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IFC Short Term Finance

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					IFC Short Term Finance
   Delivering Trade Finance and
    Working Capital Solutions
       in Emerging Markets

             March 2011
Addressing ST financing challenges in emerging markets

                  – Importance of SMEs in employment and GDP contribution
  Emerging
   market         – Dominant share of Agribusiness and farm sector
 economies        – Integration of manufacturing sector in global supply chains


                  – SMEs primarily working capital intensive - yet have limited access to
                    finance
Development
  finance         – Study suggests US$ 1.5 – 2 trillion MSME financing gap of which two-thirds
 challenges         expected to be short term finance requirements
                  – Population expected to double by 2030 – critical financing needs of farm
                    sector to support sustainable production and growth


                  – Supplement the availability of credit and risk mitigation solutions to
                    support increased access to finance and reduce cost of finance to serve
                    SMEs and Agribusiness
IFC’s Strategic
                  – Enable capacity building for financial institutions and emerging market
     Role
                    firms
                  – Increase depth of market investors through mobilization of development
                    finance

                                          2
             Delivering value-added solutions to clients

                                                                           IFC’s Strategic
              Managing Exposure              Managing Liquidity              priorities
              • Credit capacity              • Credit growth               • SME access to
Banks
              • Cross Border/ Local          • Currency requirements         finance
                Currency                     • Concentration               • Capacity building
              • Capital constraints          • Addnl Market Investors      • Market
              • Frontier Markets                                             development
Corporates                                   • Efficient working capital
              • Supplier Risk                                              • Sustainable
                                             • Pre-shipment/ Export          finance/
              • Distributor Risk               and Import finance            Environmental &
                                                                             Social
                                                                             compliance and
                                                                           • Low Income
                                                                             countries
                 • Trade Finance Risk Mitigation
                 • Risk participation (funded and unfunded)
                 • Mobilization of development finance providers
                 • Structured trade solutions for the entire value chain



                                                   3
   New Short Term Products leverage Trade Finance Success
     Supporting support the full corporate value chain with short-term WC financing..

                                                     Buyer                             Re-seller /
    (Sub-)                                                                                               End-
                     Supplier        Storage                        Distributor        Sub-
    Supplier                                         Seller                                              customer
                                                                                       Distributor

                     GTSF/ Receivables Financing

                              GWFP

                                    Structured Trade Solutions

                                Potential reach of Distributor Finance
Approved:
•GTSF: Provides affordable working capital financing to Suppliers by taking Buyer payment risk on confirmed payables.
•GWFP: Supports increase in banks agribusiness finance portfolio through commodity backed lending against warehouse
receipts or collateral management agreements.
•Structured Trade Finance: supports supply chain for commodities to facilitate movement of traded goods within borders
and facilitate cross-border trade.
Pipeline:
•Distributor Finance: Supports SME Distributors with a variety of financing through local banks.
•Receivables Finance: finance SME working capital to support growth and liquidity by factoring SME receivables.

                                                          4
                     IFC Global Trade Supplier Finance
A strong partner for Emerging Market Supplier Finance, helping to address key challenges

• US$ 500 million multi currency program
• Flexible delivery model - partnerships with Banks and independent SF platform providers
• Enhances credit capacity on Buyers to expand the scope of SF programs in emerging markets
• Comprehensive Supplier on-boarding programs developed and delivered through Advisory
• Engagement with Buyers for compliance with IFC’s Environment and Social Performance Standards in
  their supply chain.

 Low SF utilization in emerging markets compared to OECD countries presents significant market
   potential
 Leveraging Bank partnerships:
 • Funded or Unfunded risk participation to expand SF coverage for key Buyers
 • Delivers customized Supplier on-boarding support critical for local SF delivery
 Independent SF platforms:
 • Enhanced funding for SF programs on bank-agnostic technology solutions




                                                     5
                  GTSF Program Approach - through Partner Banks
Global Supply Chain for
Specific Corporate Client

      Suppliers
      Pakistan                                                         Funded participation or
                                                           $ Fees
                                                                       Guarantee coverage on EM
                                                                       portfolio of Suppliers for
   Suppliers India                                                     specific Global Buyer
                                          4
      Suppliers         Payment of discounted invoice amount
     Bangladesh                                                                                          5
     Suppliers                                                        Bank                   Payment on Invoice Due Date
     Vietnam                Purchase of receivables from
                            Suppliers
      Suppliers
       Brazil                                                                  3
                                                                       Accepts Early Payment request
     Suppliers,                                                        and initiates payment
     Other EM

      Suppliers
         US                                                                                                           Global
                                      2                                                     1                         Buyer,
      Suppliers         Suppliers requests early payment                            Buyer indicates commitment to
      Germany                                                                       pay invoices (uploads data)     Corporate
                                                                   SCF Platform
      Suppliers                                                                                                      Client
        Japan
      Suppliers
       Korea



                                                               6
            GTSF – a value-added partnership for
            Supplier Finance in emerging markets
Supports delivery of supply chain finance solutions in emerging markets

 • Multi-currency support

Flexible delivery models through financial intermediation and direct
support for the value chain
 • Unfunded or funded risk participation
 • Leveraging the platform of choice for Buyers and their Suppliers

Local on-boarding support

 • Local language training programs and comprehensive supplier on-boarding support,
   through network of IFC partner companies and training organizations

Make a highly visible contribution to sustainable trade

 • Provides an efficient financing solution to suppliers and supports Buyers
   sustainability and Corporate Social Responsibility (CSR) strategy

                                       7
                          Global Warehouse Finance Program
• IFC’s Global Warehouse Finance Program (“GWFP”), aims at increasing the working capital financing to
  agricultural players by leveraging their production. IFC supports the banks which intend to increase their
  exposures in the agriculture sector through warehouse financing by providing liquidity for on-lending or
  risk mitigation solutions.

Credit Line
• IFC will offer a short
  term loan to a bank
  which will on-lend the
  funding to commodity
  depositors against
  warehouse receipts
  (WHR) or equivalent as
  collateral.

Risk Sharing Facilities                 Case Study 1: Sesame Seeds Export from Ethiopia to the United States
                           Sesame seeds deposited to a warehouse
• IFC will guarantee up to (owned by Ethiopia Commodity Exchange) by a
  50% of short term loans Farmer
  extended to commodity            Sesame Seeds     Production    Warehousing    Marketing         Sales      Buyer
                                      Farmer
  depositors against WHR
                                       WHR issued by a ECX Warehouse                     After sesame seeds are sold
  as collateral.                        WHR used by a Farmer to access to financing     to a Buyer, the loan will be
                                          GWFP Guarantee (up to 50%) or Funding         repaid

                                                      8
            IFC’s Role in Global Warehouse Finance Program

Risk Mitigation      •     IFC will guarantee up to 50% of bank’s loan portfolio extended to the agriculture
Solutions for              sector players (e.g. producers, aggregators, processors, traders, exporters, etc)
Banks                      against warehouse receipts (WHR) or Collateral Management Agreement (CMA)
                     •     The Program focuses on IDA countries. GWFP works with the banks which intend to
Commitment
                           increase the exposure in the agriculture sector by using the commodity backed
to the Agri
                           lending skills
Sector
                     •     GWFP covers pre-export and import financing, as well as domestic sales
                     •     To set up the facility, IFC will identify the pre-approved sub-borrower names
Portfolio                  together with banks. After the facility is launched, the Program has a flexibility to
Approach                   include additional sub-borrower names

                                  Case Study 2: Sugar Import to Uganda
  Sugar arrives in Kenya. Sugar is
  deposited to a warehouse in                         CMA issued by a collateral manager
                                        Warehouse
  Kenya by a trader

   Sugar                 Import         Warehousing         Transport             Sales             Buyer
   Trader
    GWFP Guarantee                                   CMA used by a trader to             After sugar is delivered
   (up to 50%) or                          Bank       access to financing while           to an Importer in Uganda,
   Funding                                            sugar is in a warehouse             the loan will be repaid


                                                       9
                           GWFP: Partnership with IFC
IFC wishes to work with the banks which have:
                                                                         Next Steps
1. Solid credit risk management, lending criteria and      1.   IFC and the Bank will discuss the
   experience in commodity based lending (including             Bank’s strategy on commodity
   the ability to track price volatility and requirement        backed lending and its portfolio
   for margin calls);                                           growth
                                                           2.   IFC and the Bank will agree with
2. Experience in assessing the risk of underlying               the Facility size
   instruments (e.g. product, type of warehouse, legal     3.   IFC and the Bank will agree with
   infrastructure, including title or possession, and           the eligibility criteria on:
   pledge over insurance agreement)
                                                            •    Commodities
3. Capacity to assess the risk of collateral managers       •    Countries
   (e.g. capability of warehouse operator/collateral        •    Underlying Instrument (WHR or
   manager, liabilities and duties of collateral                 CMA)
                                                            •    Collateral Manager for CMA
   manager, and insurance policy); and
                                                            •    Warehouse
4. Capacity to assess the risk of warehouses (e.g.
                                                           4.   IFC and the Bank will determine the
   infrastructure, security arrangement, and
                                                                sub-borrower names which will
   accessibility)                                               initially be included in the Facility


                                                10
                  Structured Trade –Commodity Finance
Funding and risk mitigation for banks cross-border or domestic commodity trade portfolio

                                                       •Refined petroleum products supplied


   Program supports large size cross-
    border & domestic trade of
    strategic     commodities    (e.g.              •L/C extinguishes               •Approved facility
                                                                                                              •Refined petroleum products sold
    energy,      soft    commodities,
                                          • Exporter                    • Issuing
    agricultural inputs), which are            s
                                                                        • bank                      • Distributo              • Retailers
    used as collateral supporting                                                                         rs
                                                                                         •L/C
    lending targeting lower income                         •60-90
                                                                                        •request
    countries                                           •days L/C


                                                                                                             •Payment from
   Funded      or    unfunded     risk                                                                        retailers to
                                                                                                                importers
    participation with a partner bank,
                                           •Payment from                                                      •[15-21 days
    who can arrange for escrow,            distributors to                                                       credit]
                                              exporters
    manage collateral, insurance, etc.
                                            •[60-90 days
                                               credit]                •IFC Risk                                       •Facility structure
   Environment & social requirements                               sharing with
                                                                      banks on
    to be met by facility                                           distributors’
                                                                                                                      •Payment flow

                                                                       behalf
                                                                                                                      •Product flow


                                                                                                                      •L/C flow




                                                  11
Case Study – Ghana Cocoa Board

IFC                              March 2011


Craig Polkinghorne
Global Head Structured Trade & Commodity Finance
Case Study – Ghana Cocoa Board
                                                                                            13




            Scenario                                Developments
            Dominant agricultural crop              World Bank etc advocate
            Thousands of small scale “family”        liberalisation of cocoa sector
             farms                                   Backdrop of Ivory Coast “shambles”
            Little local processing capacity         on liberalisation (No 1 producer of
            Destined for export to Europe and US     cocoa at over 1m MT’s)
            Farmers wanting to be paid on           Partial privatisation of PBC
             delivery of cocoa                       Creation of licensing system for
                                                      private sector cocoa buyers -
                                                      LBC’s
            Up to mid 1990’s all cocoa sales
             were to Parastatal Produce Buying
             company
            Export Sales handled by Cocoa
             Marketing company
            Regulated by Ghana Cocoa Board


            Requirement for funding to pay farmers pending receipt of export
            proceeds
Case Study – Ghana Cocoa Board
                                                                                                 14




            Ghana Cocoa                                Ghana Cocoa
               Farmers                                     Board
              Small family owned farms                   State owned
              Farms 2 hectares or less                   Regulatory responsibility
              Steadily growing production                Quality Control
              Many years between 500,000 MT’s –          Science lab for pest resistance etc
               650,000 MT’s                               Community Support (Schools
              Target by 2012 is 1million MT’s             ,Hospitals)
              Likely 2010/2011 season 850,000
               MT’s
              Pest control and fertilizer/husbandry

           
               supported by Cocobod
               Recent focus on new farms coming
                                                        LBC’s
               into production
                                                        17 Licenses
              Improvement of access roads etc to
               buying stations                          PBC accounts for 45%
                                                        Local and multinational owners
Case Study – Ghana Cocoa Board
                                                                                             15




            Finance structure                      Locally
            Started in 1993                        Cocobod borrows USD offshore
            Advance against export proceeds        Funds sent to Central Bank (Bank of
            Supported by fixed price offtake          Ghana)
             contracts with International buyers      Cocobod given Cedi’s
            “Local bank” Ghana International in      Cocobod lends Cedi’s to LBC’s to
             London handles the Documentary            facilitate cocoa purchases from
             Collection documents and payments         farmers
            Sales proceeds held by Agent in          Cocobod receives Bank Guarantees
             London                                    from local banks to “secure” these
                                                       loans
            History:                                 IFC participated with Stanbic Ghana
                1993           US$ 50m                in provision of Guarantees
                2000           US$ 260m              LBC’s purchase cocoa and deliver to
                                                       Cocobod
                2004           US$ 850m
                                                      Loans are “repaid” and bank
                2009           US$ 1 200m             Guarantees are cancelled
                2010           US$ 1 500m
                2011           US$1.75bn+          Cash cycle – season runs from
                                                       October – June
                                           Ghana Cocoa Board (“Cocobod”)
                                                                                                                                   16

Key points
             Standard Bank Involvement
               Joint Mandated and Co-ordinating Lead Arranger



             The client                                             Background
                                                                        This is an annual financing from the London loan
                                                                        market, requiring a full Underwrite. It is a competitive
               Borrower:                                                tender, primarily won on pricing.
               Ghana Cocoa Board

               Financial Close: Sept 2010                           Transaction Overview/Highlights

               Facility Size: US$1.50bn                                11 month facility, with an average life of 7 months.
                                                                       Against export sales proceeds of cocoa beans to
               Financing Structure:                                     major traders and cocoa grinders/chocolate
                                                                        manufacturers
               Pre-Export Finance (Receivables backed)
               with fixed price offtake contracts
                                                                       Launched at US$1.2bn, and was oversubscribed at
                                                                        $1.85bn
                                                                       Signing September 2010 in Accra
               Mid crop redrawing option

               Tenor: 11 mths
                                                                       Largest soft commodity deal

               IMLA:
                                                                       17th Year of raising money in International Market
               Standard Bank Plc, ICBC, Credit Agricole, Sumitomo
                   Mitsui, Ghana International Bank
                                                                        The financing successfully closed in September,
               Governing Law:                                           with Standard Bank as a top tier Mandated Lead
                                                                                           Arranger
               English and Ghanaian Law

				
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