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?