and interest payment moratorium are given to allow for production ramp-up …

WorkingCapital

• Revolving Credit Facility

• Pre-shipment Export Finance

• Post-shipment Export Finance

• Short term Bridging Finance (contract/order/tender)

Project & Corporate Finance

• Greenfield/start-ups and brownfield/expansion projects

• Plant & Equipment Finance

• Land and Building Finance

• Building Construction Finance

Guarantees

• Bid bonds/ tender Guarantees

• Performance Guarantees

• Advance Payment Guarantees

• Financial Guarantees

• Credit Replacement Guarantees

Equity

• Ordinary shares/ direct shareholding

• Change in Shareholding BBB-EE, Workers, Community Trusts

• Preference Shares

• Quasi Equity Loans

• Shareholder Loans

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Funding model What makes our funding structure so unique …

Product offering

IDC puts together the most appropriate financial package for the client, taking into account the IDC guidelines and the client’s requirements by means of, among others:

• Capital and interest moratorium: IDC will allow start-up business or expansion of existing businesses a grace period during which capital is not payable, generally one year, but can be up to 5 years e.g. pro-orchards scheme . In certain instances, even interest payments are capitalised for an average period of 18 months

• Terms of loans : IDC matches the repayment term of the loan with the cash flow generated by the asset acquired or expense incurred. Average term of loans is between 3 and 7 years, but can be up to 15 years (e.g. pro-orchard scheme) or even 25 years (pro-forestry scheme)

• Equity investments: In certain instances, mostly new projects IDC will share the responsibility for a venture by taking up equity in the business to ensure that it is adequately financed.

IDC does not normally seek control in an undertaking but determines the level of participation on an individual basis. It is the IDC's policy to provide the entrepreneur with a buy back option on a mutually acceptable commercial basis.

1313

Funding schemes

The IDC plays a crucial role in growing the

economy and creating jobs. With this in mind, the IDC is investing

R10 billion through its Gro-E Scheme

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Gro-E Scheme

Max cost per job of R500 000

Operating / expanding in SA

BBBEE certification

Up to 5 years

Loans at prime – 3%

1515

Manufacturing Competitiveness Enhancement Scheme

Qualify for MCEP

IncentivesLoans

Confirmed contract or purchasing order; OR Order related to state-owned competitiveness suppliers programme, OR product is part of the designated

products value chain

SA entity with existing manufacturing operations

Working capital loanUp to R50 million

4 year termInterest at 4% fixed on 50% of loan

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Own unencumbered cash contribution:

• Is determined based on shareholding, capacity to invest, size and assessed risk of the venture and it may be as a low as 2.5% of the transaction value for the BBBEE component of an acquisition transaction

• Is required from clients to demonstrate commitment to project or venture

Pricing and fees:

• Pricing is based on risk and discounted for development impact (i.e. the higher the developmental impact the lower the price would be).

• The IDC’s fees are generally lower than those of other financial institutions (commitment fee an drawing fee, no fee charged for investigation

Funding model

What makes our funding structure so unique …

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Cash flow:

• The IDC considers the cash flow of a company and the financial forecasts to demonstrate economic viability and profitability within a reasonable period and sufficient cash flows to repay the investment over a reasonable period of time

• The cash flows are often weak due to start-up nature of most of the projects

Capital security (collateral):

• Is generally low in comparison with other financial institutions

• Lack of security does not preclude approval

• Security by way of underlying assets and/or sureties may be required with the exception of non-profit entities such as workers’ trust

Funding model (cont.) What makes our funding structure so unique …

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Business support to entrepreneurs: IDC Business Support Programme was established to assist where appropriate:

• Potential clients in preparing a business plan

• Existing clients where e.g. shortcomings in the management capacity has been identified, if a short-term intervention is required, if it experiences financial difficulties

• The funding for the business support is born partly by IDC

TrainingFundingBusiness support

Entrepreneurial Development

Approach to entrepreneurial development

Monitoring developmental

impact and financial

performance

Business Support

Funding model (cont.) What makes our funding structure so unique …

TrainingIDC offers and sponsors customized demand

driven coursesto empower current and prospective clientsThe courses are aimed at prospective and

current clients.Examples of courses offered:• Basic Business Skills for SMEs

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Avera

ge t

urn

aro

un

d

tim

es:

• V

an

illa

tra

nsacti

on

– 4

w

eeks

• E

qu

ity t

ran

sacti

on

– 8

w

eeks

Due Diligence Feasibility Study

Approval of viable transactions at an appropriate committee

Legal Agreements

Disbursement

Post Investment Management

Initial Screening & Basic Assessment

Term Sheet MOU/Co-operation Agreement

Feasibility Completed

Feasibility not fully investigated

Str

uctu

rin

g o

f fu

nd

ing

dep

en

din

g o

n c

lien

t’s n

eed

s.

Con

su

ltati

on

/ i

nte

racti

on

s w

ith

exp

ert

dep

art

men

ts

Inte

rven

tion

s in

b

usin

esses e

xp

eri

en

cin

g

diffi

cu

ltie

s,

inclu

din

g

bu

sin

ess s

up

port

, re

str

uctu

rin

g o

f fa

cilit

ies,

etc

.

Proposal Submission

Applications from existing / prospective businessesProactive identification & development of business opportunities

Pre and post investment process

Project appraisal process …

2020

• A number of the worlds major rolling stock OEMs including GE, South China Rail, North China Rail, Alstom and Bombardier are all participating in South Africa’s rail and rolling stock investment programme bringing foreign technology and expertise into the South African industry.

• South Africa’s deep commercial capital markets and development finance institutions are uniquely positioned to support and co-invest with like minded parties in the African freight growth story.

• South African public and commercial funders already offer tailor made financing solutions to rail utilities and industry on the continent including amongst other rolling stock leasing, take-or-pay agreements and network operating.

Conclusion - Leverage South Africa’s Strengths

As the Continent’s major rail country, the South African rail industry is uniquely positioned to support the growth in freight and passenger rail on the continent…

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• South Africa is the continent’s leading rail country in terms of both freight and passenger rail infrastructure, as well as rolling stock assets.

• The South African rail sector has developed capabilities, skills and expertise as manufacturer, assembler and supplier of rail infrastructure, rolling stock and components, including the refurbishment and rejuvenation of aged rail and rolling stock infrastructure and components.

• South Africa’s own substantial investments in its freight and passenger rail and rolling stock infrastructure over the next decade will further strengthen and deepen its participation in important aspects of the rail industry value chain.

Conclusion - Leverage South Africa’s Strengths

As the Continent’s major rail country, the South African rail industry is uniquely positioned to support the growth in freight and passenger rail on the continent…

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How to apply

OnlineIDC Direct

Call Centre0860 693 888

Emailcallcentre@idc.co.za

Submit your business plan…

Contact your nearest regional office

Call Centre0860 693 888

Emailcallcentre@idc.co.za

Make an enquiry…

DRAFT

Thank you