How to support SME in long term Financing China

How to support SME in long term
Financing － Experiences in
Germany & Applications in
China
Overview
1 Brief introduction of KfW Group
2 Experiences in Germany
3 How KfW Group supports SMEs in China
KfW at a galance
Established
Legal Status
Shareholders
Headquarters
Branch Office
Liable Equity
Balance-Sheet Total
Rating
Employees
*preliminary figures
In 1948
Corporation Under Public
Law
80% Federal Republic
20% Federal States
Frankfurt am Main
Berlin
€ 5.9* billion
€ 223* billion
AAA / Aaa
2,032
KfW Banking Group
Structure of KfW Group
KfW SME Bank
Promotion of the
German
Economy
•SME’s
•Start Up’s
KfW
Promotional
Bank
Promotion of
•Private
Housing
•Environmental
Protection
•Education and
Infrastructure
KfW
Development Bank
Promotion of
Developing
Countries
DEG
IPEX- Bank
Export- and
Project
Finance
Importance of SME sector in Germany
Small & Medium-sized companies
-account for 99% of all 3.3 million enterprises in Germany
-employ two thirds of all employees in Germany
-generate nearly half of total gross value added
-are the basis of dynamic and intensive competition
-are the backbone of structural change
Specific disadvantages of SMEs in
Germany
a) They rarely have direct access to the capital market,
b) they have a weak bargaining position with banks,
c) they have insufficient possibilities to spread risks internally,
d) they will be given less favourable conditions in future as the
corporate client operations of large banks are being restructured.
Prerequisites for sound and healthy SME
Development
Active enterprises and investors
A functioning banking system
Legal safety
State-owned enterprises should not be given
preference over private ones.
Privatization of state enterprises, transfer (of parts)
of enterprises to private operators
Fair tax system
Social compatibility
Culture of entrepreneurship
How KfW Group Supports SMEs in
Germany
KfW Group provides various financing services to
SMEs, business start-ups and the self-employed
people in Germany via the KfW SME Bank
• Long-term loans
• Mezzanine financing
• Equity capital
• Consulting services
The KfW SME Bank‘s Loan Program
• Entrepreneur Loan
• Start-up Loan
• Entrepreneurial Loan-Leasing
• Entrepreneurial Loan – outside Germany
• Micro Loan
Entrepreneur Loan Program (1)
• Investment loans for business founders, SMEs, and
self-employed professionals
• Applicable for both German & foreign commercial
enterprises whose annual turnover does not exceed
EUR 500 million
• Financing for all investments in Germany which
require long-term funding and promote a sustainable
economic success
• Interest rate is based on the developments in the
capital market
Entrepreneur Loan Program (2)
Financing share
• up to 75% of the total required investment for the
companies with annual turnover up to EUR 50 million
• up to 2/3 of the total required investment for the
companies with annual turnover more than EUR 50
million
Amount of the loan
• Not more than EUR 5 million
Maturity
• up to 10 years with no more than 2 redemption-free
start-up years
Entrepreneurial Loan-Leasing (1)
Financing of investments in real estate leased to small
and medium-sized commercial enterprises under
long-term real estate leasing contracts.
• Applicable to German and foreign commercial
enterprises which are privately owned and whose
turnover does not exceed EUR 500 million
• Applicable to all real estate investment such as
acquisition of land and buildings, building lease.
• The maximum loan term is 22 years with not more
than 2 grace years in the start-up phase.
Entrepreneurial Loan-Leasing Leasing (2)
Amount of loan: up to EUR 5 million
Financing share:
• up to 75% of the total investment cost for the
companies whose annual turnover up to EUR 50
million
• up to 2/3 of the total investment cost for the
companies whose annual turnover more than EUR 50
million
Interest rate: based on the developments in the capital
market
Entrepreneurial Loan-Outside
Germany (1)
Investment loans for SMEs outside Germany
Applicable to: German commercial enterprises, their
subsidiaries and/or their joint ventures in a foreign
country
Applicable for:
• all investments by existing enterprises that require
long-term funding
• the creation and acquisition of enterprises and
stakes in enterprises
• costs of business-related R&D
• preparatory studies for a specific investment project
Entrepreneurial Loan-Outside
Germany (2)
Financing share:
• up to 75% of the total investment cost for the
companies whose annual turnover up to EUR 50
million
• up to 2/3 of the total investment cost for the
companies whose annual turnover more than EUR 50
million
Currency:
• Euros, US$, pounds sterling, or Yen
Loan amount: up to EUR 5 million or the equivalent
amount in foreign currency
Maturity: up to 10 years with no more than 2 grace
years
Interest rate: may be fixed for the entire term or may
be variable ( on a 6-month basis )
Start-up Loan (1)
Investment loans for business founders, SMEs and
independent professionals
Applicable to:
• Natural persons who have the required technical and
business qualification for the project
• Small commercial enterprises with up to 100
employees
• Independent professionals
Applicable for: operational investments and working
capital
Financing share: up to 100% of the total financing
required (investments/working capital )
Start-up Loan Loan (2)
Amount of loan: up to EUR 50,000
Maturity: up to 10 years with no more than 2
redemption-free start-up years
Interest rate: based on the developments in the capital
market, and fixed for the entire term of the loan
Micro Loan Program (1)
Investment loans for business founders, SMEs and
independent professionals
Applicable to:
• Natural persons especially unemployed persons,
foreigners and immigrants
• Small commercial enterprises and independent
professionals with up to 10 employees
Applicable for: operational investments and working
capital
Financing share: up to 100% of the total financing
required (investments/working capital )
Micro Loan Program (2)
Amount of loan: up to EUR 25,000
Maturity: up to 5 years with a grace period of 6
months
Interest rate: based on the developments in the capital
market, and fixed for the entire term
How KfW supports SME in China
1. Provides long term Financing to Non-State
Private SMEs through program banks
2. Strengthens the corporate lending business of
the participating Chinese Banks- indirect
support to SME
3.
Provides long-term financing to German SMEs
for setting up joint ventures and whollyforeign-owned companies in China as well as
Chinese SMEs
4.
A private equity fund for SMEs in Sichuan
5. Equity-participation in a foreign-invested bank
specializing in financing SMEs in China
KfW‘s SME Programs in China
Participating banks and Outstanding Loan Portfolio
Project
Loan
Agreement
signed
Volume in Mil DM
FinCoop
Fin. Credit;
Market Funds
Total
Agricultural Bank of China (ABC) I
1988
20
Credit Program I (CF)
1997
65
65
130
1999
50
50
100
2001
50
50
100
185
165
350
20
- Agricultural Bank of China (ABC)
- China Investment Bank - CIB
(if funds from CIB III are fully covered)
Credit Program II (CF)
- Hua Xia Bank
- Shenzhen Development Bank
Credit Program III (CF)
- China Merchant Bank
China Minsheng Banking Corp.
Total
KfW‘s SME Programs in China
Terms and Conditions of SME-Subloans
z Interest rate: in accordance with prevailing EURO /
RMB market rate in China to be set by the banks
z Maturity: in accordance with financed investment,
maximum 13 years including a grace period of 3
years (Investment Costs), respectively 3 years
maturity (Working Capital)
z Investment eligible for financing: Costs of
industrial fixed asset investment and necessary
working capital loans
KfW‘s SME Programs in China
Who can apply?
z Small and medium non-state owned enterprises
(individual enterprises, private enterprises with more than
8 employees, joint ventures)
z Shareholding companies (state-owned and collective
enterprises in the process of privatisation, if already
transformed into a shareholding company)
z Only financially healthy enterprises that can provide
collateral
KfW‘s SME Programs in China
Required documents
z Feasibility Study
z Evidence that total financing is secured
z Balance sheet and profit and loss account
z Information according to Bank guidelines
Financing SMEs in China: DEG‘s experience
z Provide equity capital & long-term loans to joint ventures and
WFOEs established by German SMEs
z Provide equity capital & long-term loans to local Chinese private
companies
z Provide equity capital & long-term loans to companies set up by
SMEs from other coutries and regions
z Equity participation in a foreign-invested bank specializing in
providing loans to SMEs in China
z Setting up a private equity fund for SMEs in Sichuan
Corporate data: DEG-German Investment &
Development Company
Founded:
Headq.:
Capital:
Staff:
Owner:
1962
Cologne,Germany
EUR 750 million
323
KfW (Kreditanstalt
für Wiederaufbau)
DEG’s Long-term financing.
Competence in detail. Forms of financing are:
z
Equity finance
z
Mezzanine finance
z
Long-term loans
z
Guarantees
Financing criteria
Important Factors:
• Qualified management
• Proven track record
• Significant growth potential
•Competitive cost base
• Good credit standing
• Reasonable price
• Sound business plan
• Profitable and realistic exist
• Audited statements
strategy
Projects in China (1985-2003)
zDEG commitments EUR 173 million
zTotal projects
31
zCurrent portfolio
z Equity
42%
z Long-term loans
58%
Financing instruments:
Equity capital
zConditions for equity capital:
z Equity participation in principle between EUR Mil 2,5 -10
z Equity participation not to exceed 30% of share capital
z Preferred entry via capital increase
z Possibility of exit after 5-12 years via trade sale, IPO, or put
option
z Tag-along and drag-along rights
z Expected equity IRR 18-30% including dividends paid
Financing instruments:
Long-term Loans
z Conditions for loans:
z Long-term loans in principle between EUR Mil 2,5 -25
z Preferred tenor between 4-12 years, incl. grace period
z Fixed assets as collateral (1st ranked)
z Variable interest rate (base lending rate plus spread) or
fixed interest rate
DEG’s Direct Financial Support to SMEs in
China
z 2/3 of DEG’s portfolios companies in China are SMEs
z DEG has provided long-term financing to 13 German
SMEs for setting up JVs and WFOEs in China
z DEG has provided long-term financing to 3 local
private companies for their expansion projects
z DEG has also financed in China 5 projects sponsored
by SMEs from other countries or regions
DEG’s Indirect Financial Support to SMEs in
China
z Equity participation in Shanghai Business
Development Bank (BDB)
--- BDB is specialized in providing loans to SMEs
in China
z Equity participation in Sichuan SME Fund
--- The first SME fund in China’s western Sichuan
province
Any Questions?