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Introduction to IFU Investment Fund for Developing Countries

Ib Albertsen, Senior Investment Manager

MEGAsteps, AarhusInvesteringsmuligheder - Indien4. Juni 2013

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Financing in emerging markets poses testing challenges…

• 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 co-operating with a Chinese partner who has never been in a partnership with a foreign partner before?

• Where will you find financing for your planned production site in Ethiopia when your Danish bank looks at you in horror?

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ECONOMIC OUTLOOK

USA

2012 2013 20142.2 pct. 1.9 pct. 3.0 pct.

Euro Area

2012 2013 2014-0.6 pct. -0.3 pct. 1.1 pct.

Sub-Saharan Africa

2012 2013 20144.8 pct. 5.6 pct. 6.1 pct.

China

2012 2013 20147.8 pct. 8.0 pct. 8.2 pct.

India

2012 2013 20144.0 pct. 5.7 pct. 6.2 pct.

Source: IMF World Economic Outlook, April 2013

Latin America

2012 2013 20143.0 pct. 3.4 pct. 3.9 pct.

The markets of tomorrow will be shaped by new players

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• IFU is a self-governing fund established in 1967 owned by the Danish government

• IFU’s purpose is to promote economic activity in developingcountries 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

• Annual activity: 30-35 new investments20-25 additional investmentsDKK 500 – 600m (USD 90 – 110m)

• Portfolio: 787 projects/86 countries223 active

Who is IFU?

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Investment countries and offices

IFU Offices

Accra

Johannesburg

Nairobi

CairoNew Delhi

Beijing

Investment limit USD 6,138 (2012)

Africa 30%Latin

America 15%

Asia 50%

Others 5%

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Examples of IFU’s Danish partners

Big companies(40%)

SME’s(60%)

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Financing – an overview of IFU’s guidelines

Equity Loans – secured or unsecured

Duration • 5-8 years • 5-7 years in $, EUR, DKK

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)

Exit • Put/call agreement with the Danish partner at market value

• Exit agreement from the start

• Repayment, 1-2 years grace

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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)

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IFU IN INDIAActive projects: 19

Total projects (1968-2013): 87

Amount invested: DKK 755.7m

Expected 4-5 new investments annually

Office in New Delhi since 1997

Our team in New Delhi

Examples of our partners

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

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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• 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

Calculating carbon savingsPAGE 13

Established: 2005

Expected total investment: DKK 11m

IFU’s contracted participation: DKK 0.3m

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

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What do we require from our partners?

• A strong business case • Experience within the industry

• Solid management experience

• Organisational and strategic commitment

• Financial strength

Corporate Social Responsibility - CSR

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■ CSR self assessment - Human Rights & Labour Rights - Occupational Health & Safety - Environment & Climate - Anti-Corruption - Community Development

■ CSR Action Plan

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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

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Ib AlbertsenSenior Investment ManagerTel: +45 33 63 75 49IBA@ifu.dk

IFUFredericiagade 271310 Copenhagen KDenmark

Tel. +45 33 63 75 00Fax +45 33 63 75 99ifu@ifu.dkwww.ifu.dk

How to get IFU involved? – give us a call or send a mail!