Ifc jd power paris roundtable 27 sep 06 06 09 22 ep

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Ifc jd power paris roundtable 27 sep 06 06 09 22 ep

  1. 1. International Finance Corporation Provider of Long-term Financing with Global Expertise International Finance Corporation and Industry Knowledge Support from Strategy to Implementation: in Emerging MarketsFinancing the Automotive Sector in Emerging Markets July 2005
  2. 2. The Landscape in 2006 • Flat markets in the developed world …  Western Europe  North America  Japan • … while emerging markets are surging1
  3. 3. Emerging countries projections • Yearly 4 wheelers output expected to grow from 18.6 M in 2005 to 28 M vehicles in 2010 (8% CAGR)(*) • 82% of the growth will come from 7 countries  China 37%  India 12%  Czech+Slovak Republic 12%  Thailand 6%  Iran 6%  Brazil 5%  Turkey 4% • 64% of the growth comes from Asia; 18% from Eastern Europe; 8% from Latin America (*) Sources: JD-Power, CSM2
  4. 4. 63% of the auto growth comes from Asia • All emerging countries LAC Africa 7% 1% Central/ Eastern Europe 29% Asia 63%3
  5. 5. Is Asia a global threat ??? • China now 2nd global market and still growing • India catching up, was 10 year behind, now 8 years • American Big Three tumbling at home … The end of the Old Auto World ???4
  6. 6. “Speak with Data” • “We’ll buy 60% of our parts from low cost countries” (!!!)  Labor content … - Direct Labor - Indirect Labor - Overheads  Versus shipping costs - Sea freight - Custom duties - Working capital: 2 months of business on the boat, one on the ground - … and air shipment !!! … It all depends !5
  7. 7. … A corporate buyer’s dream ? • “and in our emerging Dreamland, workers are paid 1 Euro per year “ • If …  Your labor content is higher than 10 or 15% (are you sure that you have no more productivity ideas ???)  Your parts are shipped easily and cheaply  You can afford waiting for them for two months … • … Then welcome to Dreamland !6
  8. 8. A corporate buyer’s nightmare ? • In Nightmareland:  Labor costs are probably the highest in the world  One would not fire workers  Cost of land is extremely high  Road are most often congested  Culture is a high barrier to import and exports … Q: How can one make cars and car parts profitably there ??? A: Welcome to Japan ! (… and Korea will soon follow …)7
  9. 9. Get to be globally competitive … • Step 1: Know your shop floor, look for Muda  Cut labor, cut labor, cut labor ! - SMED - Flows (from your supplier to your customer !) - Automation, (as a last resort !) • Step 2: Know your project process, look for Muda  Cut labor, cut labor, cut labor ! - Design sobriety - Computer aided prototyping - Computer aided testing … at home, at the supplier’s, at the customer’s8
  10. 10. Thou shall love your neighbors ! • Step 3: Leverage your continent  Western/Eastern Europe  U.S.A./Mexico  Korea/China (remember Korea ?) • The future is in tandems  West now and later: - Best productivity - Better cars and parts design - Closest to western customer  East or South: - Now: Push to productivity (remember Korea ?) - Later: Better cars and parts design, closest to customer …9
  11. 11. Tandem: how to face the challenge • Strong global vision needed, forget the hypes !  In house - Management, no nonsense, diversity  Outside - Suppliers intimacy (Knows east/west) - Customers education (Knows east/west)  Bankers support (Knows east/west) - Hands on experience in your trade - Development AND investment banker - Present in all emerging countries - World class understanding of your industry10
  12. 12. IFC financing approach World Bank Group The World Bank Int‘l Finance (IBRD) Corporation (IFC) Est. 1945 Est. 1956 Government Private Sector11
  13. 13. IFC is A Member of the World Bank Group • World Bank Group institutional roles: • IBRD lends to governments of middle-income developing countries • IDA provides concessional loans to governments of the poorest developing countries • MIGA provides guarantees to foreign investors against noncommercial risk • IFC is the private sector investment arm12
  14. 14. Capital Stock Held by IFC’s Shareholders (As of June 30, 2006) Five largest: 45% Other countries: 55% United States 23.68% Other countries Japan 5.88% 54.99% Germany 5.37% France 5.04% 178 Member United Kingdom 5.04% Countries13
  15. 15. IFC: Background • IFC is the largest private sector investor in the emerging markets: - AAA rating - As of June 30, 2006: - Portfolio of US$21.6 billion in 140 countries. Debt and equity commitment of $6.7 billion for its own account in FY2006 - Highest exposures: Russia, Brazil, China, India, Turkey - IFC has invested in more than 3,319 companies since its inception in 1956 • IFC provides long-term financing through a wide range of instruments and products: - Long-term loans on project- or corporate-finance basis in all major currencies or selected local currencies - Partial guarantees for long-term loans or bonds - Equity or quasi-equity - Risk-management instruments: interest rate, currency and commodity swaps14
  16. 16. Strengths of IFC as an Investment Partner IFC IS A LONG-TERM PARTNER • Involvement from project concept through to completion and beyond through follow-on projects • Combines the resources of a development bank with the flexibility of an investment bank • Delivers benefits beyond those purely commercial entities are able to offer • Experience in working with other financial institutions (commercial banks, international financial institutions, export credit agencies, etc.)15
  17. 17. IFC Offers … TAILORED FINANCING • Long tenor debt financing (8-12 years) with flexible grace periods • Currency of choice (many currencies available, e.g.: Brazilian real, Mexican peso, Thai baht, Indian rupee, South African rand) • Fixed or floating market-rate pricing • Ability to mobilize financing • Equity investments based on anticipated return • Always a passive investor and never the largest shareholder16
  18. 18. IFC Offers … IN-HOUSE EXPERTISE • In-depth knowledge of regions and markets • Sector expertise • Environmental, social and insurance specialists • Expertise on linkages with small and medium enterprises (SME)17
  19. 19. Typical IFC Partners Western companies expanding into emerging markets seeking: • Political risk mitigation and country knowledge • Leveraging of scarce resources • Lowering financing pressure on parent company’s balance sheet • Long-term financing for multiple projects in several countries • Local currency financing • Local SME supplier financing18
  20. 20. Typical IFC Partners Local companies expanding their operations at home or abroad seeking: • Global benchmarking and market information • Advice on investment strategy in the context of developments in the global market  Extensive restructuring investments (e.g.: financial crises in Asia, Russia)  Long-term financing for capital investment programs, including acquisitions  Advice on corporate reorganization and divestiture strategy • Neutral partner in the context of JVs with foreign partners19
  21. 21. IFC and the Automotive Sector20
  22. 22. IFC Experience in the Automotive Sector • Since 1956, IFC has invested in 113 projects for approximately US$1 billion (Including syndications) • Over the last decade, IFC has made some 30 investments in the automotive sector • Largest investment: US$50 million in Tata Motors Ltd. (India) • Average investment: US$10 million21
  23. 23. IFC Experience in the Automotive Sector • As of 31 May 2006, the committed auto portfolio was US$248 million in 24 projects • FY06 commitments: US$70 million in 6 projects • Top five exposures as of 5/31/2006:  India 21% Motor Vehicle Parts Automotive and 31% Light Vehicle China 25% 18%  Agriculture machinery Brazil 16% 3%  Bus and Heavy Commercial Vehicles  Turkey 11% 14% Automotive Tires 34%22
  24. 24. IFC and the Automotive Sector • IFC has supported both vehicle and component manufacturers, including:  ThyssenKrupp (JVs in Romania)  Standard Profil (Turkey)  Randon (Brazil)  Marcopolo (Latin America region)  Nemak (Mexico)  Telco (India)  Astra (Indonesia)  Kumho Tires (China)  … and many more …23
  25. 25. IFC: Investment Guidelines Project Type: IFC Financing: Greenfield, total cost Up to 25% of project cost more than $50 million (max $100 million for own account) Expansion/ Up to 50% of project cost rehabilitation  IFC does not manage or have largest equity stake  Target Project size: >US$40 million: IFC > US$10 million … but yes, exceptions exist !24
  26. 26. Thank you for your attention ! Emmanuel POULIQUEN Senior Industry Specialist +1 202 473 9114 epouliquen@ifc.org25

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