HEADER: Arial Regular 22 Financing and advice to Danish …/media/Polen/Documents/Eksportraadet... · 2015-01-15 · HEADER: Arial Regular 22 Max one line and CAPS Text: Arial Regular

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15/01/2015

Olexiy Parkhomchuk

Senior Advisor

Financing and advice to Danish businesses

in Ukraine

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WHAT IS IFU?

15/01/2015 PAGE 2

Independent government-owned fund,

operating on commercial terms

46 of experience

investments in 88 developing countries

invested in share capital and loans

Advice and risk capital for globalisation of

Danish companies

800

Total contracted investments

of more than

10 bn DKK bn DKK

years

Event via ‘insert’ / 'header & footer'. Max one line

http://vimeo.com/80895975

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15/01/2015 Event via ‘insert’ / 'header & footer'. Max one line PAGE 3

Advice

• Evaluation of business plan

• Financial structure

• Legal set-up

• Partner negotiations

• Governance/CSR

• Access to local authorities

• Finding premises

Network & local presence

• Experience from 800

investments in 88 countries

• Seven regional offices in Africa,

Asia and Latin America

• 44 local and regional advisers

• Experienced investment teams

Financing

• Risk sharing and long-term

Investment horizon

• Share capital

• Loans

• Guarantees

• Investment period 6-8 years

• Agreed exit

Strategic partner

• Board work

• Strategic advice

• Additional financing

• CSR reporting

FOUR ELEMENTS

IN IFU’S

VALUE CREATION

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INVESTMENT MODEL

From DKK 1- 100m. Maximum 49% ownership


Danish

company IFU

Project company

DENMARK

UKRAINE Share capital:

DKK 7.5m

(75%)

Share capital:

DKK 2.5m

(25%)

Loan

DKK 2m

Loan

DKK 3m

Example of financing

Total investment: DKK 15m

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IFU'S INVESTMENTS


ASIA

Investments (no.): 389

Total investments (DKKm): 43,497

IFU investments (DKKm): 4,780

Actual direct employment

(people): 80,908

EUROPE



IFU investments (DKKm): 531


(people): 8,441

AFRICA





(people): 44,735

LATIN AMERICA





(people): 24,777

UKRAINE (since 2000)

Investments (no.):

52 (25

active)




(people): 6,973

POLAND (1991- 2012)

Investments (no.):

146 (0

active)




(people): 14,289

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INTEREST TO UKRAINE (retrospection)

• Market access to 45 m of retail customers (5 cities with > 1m inhabitants)

• Reduced production costs, unsaturated market, attractive margin rates

• Cheaper access to raw materials

• Export advantages in the region (Eastern Europe, former USSR)

• WTO member (2008), DK-UA Double tax avoidance convention (1996)


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PAGE 7

Low pace of economic reforms

Frequent retreats on democracy, political pluralism and human rights

High level of corruption, red tape, overcomplex taxation, complicated

administration; weak investor protection

Malfunctioning and politicized court system

Lack of support from local authorities, extortion via “charity”

Low European languages proficiency, underdeveloped business culture

Outdated education; low labor productivity

Lack of trust even inside the Ukrainian, still immature, society

Shadow economy: 25-50%; Gini Index: ~ 35/100

#112 out of 189 World Bank’s most recent Ease of Doing Business

ranking (#137 in 2013, #152 in 2012)

Ukraine has proved to be a difficult country to do business in/with

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PAGE 8

Who does run a business in Ukraine? Sell in UA (i.a. via local representation) Produce in UA (via subsidiaries)

Maersk Line Carlsberg (3 breweries; USD 500 m investments)

Novo Nordisk, Coloplast Danosha + 3 other DK groups of agri investors (~20,000 sows)

Danfoss Ciklum (software production, 2,000 IT people)

Grundfos SimCorp (software production) Cimbria Auditdata (software), CDM (software)

Rezidor (8 hotels / 1900 rooms in UA) Dolle, Gangsø

JYSK (14 stores) Sika Footwear Vestas (~60 x 3 MW turbines by 2013) Jahn & Jensen Products (import of food products to UA)

Kamstrup, Logstor Danish Textiles, Raitex Rockwool, H+H Actona

Bigadan DSV, ICT suppliers of metal components (includ. for UA market)

Grene suppliers of wooden components

Velux

Skov, Skiold

Haldor Topsoe

ECCO

Pandora, Shambala, Skygen

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PAGE 9

Map of IFU projects

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PAGE 10

What is happening now

Ukraine’s economy has been declining during 2014, after 0-growth in 2013.

The economy is severely affected by the annexation of Crimea and loss of

control over industrial eastern territories

60% devaluation of the local currency; expected 8% GDP decline in 2014

Financial reporting in UAH looks terrifying

Economical crisis stimulates UA's nation-building and speed up pro-

European development. Signing and ratification of political association and free trade agreements

with EU

However:

It is not easy to get Danes scared

We did not have large projects in Donbas; some minor losses in Crimea

Some mobilization of employees and vehicles to the army; donations for

hospitals

The retail market has decreased

Restrictions on payments abroad; deficit of hard currencies

High uncertainty

15 January 2015

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Perspectives

• We are eager to learn:

- performance of the new parliament

- performance of the new government

- level of offensiveness from Russia, which depends on the viability of

the Russian economy (with the oil below USD 70 / barrel the

Russian rhetoric has become much more peaceful)

• - the sustainability of the Ukrainian economy, which depends very much

now on 1) real reforms; 2) IMF/EU/USA/Australia/Japan/Canada

readiness to help financially – if they a progress with reforms

• Politically, Ukraine is one of the important destinations for Danish

investments.

• Pragmatically, the volume of investments depends on how Ukraine treats

domestic and foreign businesses


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IFU’s RESPONSE

• IFU re-confirmed its commitment to Ukraine:

• Disbursements according to signed agreements

• Rescheduling of liabilities

• 4 new investments were signed in 2014

• Neighborhood Energy Facility to support energy efficiency (2Q2015)

• Possible expanding of IFU mandate, beyond classics - projects with

Danish Economic Interest, promoting economic development

• No lost projects

• Great cooperation with the Danish Embassy/Trade Council


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PAGE 13

Agricultural production and Food processing

IT – outstaffing, outsourcing, software development

Energy Efficiency / Renewable Energy / District Heating

Outsourced processing – a new revival in textiles and wood / metal processing

IFU is prepared to support your projects in these industries in Ukraine.

Most perspective sectors of the UA economy

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15/01/2015 Event via ‘insert’ / 'header & footer'. Max one line SIDE 14

BALKAN / UKRAINE

CAUCASUS

In Copenhagen:

Lisbeth Erlands

Investment Director

Henrik Henriksen

Investment Director

BALKAN/UKRAINE/CAUCASUS TEAM

Max Kruse

Investment Director

Klaus Prebensen

Investment Director

Otto Vinther

Christensen

Investment Director

In Ukraine:

Lars Vestbjerg Adviser

Olexiy Parkhomchuk Adviser

How to start? – Give us a call

http://ifunet/Menu/Phone-Staff/Advisers/Ukraine/Lars-Vestbjerg

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PAGE 15

Ever changing regulations

Ruined roads

Unreliable infrastructure

Not sufficiently high working discipline

Minor thefts are a part of remuneration package

Larger businesses experience smaller problems in Ukraine

Strong competition from Ukrainians, Russians, Middle East and China

How Danes are perceived?

UA-DK shareholding: so far troublesome

Professional tax and legal advice is needed

Challenges to expect in Ukraine, on the top of 2014 risks

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PAGE 16

OVERVIEW OF IFU’S INVESTMENT PROCESS

Elements evaluated

Background of partners

Financial accounts of all partners

Business idea and rationale

Project country analysis

Indicative financing structure

Ownership structure

CSR policies

Clearance in principle

Investment Committee

Binding Commitment

Investment Committee

Additional elements appraised

Full business plan

Management & ownership

10 year financial modelling – P&L, balance sheet, cash flow

Sensitivity analyses

Fulfilment of IFU success criteria incl. CSR

Updated financial accounts of all partners

Loan agreement

Shareholder

agreement First contact

with partner(s)

Project operation

& monitoring

Activities performed

Legal opinion

Disbursement

IFU representation on project company board

Financial reporting

CSR reporting

Additional finance

Exit

Appraisal Agreement Operation Contact

1-3 months 4-8 years

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PAGE 17

Total commmitted amount: DKK 1.2bn (first closing)

DCIF WAS ESTABLISHED IN 2014 AS A PUBLIC-PRIVATE

PARTNERSHIP MANAGED BY IFU

Institutional investors:

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DCIF OPERATES IN ALL EMERGING MARKETS

INVESTMENT STRATEGY

• Active minority investor

• Equity focus

• Investment size: DKK 10m to

DKK100m

• Pre-agreed exit strategy

• All major emerging markets

except Russia

• Investment types:

Renewable energy, energy

efficiency projects

• Involvement of Danish

investors or suppliers

(”Danish economic

interest”)

DCIF investment countries

PAGE 18

Johannesburg

Cairo New Delhi

Beijing

Nairobi

Accra

Copenhagen

Bogotá

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WHAT IS A CLIMATE PROJECT?

Mitigation projects effectively reduce greenhouse gas (“GHG”) emissions

• Renewable Energy Projects e.g. wind, water, solar, biomass, geothermal

• Suppliers to Renewable Energy Projects e.g. blades for windmills, photovoltaic cells

• Energy Efficiency Projects (20% or more) e.g. technology upgrade, fuel switch

• Alternative Energy Projects e.g. utilisation of landfill gas, biogas from agricultural

residues

• Materials or Equipment Projects e.g. insulation material, district heating systems

• Transport Projects e.g. urban public transport system

• Other projects able to provide substantial mitigation effects

Adaptation projects reduce the consequences of climate change (at least 50% of total

project investment costs incurred due to the actual or expected impacts of climate

change)

• E.g. water management, agriculture, disaster preparedness, coastal and natural

resource management, insurance and climate change information and consulting

services

PAGE 19

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PAGE 20

1/3 of national export

Agri land is not for sale; unstable legal environment

1/3 of black soil of the world; 50 m ha of arable land in Ukraine

Annual production of grain 45-55 m tonnes of grains (2014 harvest is expected

at 64 m) and annual internal consumption of 25 m

High profitability of farming business in Ukraine. The good players reach on

average EUR 450 EBIDTA/ha

Ideal geographic localization of Ukraine close to its major off takers (Europe,

Middle East, Turkey, North Africa, China) with easy access to sea

USD 100-250 per ha of land lease rights

Most perspective sectors of the UA economy: Agri

Production and Food Processing

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PAGE 21

One of global top 10 software development players (~ USD 1.5 bln / year export)

30 thousand of IT developers

~ 10 Danish owned IT companies

IT companies demonstrate 15-25% growth annually

Outsourcing to Ukraine:

Software development

Call centers

Accounting / reporting

IT support

Favorable tax regime for IT companies and IT developers

41% of population internet penetration, mostly social networks

15% of population use smart phones

Rapidly growing volume of on-line trade and services inside Ukraine

Most perspective sectors of the UA economy: IT Software

Development, e-commerce

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PAGE 22

Highly energy-intensive economy - need for energy efficiency and diversification

of resources

High dependence on import of gas and oil from Russia

District heating is very much depreciated and needs huge

investments

Ukraine is one of 20 biggest CO2 emitters in the world

with >1% of global emissions, whereas its economy

is 0.2% of the global economy

State support - green tariffs - rates comparable to EU levels

National grid obliged to connect renewable sources

to the network

Guaranteed off-take by the State Energy Company

till 2029

0% customs duty ; 0% VAT on equipment imports

through 2019, but minimum local content must be observed:

15% in 2012, 30% in 2013 and 50% in 2014

Shale gas agreements with Shell and Chevron

Most perspective sectors of the UA economy: Energy

Efficiency / Alternative Energy