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Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
Ifc presentation gai china   21 sep 2006
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Ifc presentation gai china 21 sep 2006

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  • 1. Financing your Chinese ProjectsWhat structure, what partner, what finance, IFC’s experience and perspective Emmanuel Pouliquen IFC Senior Transportation Industry Specialist General Manufacturing and Services Department
  • 2. Macro Trends and Forces China• GDP Growth: 8.2% pa for past 10 years. Expected to be 8% pa for the next 10 years. Shift from export-led to domestic/consumer growth.• Urbanization: in past 10 years, urban population has gone from 28% to 40% of total population.• Financial Markets: Dominated by bank lending, which can be controlled, to some extent.• Government Policies: Go West and Harmonious Society initiatives make a big difference on areas and types of development.• Social Tensions: Conflicts between rural populations and local govts/companies are real and increasing.• Regulatory Environment: Still quite complex, providing practical challenges to doing business. 2
  • 3. Structure• JV times have changed … • Big Three (SAIC, FAW, DongFeng) have chosen their partners long ago, not just for cars, but also for equipment • JV opportunities still exist but motivated by: • very specific technology needs: • segments where Magna, Valeo or other Bosch have no proposal • exchange of territory (Swaps: your technology in China, my cheap products in your territory) • Be very lucid on what your partner wants • Technology a mean but also an end (“The party said …”) • 50 years JV = 50 years of “negotiated friendship” • A boat with 2 captains tends to go on rocks 3
  • 4. Partner• Perceived benefits of a JV partner: • Knows the market • Knows the culture • Have connections • Transfer staff from its existing operations• … but can’t you do without a partner ? • Market: • GM or Ford: you already know the market ! • Local OEMs or Tier 1s: connections • Culture: • learn it yourself, the sooner, the better. • Learning the culture through your partner may just complicate things … • Connections: • governmental connections less and less relevant, consultants can help you • Customers connections: may or may not be relevant. • Build-up your GuanXi ! • Transfer staff: • Watch out: it goes with transferred H.R. practices ! 4
  • 5. Sleeping partner, or no partner ?• Impacts: • Master of your destiny • Keep your corporate culture intact, for better or for worse • “Start right” • … but need to build your market up from scratch• Stand alone penetration strategy: • Piggy back on existing U.S. relocated programs • Transfer existing production to China • Stick to western customers in the early stages • Send your best people, ready to stay for 5 years or more • HQs are far away: go there often, direct reporting line to CEO • Be patient … 5
  • 6. Financing• Specific points: • Multi-stage funding • Working Capital for • Growth • Exports back to U.S. • China banking system still immature, very focused on state-owned entities• Issues: • Your U.S Banker may be uncomfortable with your Chinese project • Your focus must be on strategy and operations. Little time/resources to discover the Chinese banking world• Financing through global institutions • Must be close to you both in the U.S. and in China • Must be familiar with U.S.-Chinese issues • Beyond financing, must understand your business, your strategy, and be able to advise even on operations 6
  • 7. IFC financing approach World Bank GroupThe World Bank Int‘l Finance (IBRD) Corporation (IFC) Est. 1945 Est. 1956 Government Private Sector
  • 8. 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% Countries 8
  • 9. IFC Services Offered Promote Sustainable Private Sector Development• Financial products: loans, equity, quasi- equity and risk management facilities• Resource mobilization: loan participations, partial guarantees of local financing, and securities offerings• Advisory services: country, industry, financial, and technical
  • 10. IFC Financing: Key Elements Equity Loan• Normally 5%-15% Ownership • Normally Hard Currencies• Not Single Largest • Market Interest Rates Shareholder • Long-term: 5-10 years• No Direct Involvement in Management • Appropriate Grace Period• Long-term Investor: 5-10 years • Secured by Project Assets• Public Listing Preferred Exit • No Government Guarantees Mechanism
  • 11. IFC and China• IFC is world’s largest • IFC’s role in China is multilateral investor in increasing the private sector • Global portfolio of over $24.6 • $2.0 billion in over 100 billion investments since 1985 • $6.7 billion in new • SME facility in Sichuan investments in FY06 • Portfolio over $1.5 billion • IFC sets global standard for • Over $600 million in new environmental and social investments in FY06 safeguards • Plan to increase annual • We bring value to clients by investments to over US$700 encouraging long term million per year, and double sustainability of business portfolio in next 2-3 years
  • 12. Project Cycle and TimingAs Seen by Client Internal to IFC Initial Review Initial Discussions & Authorization to Appraise Mandate Letter Appraisal Management Approval Financing NegotiationsInfo. Memo and Syndication Legal Documentation Board Approval Disbursement Supervision/Evaluation 12
  • 13. Financing Options 1: Local Currency• Local Banking Sector is very liquid, but • Mostly short-term loans • Still based on Relationship Banking rather than Credit Analysis • Bank preference towards lending to SOEs rather than private companies• IFC Local Currency Options are Limited • Panda Bond successful, but not a permanent, recurring solution • Direct lending in RMB will depend on development of the long-term swap market; happening, but progress is slow • IFC can provide partial guarantees of long-term local bank loans, but between fees and interest rates, may not be the lowest cost solution 13
  • 14. Financing Options 2: Hard Currency• IFC US$ Loans a Viable Option • Long-term, grace periods appropriate for capital projects • If RMB appreciates, US$ loans are less expensive to repay (though US$ Libor is currently relatively high)• But Plan and Structure Carefully Up Front: • Only Sino-Foreign JVs or Wholly Owned Foreign Enterprises are regulatorily allowed to borrow in US$ • Only Direct Borrowers can provide assets for security • No Co-Borrowing structures, probably no guarantees from Chinese companies, no “exotic” financial instruments 14
  • 15. Summary/Recommendations• Secure your entry on no thrills business (de-localization)• Don’t underestimate start-up costs• Be master in your house• You need time, have a long term global banking partner• Share your strategy and operations vision with them, and they’ll provide you with much more than funds• Have courage, patience and resilience … it is worth it ! 15
  • 16. Questions/Answers 谢谢你的注意 ! XièXiè Ni De ZhùYì !Thank you for your attention ! 16

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