National Factoring Company

Transcription

1 Information Memorandum January 2007

2 Contents I. Introduction 3 II. Overview of the Borrower 1. History 4 2. Participants 4 3. Managing bodies and key managers 5 4. Market strategy and future plans 8 5. Operational review of the Borrower International borrowings Selected consolidated financial information Credit ratings 35 Appendix. Currency FX rates 36 2

3 National Factoring Company (Limited Liability Company) accepts responsibility for the information contained in this Information Memorandum. To the best of the knowledge of NFC (which has taken all reasonable care to ensure that such is the case), the information contained in this Information Memorandum is in accordance with the facts. I. Introduction National Factoring Company was established in June 2003 as a limited liability company. NFC s predominant business activity is factoring. The Company offers full-service factoring and is presently one of the leaders in the Russian factoring market. Our company's mission is to become the most dynamically developing factor in Europe and the most innovative in the world. We are striving to achieve a leading position in market share, business efficiency and service quality for the benefit of our shareholders, clients and staff. The Company has signed over factoring agreements with clients from 40 industry sectors and has worked with more than 30 thousand debtors. NFC representative office network includes 21 regional offices in Russia and the CIS. Total assets of the Company amounted to RUB 5,4 billion as of 30 Sept NFC is rated B- by Standard & Poor's. NFC is a member of the leading global factoring associations - International Factors Group and Factors Chain International. 3

4 II. Overview of the Borrower 1. History National Factoring Company (Limited Liability Company) (the Company, the Bank, the Borrower ) was established on 17 June 2003, as NIKoil IBG Bank factoring business was shaped into a separate company following the existing international standards of factoring business structuring. NIKoil IBG Bank started its factoring business in February 1999 providing a relatively new complex of financial services to the Russian trade market. Since their launch, the services became much in demand, increasing the factoring turnover of NIKoil IBG Bank at least twice each year. After four years of successful growth of the factoring business the shareholders approved acquisition of a small bank for factoring development purposes. The new bank was renamed to National Factoring Company URALSIB-NIKoil stressing that it would be designed solely for providing professional factoring and associated services. As the following step, in November 2005 the management team of the bank decided to rename it to National Factoring Company (Limited Liability Company). The new name and logo are aimed in particular at enhancing NFC s own business relationship with commercial banks in Russia and abroad. NFC is licensed by the Central Bank of the Russian Federation (License on banking operations 3437 issued 03 September 2003). Following the needs of its clients, NFC has been developing its representative office network which currently includes 19 regional offices in the main cities of Russia and two foreign operations offices in ex-soviet republics of Moldova and Armenia. NFC is a member of the two largest worldwide known associations of factoring companies - IFG (International Factors Group) with the headquarters in Brussels and FCI (Factors Chain International) based in Amsterdam. Mr Treyvish, the Chairman of NFC Management Board, is also the member of the Board of Directors of IFG and the President of IFG s East European Chapter, one of the units of IFG acting on behalf of the Group and introducing abilities and advantages of the association in the CIS and East European countries. NFC is the cofounder of the East European Factoring Association known for its contribution to market education on factoring and involvement of new professional players into the market. 2. Participants The participants of NFC are Limited Liability Company Salerna (50%) and Limited Liability Company CENTERRYBOPRODUCT (50%). 4

5 Table 1. Initial statutory fund and its increases: Date of Issue of Participatory Shares Number of Participatory Shares Par Value per Participatory Share, RUB Total fund raised, RUB Both participants are private companies which realize investment activity and operations with securities. The Bank is ultimately controlled by Mr Nickolai A. Tsvetkov President of URALSIB Financial Corporation. The decision to reorganize NFC from a limited liability company into a closed joint stock company was taken at the general meeting of participants in July The legal procedure is almost completed: in January 2007 the Company expects its CJSC banking license to be issued by the Central Bank of Russia, following which NFC will be officially referred to as a closed joint stock company. The shareholders in a joint stock company do not possess, by virtue of law, the right to freely offer their shares to the company for buy-back (with certain exceptions set out in the Federal Law No. 208-FZ On Joint-Stock Companies ), unlike participants in a limited liability company where a participant may opt to leave the company and demand return of the value of his participatory share. Also, compliance with capital adequacy requirements as per the Basle II Capital Accord will be achieved by NFC. The term for the creditors claims for early redemption by NFC of its liabilities expired in September The composition of the Company s creditors has not substantially changed as a result of the reorganization. All key NFC partners have continued collaboration with the Company. Frequency of participants meetings General meetings of participants of the Company are set up annually, and special general meetings of participants in case of necessity. 3. Managing bodies and key managers Board of Directors Currently there are 5 members of the Board of Directors: Denis Korobkov (39 years old) has been the Chairman of the Board of Directors since In Mr Korobkov was Vice-President of UHK METALLOINVEST. From 2001 till 2002 Mr Korobkov was in the position of Adviser at the Ministry for Economic Development and Trade 5

6 of the Russian Federation and in worked as the Manager of the Transport Industry Investment Department of NIKoil IBG Bank. Apart from being the Chairman of NFC s Board of Directors, since 2004 Mr Korobkov has simultaneously been in the following positions: Executive Director and Head of the Investment Department in BANK URALSIB, Deputy Director and Financial Director of Management Investment Company URALSIB LLC. Since 2005 Mr Korobkov has also been the member of the Board of Directors of OJSC «TD «KOPEYKA». Mr Korobkov graduated from the Moscow State University with bachelor degree in Economics and Social Planning. In 1992 has obtained Ph.D. in Economics. Natalya Artemyeva (57 years old) has been the member of the Board of Directors since In Ms Artemyeva was Deputy Chairman of the Commercial Bank AVTOBANK- NIKOIL. In Ms Artemyeva was Deputy Chairman and Chief Executive Director of NIKoil IBG Bank and the member of the Board of Directors of the same bank. Ms Artemyeva graduated from the Moscow Financial Institute with bachelor degree in Finance. Oleg Komarov (38 years old) has been the member of the Board of Directors since In Mr Komarov was the Manager of the Internal Audit Department of the Commercial Bank AVTOBANK-NIKOIL and in 2004 the Head of Internal Control Department of this bank. Since 2004 Mr Komarov has been appointed to the position of the Head of the Internal Control Department in BANK URALSIB. Mr Komarov graduated from the Finance Academy under the Government of the Russian Federation with bachelor degree in Accounting and Audit. Mikhail Treyvish (35 years old) has been the member of the Board of Directors and the Chairman of the Management Board since Since 1995 Mr Treyvish managed the Factoring Department of Rossiyskiy Kredit Bank, implementing the factoring concept of risk-management, building-up the factoring technology and adopting international experience for the operations in Russia. In 1999 Mr Treyvish became the Chief of the Factoring Department in NIKoil IBG Bank (the core bank of URALSIB (former NIKoil) Financial Corporation) and in 2001 the Head of Factoring and Electronic Business in NIKoil. In 2001 Mr Treyvish was appointed to the position of Deputy Chairman of NIKoil IBG Bank. Mr Treyvish graduated from Moscow Aviation Institute (MAI) with the qualification of Engineer- Mathematician and has obtained Ph.D. in Economics at the Russian Academy of Science. Tagir Usupov (28 years old) has been the member of the Board of Directors since In Mr Usupov was the officer in banking projects analysis of the Financial Control Department of BANK URALSIB (Ufa). In Mr Usupov was the senior officer in Financial Analysis and Informational Support of the Financial Department of the Uralo-Siberian Bank. In 2004 Mr Usupov fulfilled duties of the Manager of the Business Planning and Analysis Department of the Economics and Finance Division of the Uralo-Siberian Bank. Since 2004 Mr 6

7 Usupov has been appointed to the position of Manager of the Analysis Department in BANK URALSIB Economics and Finance Division. Mr Usupov graduated from Ufa State Aviation Technical University with bachelor degree in Economics. Authorities of the current Board of Directors will terminate April 30, Management board Mikhail Treyvish Chairman of the Board. For qualifications please see previous section. Roman Ogonkov (33 years old) took the position of Senior Deputy Chairman in NFC in In Mr Ogonkov was Deputy Chief of the Factoring Department of Rossiyskiy Kredit Bank working together with Mikhail Treyvish on factoring operations application in the bank, adaptation of international experience in factoring and client relationship development. In Mr Ogonkov was the Managing Director of the Operational Factoring Company URALSIB- NIKoil (LLC) created in NIKoil Financial Corporation to assist the regional development of NIKoil IBG Bank factoring business. Mr Ogonkov graduated from the Moscow State Institute of International Relations (MGIMO- University) with major in international economics. Ella Skaletskaya (33 years old) has been in the position of Deputy Chairman since In Ms Skaletskaya was the Chief Accountant in Commercial Bank Chastny Bank. Up to 2001 Ms Skaletskaya was the senior officer in the Accounting Department of NIKoil IBG Bank. Till 2004 Ms Skaletskaya was responsible for methodology and development of innovative products and management accounting in the Factoring Department of NIKoil IBG Bank. Ms Skaletskaya graduated from All-Russian Distance Institute of Finance and Economics with bachelor degree in Economics. Ms Skaletskaya also graduated from the University of the Russian Academy of Education as bachelor in Law. Stanislav Pushtorskiy (31 years old) took the position of Deputy Chairman in In Mr Pushtorskiy was the senior officer in Rossiyskiy Kredit Bank, being involved in sales and marketing of the bank s products. Up to 2002 Mr Pushtorskiy developed sales and marketing of factoring services in NIKoil IBG Bank. In Mr Pushtorskiy was responsible for international factoring business in NIKoil IBG Bank. Mr Pushtorskiy graduated from the Moscow University of Consumer Co-operatives with bachelor degree in Economics. Other key managers Anton Musatov (26 years old) Head of the Corporate Risk Management. 7

8 Since March 2002 till August 2003 Mr Musatov was the senior officer of the Risk Assessment and Losses Recovery in the Financial Risks Complex Insurance Department at ROSNO OJSC. In Mr Musatov was the councilor of the Senior Executive Director/Deputy Chairman of NIKoil IBG Bank and in March-September 2004 managed the Underwriting Department of NFC. In Mr Musatov was responsible for Operations, Credit Control Department, Risk Monitoring and Underwriting, and since 2005 has been the Head of the Corporate Risk Management, developing client approval and underwriting system, credit control and risk management policies. Mr Musatov graduated from the State University of Management in 2002 with bachelor degree in Economics. Vladimir Shukraliev (47 years old) has been the Head of the Receivables Management Department since July In Mr Shukraliev was the Vice-president of the International Collection & Credit Management Agency REGION-VOLGA, being responsible for credit management and collection services in Russia, operating requests coming from international collection agencies. Since March 2003 Mr Shukraliev has been managing NFC's regional office in Saratov and since 01 March 2005 has been the Head of NFC's Regional Division South (which includes several regional offices). Mr Shukraliev graduated from Saratov State University with bachelor degree in Psychology. 4. Market strategy and future plans Factoring market data presented in this chapter includes extracts from market research by RosBusinessConsulting and Expert RA. The Russian factoring market has shown dynamic development in the last 2 years. The industry s turnover almost doubled and rose to US$5,7 billion versus US$3 billion expected by analysts The volume of financing provided by factors under debt assignment composed 4,2 billion US dollars against 1,5 billion in The share of factoring transaction in total amount of GDP became 0,9 percent compared with 0,5 percent in The main driver of such rapid growth was ever-growing demand of domestic small- and mediumsized companies for financing, risk and debt management reflecting ongoing strong economic growth seen in Russia in last years. Meanwhile, widening of product line offered by Russian factors contributed to the shift in attitude towards significant rise in interest to this kind of financial services. 8

9 The continued strength in market development in the next 2-3 years could boost the industry to US $40 billion turnover in 2008 and align it with the factoring business in the West-European countries. At present, the market players can be split into 4 main categories: Commercial banks. Most of these banks are engaged in invoice discounting, and only few of them provide traditional factoring services. Companies with banking licenses specializing in factoring. NFC is the largest of these companies. Non-banking companies specializing in factoring. Partnerships of banks and factoring companies. In the framework of the partnerships, banks provide financing, and factoring companies manage risks and engage in other necessary activities. Structuring factoring business as a separate company enhances its opportunities in creating partnerships with financial institutions both in Russia and overseas. Such step also enables to improve a specialized risk management system that compares favorably to traditional commercial bank approach to decision making. According to the data of Bank of Russia, there were 84 banks rendering factoring services at the beginning of 2005 and this number increased to 100 at the of the year. Experts forecast further market growth, which is favored in particular by improving legal environment. Presently factoring accounts for approximately 1% of Russian GDP compared to about 12% in Great Britain and Italy that are traditional leaders in the world factoring market. This indicates a mid-term development potential for the Russian market. In spite of light decline in the market concentration, the factoring business still remains highlyconcentrated with the total share of five largest players equaled to 87 percent. Since its origination the main target of NFC factoring team was to become the market leader in professional factoring, developed in the scope and traditions of internationally accepted concept of factoring business. NFC factoring team obtained the share of around 80% of Russia s factoring market, which was on the level of 30% in 2005, despite tightening competition. 9

10 Table 2. Market share by Factors in 2005 (by amount of debt assigned to Factors), % NFC 30 Eurokommerz 21 Petrocommerce 15 Promsvyazbank 11 NOMOS-BANK 10 Others 13 Source: Expert RA According to Expert RA ranking of Russian factors for the 1 st half of 2006, NFC was ranked first by factoring income, second by volume of financing provided to clients in the framework of factoring and by number of clients. NFC is also one of the three biggest factoring companies of Eastern Europe. The Company s client base numbers hundreds of clients daily assigning to the Company receivables from goods sale and service rendering to dozens of thousands customers. The key targets for NFC by 2008 are stated as follows: (1) to achieve gross income of USD 95mln, income before tax of USD 43mln, and the number of clients of 1300, (2) to keep high return on assets on the background of mitigated risks, (3) to become the largest factoring company in Central and Eastern Europe, (4) to remain the leader and market maker of the Russian factoring market, (5) to develop a factoring concept and become the leader and market maker on the growing market of the CIS. In order to achieve the mentioned goals, the Company has planned the following steps: (1) Market placement of factoring as a unique non-banking product basket that is trade business driven with an increased value of services, either with or without financing, and including inter alia the following products: Factoring-Signal (warning of potential losses caused by customers frauds or insolvency), Factoring-Guarant (bad debt protection and repayment of guarantied amount after a grace period), Factoring-Finance (cash flow gaps mitigation via receivables finance) (2) Involvement of external refinancing of factoring operations in order to avoid dependence on a limited number of funding parties, decline funding expenses, enhance market strength and factoring sales power, book positive credit history and apply the brand name to the capital and investment markets. (3) Further development of the brand of NFC via PR-events. (4) Implication of agents for boosting sales, 10

11 (5) Launch of commercial projects in factoring together with banks and other financial institutions in combination with their agency activities and funding facilities, (6) Employee driven HR management aimed at supporting the winning spirit of the team capable to achieve the strategy goals (under 5-7% of average personnel fluctuation in the Company). One of the main purposes of NFC in the near future is to arrange for reasonably diverse and inexpensive sources of funding to achieve higher competitive power on the background of growing competition on the factoring market and accessibility of funds for potential clients. JSC VTB and NFC LLC have started a joint project Syndicated factoring, involving joint factoring customer service by VTB and NFC. VTB is engaged in pre-marketing and initial negotiations with potential factoring clients, running primary documentation and funding factoring transactions. NFC is responsible for the sales of commercial factoring products, customer consulting, claims registration, accounts receivable management and clients protection from credit risk. As a result of the project implementation, NFC expects income growth and geographic extension of its client base. 5. Operational review of the Borrower Scope of business As mentioned above, NFC s business activity is factoring and associated services in the open market. Daily operations include receiving shipping documents from clients, running assessment procedures, granting credit limits, releasing financing (Factoring-Finance) and/or sureties (Factoring-Guarant) against approved receivables, collection, dunning and other procedures (Factoring-Signal) connected with providing the full range of factoring services to NFC s clients. Registration of receivables is handled in all the Company s offices, financing is released from the Moscow office where all the financial services, Treasury, Accounting Department, Credit Committee and underwriters are based. All NFC clients enjoy the Bank s financing, receiving it on their settlement accounts with their servicing banks in Russia and overseas. NFC s target customers are trading and industrial companies selling goods and rendering services on credit terms and interested in refinancing their working capital, in protection against bad debts arising from trading receivables, assessment, collection and arbitration services connected with trading receivables. The core industries represented by NFC s clients are: computers and computer appliances, alcoholic beverages, foodstuffs, building finishes and accessories, household appliances, perfume and cosmetics etc. 11

12 Domestic factoring operates as follows. (1) A supplier (the Client ) sells goods to a buyer (the Debtor ) on deferred payment basis. The Client assigns receivables to NFC, under a pre-agreed factoring contract, due to the Client by its Debtor. Following the assignment, all the payments are made by the Debtor directly into NFC s account. (2) Upon execution of the assignment and submission of the underlying documents evidencing the shipment of goods, NFC provides to the Client factoring financing within the pre-agreed lending limits applicable to the Debtor (up to 90% of the receivables value). (3) At maturity, the Debtor makes payment of 100% of the receivables into NFC s account. (4) NFC utilizes the factoring financing amount to discharge the Client s payment obligations under the factoring contract and transfers the balance. NFC invoices the Client monthly for its remuneration (factoring commission, interest, etc.) The Client is to pay the invoice within 15 working days. (5) If Debtor A fails to pay its due under the contract, under Factoring Agreement NFC (i) is entitled to claim the Client for a recourse payment of the respective financing amount of the receivables from the Debtor A (after a certain waiting period) or (ii) may reduce the balances arising from payments of this Client s other Debtors for this respective amount (less the corresponding financing duly discharged) to be transferred to the Client. Such balances result from the fact that NFC finances only a certain share of a receivable as described in the clause 2 herein. Prior to the provision of factoring financing as described above, NFC and the Client execute a factoring contract and agree on (i) the initial list of the Client s Debtors eligible for factoring and (ii) lending limits in respect of each eligible Debtor. Upon execution of the factoring contract NFC s e-factoring system is updated with the confirmation of allocated lending limits and details of approved Debtors. The list of Debtors may change if applied by the Client and approved by NFC. 12

13 Receivables portfolio description Table 3. Structure of NFC s client portfolio by annual volumes of receivables assigned (receivables turnover)*. Sector 31 December 2004 Share, % Status Share, % 31 December 2005 Change, % Status Share, % 15 September 2006** Change, % Building/construction materials Food Alcohol and beverages Household appliances Computers/computer components Perfumes and cosmetics Other consumer goods Other goods Automotive: spare parts Metals/rolling Household chemical goods Petrochemicals * Hereinafter turnover refers to the aggregate of the face value of receivables assigned to NFC. ** Turnover by 15 September 2006 amounted to $1.102 bln. Status The above figures evidence that the share of the largest factoring portfolio sector in terms of turnover is gradually declining: 2004 alcohol and beverages (16.6%), 2005 computers/computer components (16.1%), 8.5 months 2006 building/construction materials (15.0%). The share of the top-3 sectors decreased from 46.9% in 2004 to 42.94% in 8.5 months Since factoring is mainly focused on consumer goods, the growth of the other consumer goods sector, which was consistent in the last two years and showed 250% growth in 8.5 months of 2006, indicates NFC s development in the new markets. The decline in the share of the other goods sector means ceasing operations on poor-factorable (non-typical) product markets. 13

14 Table 4. Number of clients 31 Dec Dec Sept 2006 Total number of clients Number of clients comprising 80% of financing outstanding As can be seen, both total number of clients and number of clients comprising 80% of financing outstanding slightly declined by mid-september 2006 compared to the end of However, a long-term growth trend is recognized. The share of the big clients in 8.5 months 2006 remains around the same as in 2005 (~14%). Table 5. Number of debtors 31 Dec Dec Sept 2006 Total number of debtors Number of debtors of the clients comprising 80% of financing outstanding Share of debtors of the clients comprising 80% of financing outstanding 29,82% 36,53% 36,61% Risk distribution among debtors is an important parameter in factoring portfolio risk analysis and should be investigated more seriously than clients repayment power. Thus, NFC s riskmanagement mechanism (please see Part II. Overview of the Borrower, Chapter 5. Operational review of the Borrower, section Risk management ) is predominantly focused on the assessment of receivables portfolio and each debtor in particular. Table 5 evidences that NFC s receivables portfolio is well balanced in terms of this parameter, indicating that a significant part of the debtors produce payment to clear 80% of financing outstanding, and this ratio is increasing. 14

15 Table 6. Concentration of financing outstanding per clients and debtors Average financing outstanding per client, RUB Average financing outstanding per debtor, RUB Average financing outstanding per client to total financing outstanding Average financing outstanding per debtor to total financing outstanding 31 Dec Dec Sept , , , , , ,96 0,34 0,17 0,13 0,050 0,024 0,022 Table 6 shows that the average financing outstanding both per client and debtor declines in terms of both values and ratios to total financing outstanding. This evidences a gradual improvement of the receivables portfolio in terms of credit risk: NFC becomes less dependant on possible clients and debtors defaults. Table 7. Top-10 clients by turnover Share of top-10 clients by turnover in total turnover 31 Dec Dec Sept Number of debtors of top-10 clients by turnover 31 Dec Dec Sept Top-1 client Top-2 client Top-3 client Top-4 client Top-5 client Top-6 client Top-7 client Top-8 client Top-9 client Top-10 client Total: Table 7 shows the top-10 clients of NFC selected by receivables turnover. As can be seen, the share of each client from the top list declines each year, indicating that NFC becomes less dependant on 15

16 big clients. In 2004 the top-1 had the share of 10,99%, while in mid-september 2006 this share was just 5.38%. The aggregate share of the top-10 fell from 50.18% to 33.67% in the period 31 Dec Sept Meanwhile, the number of debtors of the respective clients grew from 342 in 2004 to 688 in mid-september 2006, evidencing the improvement of the receivables portfolio structure. Table 8. Top-10 clients by turnover of factoring assets Share of Top-10 clients by turnover in total turnover 31 Dec Dec Sept Number of debtors of Top-10 clients by turnover 31 Dec Dec Sept Top-1 client Top-2 client Top-3 client Top-4 client Top-5 client Top-6 client Top-7 client Top-8 client Top-9 client Top-10 client Total: The turnover of factoring assets (factoring advances) follows the trends of the receivables turnover. However, the shares of the Top-1 client and the aggregate shares of the Top-10 indicate that NFC, following its internal regulations, finances even smaller shares than the original receivables turnover shares. That reduces the credit risk and evidences that NFC s risk management policy is sensitive to the degree of risk of every debtor. 16

17 Table 9. Top-10 clients by financing outstanding Share of Top-10 clients by financing outstanding 31 Dec Dec Sept Number of debtors of Top-10 clients by financing outstanding 31 Dec Dec Sept Top-1 client Top-2 client Top-3 client Top-4 client Top-5 client Top-6 client Top-7 client Top-8 client Top-9 client Top-10 client Total: Despite a slight increase in the share of financing outstanding per Top-10 clients, the concentration of debtors credit risk significantly fell due to the substantial increase in the number of debtors.. Table 10. Сoncentration of NFC s credit risk per debtors Group of debtors selected by credit risk concentration per debtor, % of the entire portfolio Number of debtors in group Share in total financing outstanding, % % % % % % <0.5% Total: Table 10 evidences that the highest risk concentration group (to which only one debtor is classified) has not changed, remaining on 3-4% level during the last 3 years. The largest group of debtors is the one where financing outstanding is below 0.5% per debtor. Around 65% of NFC s portfolio 17