Strategic & Practical Value-Chain
Financing Project Approach
Financing Project Approach
Thailand Case
Thailand Case
Reuben Jessop
ICON Institute GmbH, Private Sector
GTZ Thailand
for Enterprise
Competitiveness
Programme Director
Pro-Poor
Competitiveness
BFS Component
EES Component
Pro-Poor
Sector Choice
Based on
Value-Chain
Approach
(Analysis Constraints
Shrimps
Sector Manager
Service Projects
:
Ri k M
t
Largest
Number
SMEs/Farmers
(Analysis, Constraints,
Service Solutions,
Interventions)
Oil Palm
Sector Manager
Risk Management
Project Manager
Technology Advice
Project Manager
Certification
SMEs/Farmers
and
Geographical
S
d
Cross-Cutting
Ser ice Market
Mulberry (Saa) Paper
Sector Manger
Tapioca
Certification
Project Manager
MIS
Project Manager
Energy Efficiency
Spread
VC Finance is
Service Market
Development
Methodology
Tapioca
Sector Manager
Fruits & Veggies
S
t
M
gy
y
Project Manager
Finance
Project Manager
VC Finance is
Not a
Stand-Alone Project
gy
Sector Manager
but Integrated
Agro
Component Dir.
Component Dir.
SM
SM
SM
SM
SM
SM
SM
SM
SM
Sector Managers
I
-Projects with Business
& Financial Services
SM
Fruits & Vegetables
Finance
Energy Efficiency
F it
d
MIS
Risk Management
Certification
Saa
Tapioca
Fruit and
Veggies
Palm Oil
Shrimp
Projects with Eco
Mulberry (Saa) Paper
Palm Oil
Technology Advice
Projects with
Eco-Efficiency Services
Services for Improving Financial Access
(SIFA) Project Logic
N
Savings and investments
Increase SMEs’
Competitiveness
Loans and credits (demand from sector/service projects)
New
Products
Savings and investments
Transactional services and others
Strengthen the
SME Financial
S
i
M
k t
Lenders’
Capacities
Institutionalize new product development
Promote value chain financing and other approaches
Services Market
Promote development and use of ancillary services
Framework
Conditions
Promote business security (all assets) legislation
Improve equipment registration and mortgage process
Project Works
with Public and
Private Banks
Promote SME credit information/scoring services
Financing Primary Producers/Farmers
If Subsistence Farmers with
Necessary Additional
If Smaller to Medium-Size
Farmers without
Necessary Additional
Income Activities, then a
Microfinance Approach
A
i t
Farmers without
Subsistence Need for
Additional Income Activities,
th
V l
Ch i
Appropriate.
then a
Value-Chain
Financing Approach
is
Needed.
Financing Value-Chain SME/Processors –
A Financiers’ View Is An Accounting View
g
ASSETS
What are the
LIABILITIES
Loan(s)
What are the
assets financed
that will produce
the cash flow to
repay the loan?
Loan(s)
Lower Equity
Means Higher
Leverage and
repay the loan?
Financial institutions will
More Risk
EQUITY
PROFIT & LOSS
Revenues
Financial institutions will
finance
enterprises
with
several asset classes
providing consistent cash
Equity
Retained earnings
Revenues
Expenses
Net Profit
providing consistent cash
flows. Low-risk, low-return
bankers are cautious toward
higher-risk, uncertain and
higher risk, uncertain and
low cash flow businesses.
Typical Enterprise Capital Structure –
Liabilities and Equity Fund Assets
ASSETS
Cash
M
k
bl S
i i
LIABILITIES
ST Loans Payable
A
P
bl
Short-Term
Marketable Securities
Accounts Receivable
Inventory
Other ST Assets
Accounts Payable
Accrued Expenses
Other ST Liabilities
T t l ST Li biliti
Working Capital
ST Assets minus
ST Liabilities
Assets
Financed with ST
Liabilities and
Working Capital
WC
Total ST Assets
Total ST Liabilities
LT Loans
Oth
LT Li biliti
ST Liabilities
(should be
positive)
Plant
E
i
t
Other LT Liabilities
Total LT Liabilities
EQUITY
P id I C
it l
Minimum
Long-Term
Assets
Financed with LT
Liabilities and
Equipment
Land
Other LT Assets
T t l LT A
t
Paid-In Capital
Retained Earnings
(+Profit/-Loss)
Equity
Amount
Depends Upon
Operating
Cash Flow of
Liabilities and
Equity
Total LT Assets
Cash Flow of
Business
(EBITDA)
Typical Business Value Chain Transactions –
No Financial Institutions
Supplier
Grower
Buyer
ASSETS Cash Marketable Securities Accounts Receivable Inventory LIABILITIES ST Loans Payable Accounts Payable Accrued Expenses Other ST Liabilities ASSETS Cash Marketable Securities Accounts Receivable Inventory LIABILITIES ST Loans Payable Accounts Payable Accrued Expenses Other ST Liabilities ASSETS Cash Marketable Securities Accounts Receivable Inventory LIABILITIES ST Loans Payable Accounts Payable Accrued Expenses Other ST Liabilities y Other ST Assets Total ST Assets Total ST Liabilities LT Loans Other LT Liabilities y Other ST Assets Total ST Assets Total ST Liabilities LT Loans Other LT Liabilities y Other ST Assets Total ST Assets Total ST Liabilities LT Loans Other LT Liabilities Plant Equipment Land Other LT Assets Total LT Assets Total LT Liabilities EQUITY Paid-In Capital Retained Earnings •+Profit/-Loss Plant Equipment Land Other LT Assets Total LT Assets Total LT Liabilities EQUITY Paid-In Capital Retained Earnings •+Profit/-Loss Plant Equipment Land Other LT Assets Total LT Assets Total LT Liabilities EQUITY Paid-In Capital Retained Earnings •+Profit/-Loss
Supplier sells to
pp
Grower sells to
Buyer sells or
Grower on
Credit
Grower sells to
Buyer on Credit
Buyer sells or
Consumes
Possible Collateral Types for Third-Party
Financial Institution
Supplier
Grower
Buyer
(Wants Sales)
(Maybe Willing to Give
Off-Balance Sheet Guarantee or
Advance Financing)
(Needs Input Supplies)
(Maybe Willing to Give
Off-Balance Sheet Guarantee or
Advance Financing)
(Needs Financing)
(Other Assets Available to
Pledge as Collateral)
ASSETS Cash Marketable Securities Accounts Receivable Grower Loan LIABILITIES ST Loans Payable Accounts Payable Accrued Expenses Other ST Liabilities ASSETS Cash Marketable Securities Accounts Receivable Inventory LIABILITIES ST Loans Payable Accounts Payable Accrued Expenses Other ST Liabilities ASSETS Cash Marketable Securities Accounts Receivable Grower Loan LIABILITIES ST Loans Payable Accounts Payable Accrued Expenses Other ST Liabilities Inventory Other ST Assets Total ST Assets Total ST Liabilities LT Loans Other LT Liabilities Other ST Assets Total ST Assets Total ST Liabilities LT Loans Other LT Liabilities Inventory Other ST Assets Total ST Assets Total ST Liabilities LT Loans Other LT Liabilities Plant Equipment Land Other LT Assets Total LT Liabilities EQUITY Paid-In Capital Retained Earnings •+Profit/-Loss Plant Equipment Land Other LT Assets Total LT Assets Total LT Liabilities EQUITY Paid-In Capital Retained Earnings •+Profit/-Loss Plant Equipment Land Other LT Assets Total LT Liabilities EQUITY Paid-In Capital Retained Earnings •+Profit/-LossX
Possible Collateral Assets and Advance Rates
and/or
ASSETS
Cash/Deposits (90%)
Accounts Receivable (60%)
LIABILITIES
ST Loans Payable (secured by ST Assets)
Accounts Payable
and/or
Off Ba
l
Inventory (40%)
•
Seeds
•
Fertilizers
•
Pesticides
•
Crops
Accrued Expenses
Other ST Liabilities
Total ST Liabilities
lance Sheet
Crops
Other ST Assets (10%)
Total ST Assets
LT Loans
Other LT Liabilities
Total LT Liabilities
Guarantees
Plant
Total LT Liabilities
EQUITY
Paid-In Capital
R
i
d E
i
–
Company
Equipment
Land (already mortgaged)
Other LT Assets
Total LT Assets
Retained Earnings
•
+Profit/-Loss
& Individua
l
Several Guarantees
Supplier
Grower
Buyer
Supplier
Grower
Buyer
Loan
Repay
Loan
Repay
Loan
Repay
ASSETS Cash LIABILITIES ST Loans Payable ASSETS Cash LIABILITIES ST Loans Payable ASSETS Cash LIABILITIES ST Loans Payable Marketable Securities Accounts Receivable Inventory Other ST Assets Total ST Assets Accounts Payable Accrued Expenses Other ST Liabilities Total ST Liabilities Marketable Securities Accounts Receivable Inventory Other ST Assets Total ST Assets Accounts Payable Accrued Expenses Other ST Liabilities Total ST Liabilities Marketable Securities Accounts Receivable Inventory Other ST Assets Total ST Assets Accounts Payable Accrued Expenses Other ST Liabilities Total ST Liabilities Plant Equipment Land LT Loans Other LT Liabilities Total LT Liabilities EQUITY Plant Equipment Land LT Loans Other LT Liabilities Total LT Liabilities EQUITY Plant Equipment Land LT Loans Other LT Liabilities Total LT Liabilities EQUITY Other LT Assets Total LT Assets Paid-In Capital Retained Earnings •+Profit/-Loss Other LT Assets Total LT Assets Paid-In Capital Retained Earnings •+Profit/-Loss Other LT Assets Total LT Assets Paid-In Capital Retained Earnings •+Profit/-Loss
Public-Sector Bank VC Financing Model
SME “B
i
G
” i
SME “Borrowing Group” in
Value Chain/Custer
Company
A
Company
B
Company
C
Company
D
Company
E
Sales
Direction
Sell to Larger
Corporates
Seviced by
Commercial
SME
SME
SME
SME
Banks
Loans to
I di id
l
SME
BAAC
GSB
SME
BAAC
SME
BAAC
SME
BAAC
SME
BAAC
GSB
Syndicated
Loans
Individual
SMEs But
Guaranteed
by Other
SMEs in
GSB
GSB
GSB
GSB
SMEs in
Borrowing
Group.
Cross
Default
Loan
Clause.
Syndicated Bank Lending Group
SME
Transactional
Information as
Collateral
SME
Bank
BAAC
GSB
Collateral
Oil Palm Replanting Enhances Sector Competitiveness
% OER
FFB Quality
1
Mill
Productivity
Energy Costs Reduction from Eco-Efficiency
Mill Efficiency
Eco-efficient energy
Genetic/ Variety
Overall Competitiveness
Additional Income from Power Sold to Grid
2
Eco-efficient energy
FFB Yield
Farm Management
Plantation
Productivity
2
3
Opportunities for enhancing competitiveness to the palm oil sub-sector in the following dimensions:
1)
FFB Quality - Replacing new oil palm seedlings which yield better quality of FFB, also embedded the post-harvesting practice
2)
Genetic - Replacing new seedlings with genuine genetic/ variety
Age of Palm
4
2)
Genetic Replacing new seedlings with genuine genetic/ variety
3)
Farm Management - Embedding the best practices in farm management from land preparation, irrigation, fertilizer application together with soil &
frond analyses
An Overview of the Oil Palm’s Production Life Cycle
Oil-yielding
End of Life
Seeds
Seedlings
Oil-yielding
Palms
Old Palms
End of Life
Cycle
1 year
2.5 year
20 year
Low-yield period
1 year
y
y
y
p
(7-10 yrs)
Field Planting
Harvesting Possible
Suggest Removal
& Re-planting
& Re planting
Financial Package for Oil Palm Replanting Program:
g
p
g
g
Tranche A - Palm Tree Leasing
Tranche B - Reverse Lease Payment
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
Investment
THB 4,800/rai (THB 218/ tree)
A – Palm Tree Leasing
Asset Ownership
B – Reverse Lease Payment
Asset Ownership
as Collateral
THB 5,000/rai
(THB 227/tree)
THB 4,000/rai
(THB 182/ tree)
THB 5,500/rai
(THB250/tree)
Working Capital
(2,788) plus
Loan Repayment
(1,072)
Working Capital
(3,088) plus
Loan Repayment
(1,572)
Working capital
(3,376) plus
Loan Repayment
(2,072)
Ethanol
Refinery (ER)
Co-op
“
A
”
Farming Contract
“
1a
”
Farming Contract
“
2a
”
Farming Contract
“
3a
”
Farming Contracts
(A, B, C, D, E)
Pricing of
Refinery (ER)
Co-op A
(KER Monitor A)
Loan
Farming Contract 3a
Farming Contract
“
4a
”
Farming Contract
“
5a
”
Farming Contract
“
1b
”
F
i
C
t
t
“
2b
”
Pricing of
Farming
Contracts is
based on
Co-op
“
B
”
(KER Monitor B)
Farming Contract
“
2b
”
Farming Contract
“
3b
”
Farming Contract
“
4b
”
Farming Contract
“
5b
”
F
i
C
t
t
“
1
”
based on
“
Starch+
”
at
Delivery
Collateral
BANK
Co-op
(KER Monitor C)
“
C
”
Farming Contract
“
1c
”
Farming Contract
“
2c
”
Farming Contract
“
3c
”
Farming Contract
“
4c
”
F
i
C
t
t
“
5
”
Co-op
“
D
”
(KER Monitor D)
Sh
t t
Farming Contract
“
5c
”
Farming Contract
“
1d
”
Farming Contract
“
2d
”
Farming Contract
“
3d
”
Farming Contract
“
4d
”
ER Monitor is ER
Employee sitting at Co op
(KER Monitor D)
Co-op
“
E
”
Short-term
Working Capital
Loans
(70% advance rate
Farming Contract
“
4d
”
Farming Contract
“
5d
”
Farming Contract
“
1e
”
Farming Contract
“
2e
”
Farming Contract
“
3e
”
Employee sitting at Co-op
who monitors contract
compliance, coordinates
tapioca delivery to ER, and
Co op E
(KER Monitor D)
(70% advance rate
against individual
farming contracts)
Farming Contract 3e
Farming Contract
“
4e
”
Farming Contract
“
5e
”
p
y
provides advice through
soil testing
Thank You for Your Attention
Thank You for Your Attention