The role of DFI s for providing sustainable longterm funding solutions

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1 DEG Deutsche Investitions- und Entwicklungsgesellschaft mbh The role of DFI s for providing sustainable longterm funding solutions October, 2012 Our business is developing.

2 Agenda DFI s Mandate View on Africa Risk Capital Approach

DEG is a member of KfW Bankengruppe National

SMEs and start-ups, environmental and climate

infrastructure and social sector Finance for

promotion in Europe International project and

3 DEG is a member of KfW Bankengruppe National Business International Business Promotion of SMEs and start-ups, environmental and climate protection Promotion of housing, education, infrastructure and social sector Finance for municipal infrastructure projects and promotion in Europe International project and export finance Promotion of developing and transition countries

4 DEG Key Figures Founded: 1962 Employees: 457 Seat: Köln Shareholder: KfW, Frankfurt Equity 2011: Total assets 2011: EUR 1.7 billion EUR 3.9 billion New commitments in 2011: EUR 1.2 billion (supporting investments worth EUR 6.8 billion) Portfolio 2011: EUR 5.6 billion (supporting investments worth EUR 39.0 billion) 4

5 DFI s Mandate Contribution to sustainable economic growth and poverty reduction through Promotion of private sector development in emerging markets Providers of long-term capital for private enterprises Usually > 4 years up to 15 years Additionality by definition; complementary financing to commercial banks / PE funds Financing of financially sustainable projects / companies Market-oriented terms & conditions Environmental and social standards according to Worldbank /IFC guidelines Good Corporate Governance Positive development impact 5

6 DFI s Mandate II Sectors: Agribusiness, financial sector, infrastructure, manufacturing, services Availability of technical assistance funds (TA) to support feasibility studies, E&S management systems, pilot plants etc. Umbrella function of DFIs in projects Advisory for structuring Mobilization of commercial funds and additional DFI funding Joint Projects of European DFI s up to USD 150 million 6

7 Scope of DFI funding Loans with local security Loans Subordinated loans Loans with partial guarantees Hedged equity participation Partially hedged equity participation Equity participations Guaranteed loans Risk participation Risk continuum assumed by DEG 7

8 European Initiatives European Development Finance Institutions European Financing Partners S.A. 8

International cooperation EDFI Association 15 members, office in Brussels Total portfolio 2010: EUR 21.7 billion 4,088 projects New commitments 2010: EUR 4.

9 International cooperation EDFI Association 15 members, office in Brussels Total portfolio 2010: EUR 21.7 billion 4,088 projects New commitments 2010: EUR 4.7 billion 740 projects Goals: Ø Joint financing (larger amount of finance, risk sharing, efficiency gains) Ø Harmonisation: e.g. measuring developmental impacts, environmental and social standards Ø Cooperation with the European Commission and its institutions Ø Joint venture and marketing 9

10 Inside DFI s DFIs are not race horses but they like to move in herds Process takes 4-6 months DFI s increasingly extend their cooperation and co-financing Standardization of approval processes, Standard joint facility agreements EFP Cofinancing scheme Ø Engage with one DFI and provide it with a Mandate to lead the transaction DFIs are long-term partners no closed end funds; often they can provide equity and debt in parallel DFIs provide fair pricing but their collateral/security requirements and disbursement conditions are probably higher than with local banks DFIs have a similar approach but specific mandates (eg. country related, sector focus; partner preferences), specific financing volumes and instruments (eg. TA measures) Ø Identify the DFI that fits best to you! DFIs provide more than only funding find out about their special programs! 10

11 DEG s strategic focus Africa and Future Markets Risk Capital SME (through SME-funds and local banks) Climate Protection (renewable energy, energy efficiency, biomass) German Clients 11

12 DEG Special programmes Special programmes / projects Subject Donor developpp.de Co-financing of developmentally and economically feasible projects BMZ Feasibility studies Co-financing of Feasibility Studies Grants for transaction costs Technical Assistance Climate partnerships with the private sector Project development companies Competitive African Cotton Initiative (COMPACI) Accompanying small-scale investment projects by German medium-sized companies Enhancing the developmental impacts, broadbased and structural, of DEG financings Co-financing of climate-friendly and economically feasible projects Start-up financing for project developers operating in the field of climate protection Improvement of income levels of smallholders of the African cotton sector Loan guarantee fund Afghanistan SME promotion / Promotion of SMEs Up-scaling of innovative pioneer projects

13 DEG Offices Moscow Istanbul Beijing New Delhi Bangkok Accra Nairobi Jakarta Mexico City Lima São Paulo Johannesburg Representative offices in 60 countries through KfW Bankengruppe 13

14 Agenda DFI s mandate View on Africa Risk Capital Approach

15 Outlook for Africa I Political stability and governance in Africa have improved: Meanwhile we ve seen more than 30 times peaceful transitions of that governments or presidents this trend is expected to continue. In recent year a number of African countries have introduced liberal policies (eg. liberalization of telecoms sector) and privatized large state-owned companies Africa is the fastest growing region the world after Asia. 7 out of the 10 fastest growing economies in the world until 2015 will be from Sub Saharan Africa. Africa s economy is expected to grow 7% p.a. over the next 20 years. By the year 2050 the population in Africa will double from todays 1 billion to 2 billion and the population is young (median of 18 years) leading to a demographic dividend. This will lift long term growth by creating new labor force, urbanization and the related rise of new middle class. By 2020 more than half of African households will have an income exceeding 5,000 USD/Year. In 2010 total foreign direct investment was more than $55 billion five times what it was a decade earlier, and much more than Africa receives in aid. Especially in connection with mining and exploration of natural resources an increase of FDI in medium term can be expected. 15

16 Outlook for Africa Debt levels of African countries are on average much lower than for OECD countries (eg. Kenya 50%; Nigeria 20% Debt/GDP); countries can further leverage the economies and can sustain higher nominal debt levels due to high economic growth Prices of natural resources likely to remain high. The USA intends to import from Africa as much oil as from Saudi Arabia by the year More than 60% of the worlds reserves of for example Coltan, Chrome or Cobalt lie under African soil. Substantial new discoveries of oil and gas in East Africa and Mozambique. Africa holds 60% of the world s uncultivated arable land, which will play a key role to ensure global food security. ð African is becoming one of the most attractive places to invest in the world! 16

17 Lessons Learnt in Africa Building (or expanding) a company in Africa tends to require more time and resources compared to other emerging markets. Infrastructure bottlenecks often have an impact on inputs (energy, goods, services) and the distribution of finished goods. While top management can mostly be recruited through attractive compensation, experienced middle management and skilled workers are not readily available and need to be trained over time in order to achieve efficiency. Once a facility is fully operational, margins are usually much higher than in developed markets, due to low input cost and weak competition combined with high growth. As penetration rates (eg. in financial sector) are still low, growth rates can be very high; income elasticity to demand for FMCG, financial services is high ð Projects need to be developed carefully taking; importance of local partner with good track record ð Leverage should be conservative and contingencies must be sufficient to meet unexpected cost over-runs ð Implementation of governance structure is important to avoid mismanagement and fraud ð Properly managed projects/companies in Africa are highly attractive 17

18 DEG s Africa Strategy Challenges - immature deals - small companies - less sophistication - Infrastructure bottlenecks - Availability of managers - Challenging environment requires differentiated approach The Opportunity - Resources: land, commodities, demographics - Growth & middle income purchasing power - Ability to create value with quick wins - Regional integration - Less competition - Ability to arbitrage perceived vs real risk DEG Africa Strategy - Expand local footprint - Make financial sector investments to reach SME segment and for regional cooperation - Focus sectors: Banking/Insurance, Energy, Agri, Mining, FMCG - Identify regional champions - Mobilize 3 rd party capital DEG Strengths - Local offices - Product range - Sector Know-How - Sustainability / E&S - Reputation - Grant Funds 18

19 Agenda DFI s Mandate View on Africa Risk Capital Approach

Risk Capital Portfolio end of 2011 Key financial figures Breakdown by region EUR 1,742 million net commitments DEG invested in 298 projects in 243 companies and 59 countries Africa Asia Europe

20 Risk Capital Portfolio end of 2011 Key financial figures Breakdown by region EUR 1,742 million net commitments DEG invested in 298 projects in 243 companies and 59 countries Africa Asia Europe Latinamerica Breakdown by product Breakdown by industry Energy / Infrastructure Financial Institutions Mezzanine Direct Equity Direct Funds Agriculture Services Tourism Manufacturing Transport, Telecom

21 Risk Capital Direct Investments Size: 5 25 mln Risk: moderate, later stage, no rescues, focus on current yield Instruments: equity, risk mitigated equity, equity mezz, debt mezz DEG Role: significant minority (10-30%), joint control, active shareholder Sectors: old-economy sectors, significant sector, partner with sector know-how Transactions: prefer growth over buyout, alignment of interest, 5 7 year exit horizon, multiple & reasonable exit options, minority protection rights, risk/return balance Countries: DEG office countries: all products, comfortable with lead role Other Countries: co-invest with aligned local partners, different products Exceptions: Financial institutions with comfortable regulatory environment

22 Fund Investments Focus on mid-market PE & Mezzanine Funds (USD million) targeting Control Transactions or Structured Equity Investments in traditional industries with potential for strong growth and/or consolidation. Limited number of sector funds: infrastructure, clean energy/ cleantech, forestry No investments in Technology, Real Estate, Early Stage, Distressed Asset Funds Experienced Fund Management Team with credible Track Record (but first time funds) Buy-and-build Strategies usually create long-term value for Investors and positive development effects such as employment, tax income etc. Potential for Co-Investments (Equity and/or Debt at market conditions) free of carry and management fee Risk-adequate return expectation (usually 20-30% gross) 22

23 SME Frontier Initiative DEG will invest EUR 100m in SME-funds within 3 years DEG expects a relatively lower return for the facility compared to its regular / mid market fund business. In exchange the development impact should be considerably higher. All potential SME funds need to fulfill the following SME initiative criteria: The fund needs to invest in SME; whereas SME should fulfill IFC s criteria In addition to SME-investments the funds need to fulfill one of the following criteria: - specialized financing instruments (mezzanine or income participating loans) - focus on particular business segments (e.g. bottom-of-the pyramid, social entrepreneurs, climate change) - fund invests in low income and/or high risk countries 23

24 Representative offices of DEG in Africa Ghana: Andreas Voss Volta Street No. 7 Airport Residential Area P.O. Box 9698 K.I.A. ACCRA Tel.: Fax: Andreas.Voss@deginvest.de Kenya: Eric Kaleja Riverside Drive P.O.Box NAIROBI Tel. : Fax: Eric.Kaleja@deginvest.de South Africa: Michael Fischer Regent Place, 2nd Floor Cradock Ave, Rosebank 2196 P.O. Box 2402, Saxonwold 2132 JOHANNESBURG Tel.: Fax: michael@deginvest.co.za 24

DEG: We finance opportunities. DEG Deutsche Investitions- und Entwicklungsgesellschaft mbh. 18 July 2013, ZENIT GmbH

DEG: We finance opportunities. DEG Deutsche Investitions- und Entwicklungsgesellschaft mbh Financing of Private Sector Projects in Africa 18 July 2013, ZENIT GmbH A bank with a wide range of responsibilities