1. International Finance Corporation
Provider of Long-term Financing
with Global Expertise
International Finance Corporation
and Industry Knowledge
Support from Strategy to Implementation:
in Emerging Markets
Financing the Automotive Sector in Emerging Markets
July 2005

2. The Landscape in 2006
• Flat markets in the developed world …
 Western Europe
 North America
 Japan
• … while emerging markets are surging
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3. Emerging countries projections
• Yearly 4 wheelers output expected to grow from 18.6 M in 2005 to
28 M vehicles in 2010 (8% CAGR)(*)
• 82% of the growth will come from 7 countries
 China 37%
 India 12%
 Czech+Slovak Republic 12%
 Thailand 6%
 Iran 6%
 Brazil 5%
 Turkey 4%
• 64% of the growth comes from Asia; 18% from Eastern Europe; 8%
from Latin America
(*) Sources: JD-Power, CSM
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4. 63% of the auto growth comes from
Asia
• All emerging countries
LAC Africa
7% 1%
Central/
Eastern
Europe
29%
Asia
63%
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5. Is Asia a global threat ???
• China now 2nd global market and still growing
• India catching up, was 10 year behind, now 8
years
• American Big Three tumbling at home
… The end of the Old Auto World ???
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6. “Speak with Data”
• “We’ll buy 60% of our parts from low cost countries”
(!!!)
 Labor content …
- Direct Labor
- Indirect Labor
- Overheads
 Versus shipping costs
- Sea freight
- Custom duties
- Working capital: 2 months of business on the boat, one on the
ground
- … and air shipment !!!
… It all depends !
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7. … A corporate buyer’s dream ?
• “and in our emerging Dreamland, workers are
paid 1 Euro per year “
• If …
 Your labor content is higher than 10 or 15% (are you
sure that you have no more productivity ideas ???)
 Your parts are shipped easily and cheaply
 You can afford waiting for them for two months …
• … Then welcome to Dreamland !
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8. A corporate buyer’s nightmare ?
• In Nightmareland:
 Labor costs are probably the highest in the world
 One would not fire workers
 Cost of land is extremely high
 Road are most often congested
 Culture is a high barrier to import and exports …
Q: How can one make cars and car parts profitably there ???
A: Welcome to Japan !
(… and Korea will soon follow …)
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9. Get to be globally competitive …
• Step 1: Know your shop floor, look for Muda
 Cut labor, cut labor, cut labor !
- SMED
- Flows (from your supplier to your customer !)
- Automation, (as a last resort !)
• Step 2: Know your project process, look for Muda
 Cut labor, cut labor, cut labor !
- Design sobriety
- Computer aided prototyping
- Computer aided testing
… at home, at the supplier’s, at the customer’s
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10. Thou shall love your neighbors !
• Step 3: Leverage your continent
 Western/Eastern Europe
 U.S.A./Mexico
 Korea/China (remember Korea ?)
• The future is in tandems
 West now and later:
- Best productivity
- Better cars and parts design
- Closest to western customer
 East or South:
- Now: Push to productivity (remember Korea ?)
- Later: Better cars and parts design, closest to customer …
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11. Tandem: how to face the challenge
• Strong global vision needed, forget the hypes !
 In house
- Management, no nonsense, diversity
 Outside
- Suppliers intimacy (Knows east/west)
- Customers education (Knows east/west)
 Bankers support (Knows east/west)
- Hands on experience in your trade
- Development AND investment banker
- Present in all emerging countries
- World class understanding of your industry
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12. IFC financing approach
World Bank Group
The World Bank Int‘l Finance
(IBRD) Corporation (IFC)
Est. 1945 Est. 1956
Government Private Sector
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13. IFC is
A Member of the World Bank Group
• World Bank Group institutional roles:
• IBRD lends to governments of middle-income
developing countries
• IDA provides concessional loans to governments
of the poorest developing countries
• MIGA provides guarantees to foreign investors
against noncommercial risk
• IFC is the private sector investment arm
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14. Capital Stock Held by IFC’s
Shareholders
(As of June 30, 2006)
Five largest: 45%
Other countries: 55%
United States
23.68%
Other countries Japan 5.88%
54.99%
Germany 5.37%
France 5.04%
178 Member United Kingdom
5.04%
Countries
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15. IFC: Background
• IFC is the largest private sector investor in the emerging markets:
- AAA rating
- As of June 30, 2006:
- Portfolio of US$21.6 billion in 140 countries. Debt and equity commitment
of $6.7 billion for its own account in FY2006
- Highest exposures: Russia, Brazil, China, India, Turkey
- IFC has invested in more than 3,319 companies since its inception in 1956
• IFC provides long-term financing through a wide range of instruments and
products:
- Long-term loans on project- or corporate-finance basis in
all major currencies or selected local currencies
- Partial guarantees for long-term loans or bonds
- Equity or quasi-equity
- Risk-management instruments: interest rate, currency and
commodity swaps
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16. Strengths of IFC
as an Investment Partner
IFC IS A LONG-TERM PARTNER
• Involvement from project concept through to completion and
beyond through follow-on projects
• Combines the resources of a development bank with the
flexibility of an investment bank
• Delivers benefits beyond those purely commercial entities
are able to offer
• Experience in working with other financial institutions
(commercial banks, international financial institutions, export
credit agencies, etc.)
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17. IFC Offers …
TAILORED FINANCING
• Long tenor debt financing (8-12 years) with flexible grace periods
• Currency of choice (many currencies available, e.g.: Brazilian real,
Mexican peso, Thai baht, Indian rupee, South African rand)
• Fixed or floating market-rate pricing
• Ability to mobilize financing
• Equity investments based on anticipated return
• Always a passive investor and never the largest shareholder
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18. IFC Offers …
IN-HOUSE EXPERTISE
• In-depth knowledge of regions and markets
• Sector expertise
• Environmental, social and insurance specialists
• Expertise on linkages with small and medium enterprises
(SME)
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19. Typical IFC Partners
Western companies expanding into emerging markets seeking:
• Political risk mitigation and country knowledge
• Leveraging of scarce resources
• Lowering financing pressure on parent company’s balance sheet
• Long-term financing for multiple projects in several countries
• Local currency financing
• Local SME supplier financing
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20. Typical IFC Partners
Local companies expanding their operations at home or abroad seeking:
• Global benchmarking and market information
• Advice on investment strategy in the context of developments in the global
market
 Extensive restructuring investments (e.g.: financial crises in Asia, Russia)
 Long-term financing for capital investment programs, including acquisitions
 Advice on corporate reorganization and divestiture strategy
• Neutral partner in the context of JVs with foreign partners
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21. IFC and
the Automotive Sector
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22. IFC Experience in the Automotive Sector
• Since 1956, IFC has invested in 113 projects for
approximately US$1 billion (Including syndications)
• Over the last decade, IFC has made some 30
investments in the automotive sector
• Largest investment: US$50 million in Tata Motors Ltd.
(India)
• Average investment: US$10 million
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23. IFC Experience in the Automotive Sector
• As of 31 May 2006, the committed auto portfolio was
US$248 million in 24 projects
• FY06 commitments: US$70 million in 6 projects
• Top five exposures as of 5/31/2006:
 India 21% Motor Vehicle Parts Automotive and
31% Light Vehicle
China 25%
18%
 Agriculture
machinery
Brazil 16%
3%
 Bus and Heavy
Commercial
Vehicles
 Turkey 11%
14% Automotive Tires
34%
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24. IFC and the Automotive Sector
• IFC has supported both vehicle and component manufacturers, including:
 ThyssenKrupp (JVs in Romania)
 Standard Profil (Turkey)
 Randon (Brazil)
 Marcopolo (Latin America region)
 Nemak (Mexico)
 Telco (India)
 Astra (Indonesia)
 Kumho Tires (China)
 … and many more …
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25. IFC: Investment Guidelines
Project Type: IFC Financing:
Greenfield, total cost Up to 25% of project cost
more than $50 million (max $100 million for own account)
Expansion/ Up to 50% of project cost
rehabilitation
 IFC does not manage or have largest equity stake
 Target Project size: >US$40 million: IFC > US$10 million …
but yes, exceptions exist !
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26. Thank you for your attention !
Emmanuel POULIQUEN
Senior Industry Specialist
+1 202 473 9114
epouliquen@ifc.org
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