Document 241077

AlitheiaCapitalWorkshop
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Whatiscapitalstructure?
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D bt I
DebtInvestments
t
t
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EquityInvestments
q y
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GettingInvestments
40Slides
Whoarewe?
Who are we?
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1
Presenter
4
4
Sections
2Hours
1Hand
out
0Breaks
???
Questions?
NigerianInvestmentManager,basedinLagos
b
ƒ ManagesNigeria’sFirstMicrofinanceEquityFund
ƒ Alsomanagesmandatedrefinancefunds
Started2006byTokunbohIshmaelandJumoke
Akinwunmi
Partnerswithinternationalmicrofinanceinvestors
Gets money from international development finance
Getsmoneyfrominternationaldevelopmentfinance
institutions
IntroducingtheimportanceofcapitalstructureinfinancingyourMFB
Introducing the importance of capital structure in financing your MFB
Tenure
Cost
Deposits=
D
i
WorkingCapital
ki
i l
Refinance=
Working Capital
WorkingCapital
Volatility
Deposit
Debt
Equity=
q y
Equity
TooMuch
Refinance
TooMuch
q y
Equity
TooMany
p
Deposits
HighFinancial
CostRatio
i
Lowerreturnto
Shareholders
Shareholders
(ROE)
HighOperating
Costs
Needfor
strengthened
ALM
A
M
Reduced
growthrates
High
operational
volatility
Deposits
Refinance
Equity
• Eligibilityof
raisingdeposits
ii d
it
• Maximum
amount
restrictedbyCAR
t i t d b CAR
• Limitsaccessto
capitalsources
it l
• Maximum
amount
restrictedbyCAR
t i t d b CAR
• Minimum
d fi d b CAR
definedbyCAR
andCapital
Requirement
• Restrictionof
R t i ti
f
concentrationof
holding
• Restrictionof
R t i ti
f
shareholders
• ImpactonProfit
andLoss
dL
ƒ
ƒ
Infrastructure,
New Business
Internall
ƒ Stakeholdersdemands
Shareholders
Clients
ƒ Ageofthebank
AccesstoDeposits
ƒ TargetMarket
External
ƒ AccesstoFundingTypes
ƒ Regulation
Kenya
Nigeria
Cameroon
5%
17%
26%
35%
31%
39%
64%
26%
Mix Market, 2010
57%
1600
AMFB
BNGO
CMFB
1%
9%
1200
18%
28%
29%
17%
1000
800
600
71%
74%
Deposits
Refinance
Equity
1400
54%
Depositsgrow
linearover
time
Equity
investmentsets
offgrowthspurt
400
200
Borrowings
Deposits
Equity
0
2012
2013
2014
2015
2016
Raisesrefinanceon
thebackofequity
i
investmentand
t
t d
2017
2018
strongperformance
Mix Market, 2010
Howtoraisedebt
How to raise debt
Loancapitalwithout
L
i l ih
externalrefinance
L
Loancapitalwith
it l ith
externalrefinance
Re financing your
Refinancingyour
loanswithexternal
debtmeansthatyour
MFBdoesnotneedto
relyondepositors
and can grow faster
andcangrowfaster
LocalBanks
• Standard Chartered
• Citibank
• Stanbic IBTC
Senior Loans
S b di t d L
Subordinated
Loans
Microfinance
Investment
Vehicles
• Blue Orchard
• ResponsAbility
• Incofin
• Triodos
Mandated
Funds
Term Loan
Certificate of Deposit
Unsecured
U
secu ed
Working
Capital
Loan
• Alitheia Capital
Line of Credit
Bridge Loan
Overdraft
Maturity
BASICASSESSMENT
BASIC ASSESSMENT
ƒ
Character
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Collateral
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CashFlow
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Capacity
ƒ
Conditions
WHATDOESTHISMEAN
FORMFBs?
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InterestRatedependsonperceivedrisk
Ratingisadeepassessmentofinstitutionalstrengths
f
l
h
andweaknesses
Standard & Poor’ss,FitchandMoody
Standard&Poor
Fitch and Moody’ssarewell
are well
knowntraditionalinternationalratingagencies
Microfinanceequivalentexists:MicroRate,MCril,
q
,
,
PlanetRating,Microfinanza
ƒ RatetheMFBincontextofindustry,againstpeers
y g
p
ƒ Assessstrengthsandweaknessesof5C’s
Resultssharedwithinvestorstobuildinvestment
case
Howtoraiseequity?
How to raise equity?
Guarantor
Guarantor
1. Guarantee
% of loan
Lender/
Investor
3A. Guarantor pays predetermined amount if MFI
defaults
2. Disburses
loan to MFI
MFI
3. MFI repays lender
Grameen FoundationisanexampleofaGuarantor
Infrastructure
Infrastructure
ƒ Newbranches
ƒ NewComputers,MIS,orPOS
New Computers, MIS, or POS
ƒ NewTransportEquipment
HumanCapital
ƒ Addingmanagementcapacity
ƒ Providingskilldevelopment
Refinancing Loans
RefinancingLoans
Private
Investors
I t
International
ti
l
Microfinance
Investment
Vehicles
• Incofin
• Blue Orchard
(no investment to
date)
Donors/State
actors
Eq it
Equity
Capital
• LASMI
• UNDP
L l
Local
Microfinance
Investment
Vehicles
• Alitheia Capital
Whatyoucanexpectfromequityinvestorsdependson
h
f
theirbackground.Potentialvalueaddincludes:
ƒ Strategicguidancethroughboardseat
Strategic guidance through board seat
ƒ Accesstotechnicalresourcesforimprovementsto
MISetc.
ƒ Potentialaccesstofundernetworkforgrants
ƒ Accesstofundernetworkforrefinanceandmore
equityasrequired
ƒ Representationatdomesticandinternationalbodies
ƒ
1000
ƒ
900
800
700
Debt
Equity
GrossLoanPortfolio
Gross Loan Portfolio
400
2nd: $11.5mn
300
First external
equity: $3.2mn
ƒ
0
2004
Mix Market, Wikipedia, SKS,
indiamicrofinance.com, vccircle.com
ƒ
ƒ
ƒ
ƒ
2005
2006
Source
USDMillio
ons
ƒ
4th: $75mn
3rd: $30mn
500
100
IPO: $358mn
Valuation: ~$1.5bn
5th: $10mn
600
200
Investorshelpshapeyourcompanyafterbuyingapart
h l h
f b
ƒ Notabletoridthemunlessyoucanbuythemout
ƒ Boardseat,vetorights,etcgiveinvestorsasay
B d
t t i ht t i i
t
ƒ ConsiderFollowingfactorsbeforemakingadecision
ƒ Doyousharethesamegrowthtargetsandstrategy?
Do you share the same growth targets and strategy?
ƒ Doyouseeeyetoeyeonthekindofcustomersyou
wanttotargetandproductsyouoffer?
g
p
y
ƒ Havetheygotthecapacitytogrowwithyou?
ƒ Doyoulikethewaythehandletheirinvestees?
y
y
2007
microfinance
investors and
individuals
2008
VC/PE
2009
2010
2011
Strategic Investor
Secondaries
Trackrecord
k
ƒ Historicalfinancialperformance
ƒ Growthprofile
Management
ƒ Stability,depthandrelevanceofexperience
ƒ GoodGovernanceandtransparency
G
GrowthPlan
th Pl
ƒ Ambitionanduseoffunds
ƒ Matchinvisionandmission
Public Investors
CommonShares:Plainequity
C
Sh
Pl i
it
ƒ DifferentClasses:Someclassesmaycarrymore
voting rights than others
votingrightsthanothers
ƒ CouldincludeSweatandMembersEquity
PreferenceShares:Sharesthatcarrypreferential
yp
rightstodividend(fixed)andwindup
ƒ Options:Cumulative,Redeemable
C
ConvertibleDebt:Debtthatcanconverttoeither
tibl D bt D bt th t
t t ith
commonorpreferencesharesuponanagreedtime
PublicShares:Publiclytradedsharedfollowingthe
y
g
IPOaresimilartocommonshares
ƒ
Severalmethodologiescangiveyouanindicationof
l
h d l
d
f
whatyourcompanyisworthtoday
ƒ PricetoEarnings(P/E):ProfitafterTaxxMultiple
Price to Earnings (P/E): Profit after Tax x Multiple
ƒ PricetoBookValue(P/BV):NetAssetsxMultiple
NetAssets=Equityinvestments+RetainedEarnings
Net Assets = Equity investments + Retained Earnings
ƒ
Multiplesaresetbynegotiation
ƒ Highlydependentonyourcompanytrackrecordand
outlook
ƒ GeneralGuidance:P/EMultiple=0.81.2
ƒ
ƒ
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DoesyourMFIhave:
h
‰ ResponsibleGovernanceprocedures?
‰ ClearOwnershipstructures?
‰ ATransparentandOpenapproachtoreporting?
‰ AClear,AmbitiousandAchievableBusinessPlan?
‰ ADeepandExperiencedManagement?
‰ Apositivetrackrecord?
‰ AvailableDocumentation(financialstatements,
profiles,projections,etc)
Anindependentboardcapableofprovidingstrategic
b
bl f
directiontotheMFI,monitoringanddevelopingthe
management
Cleardecisionmakingprocessesandmonitoring
systems
y
Awarenessoninvestorpreferences,expectations
ƒ Coulddemandboardseat/nominateindependent
p
directors
ƒ Mighthavepreferencesoncoinvestors,board
members
ƒ
Goodaccountingpractices
Good accounting practices
ƒ Internationalandlocalaccountingstandards
ƒ Generationofregularfinancialstatements
g
ƒ Regularaudits
ƒ Conductandpublishregularaudits
ƒ UseExternalrecognised
Use External recognised auditors(E.g.KPMG)
auditors (E g KPMG)
ƒ Trackandcommunicatetherightperformanceindicators
ƒ E.g.NetIncome,AROA,AROE,Portfolioatrisk
ƒ Documenttargetsversusactualperformance,identify
l
f
d
f
discrepancies
ƒ Institutionalratingsbyaccreditedagenciesboostcapital
providersconfidence
id
fid
ƒ
ƒ
Founder’s/investors’reputations
’/
’
Definedownershipstructureandregulatedlegal
form
Awarenessonownershipstipulationsofinvestors
ƒ E.g.Investorscouldstipulatemin.ormax
E g Investors could stipulate min or max
investmentamountsandownershippercentages
E
Example
ƒ
Howdoesmyorganizationmakeinvestmentsareaility
How does my organization make investments a reaility
ACLEDA Investors
Holding
Board Seats
BoardSeats
ACLEDA NGO
46.23%
3
ASA
4.77%
2
DEG,FMO,IFC, Triodos
12.25%
1each
Audits
A dit
Whenconducted
Wh
d t d
CentralBanksupervision
Continualatallbranchofficesandcentraloffice
CGAPFormatappraisals
Yearly
Clientsatisfactionsurveys
Twiceayear
CreditRating
Continual(asrevalidationCreditratingisneeded)
Donor Monitoring
DonorMonitoring
Quarterly and annual (UNDP)
Quarterlyandannual(UNDP)
Duediligence
Foreachinternationalcommercialinvestment
Financialaudit
Yearly
Continual (internal but reports to Board General
Continual(internalbutreportstoBoard,General
Assembly)
Internalaudits
ProceduresAudit
Yearly(conductedbythefinancialauditcompany)
Social welfare inspections
Socialwelfareinspections
Continual at all branch offices and central office
Continual,atallbranchofficesandcentraloffice
Taxinspections
Continual
ƒ
HaveaPlanthat:
H
Pl th t
ƒ ShowswheretheMFIseekstobein5years
ƒ Setsrealisticanddynamicprojections,basedon
Sets realistic and dynamic projections based on
soundassumptions
ƒ Reflectsmission,policies,marketsituation
Reflects mission, policies, market situation
analysis,macroandregulatoryenvironment,
productsofferings,sensitivityanalysisand5year
fi
financialprojections
i l
j ti
ƒ Communicatesthatmanagementisawareofall
risks
ƒ
BeClearofyourObjectives:
l
f
b
ƒ IwantthemoneyIrrespective
ƒ Iwantthemoneyonyourterms
I
t th
t
ƒ IwantthemoneyandIhavesomenonnegotiables
but am willing to compromise to some extent
butamwillingtocompromisetosomeextent
Neversnapthenegotiations
Identifyinvestor’sintentassoonaspossible
Articulateyourtermsinalogicalmannertotheinvestor
Knowyourbottomlineifyouarewillingtocompromise
ƒ Comeupwithcompromises
C
ith
i
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AndreWegner
[email protected]
www.thealitheia.com