diamond finance
TRANSCRIPT
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About Diamond Finance
2011 2012 2013 2014F
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Clients:Founded in 2011, Diamond Finance is a Non-Banking Financial Institution (NBFI) which provides loans and currency exchange services to support SMEs and individuals’ financial needs.
NBFIs in Mongolia are regulated by the Financial Regulatory Commission and offer loan products to SMEs and individuals at competitive rates, and serve as an alternative to other financial institutions such as Banks.
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Loan Type Avg. Interest Rate (%) Avg. Amount (US$)
Consumer Loan 42% 4,235
Short Term Loan 48% 46,415
Portfolio Structure by Collateral:
Apartment Collateralized
Car Collateralized
Other CollateralTypical Loan Collateralization: 200%
Lending Activity
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Maximum Amount MNT 250,000,000 (US$175,000)
Maturity 1 - 24 months
Annual Initial Interest Rate 37.2% - 44.4%
Loan Analysis - Analysis of business - Analysis of proposed project
Repayment Monthly interest paymentsFlexible principle payments possible
Collateral Immovable Property or other assets
Collateral Amount 150% of Loan Amount
Disbursement Cash or bank transfer
Typical loan types:
SME loan
Micro loan
Products: Business Loan
“typically for Micro and SME business owners and enterprises that operate in manufacturing, trade, services or agricultural sectors.”
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“for individuals and legal entities that have stable income through operations in manufacturing, trade, services or agricultural sectors.”
Maximum Amount MNT 20,000,000 (US$14,000)
Maturity 1 - 18 months
Annual Initial Interest Rate 18% - 48%
Loan Analysis- Credit analysis- Income and employment verification- Total loan < 60% net salary
Repayment Monthly interest paymentsFlexible principal payments possible
Collateral Immovable Property, salary
Collateral Amount 165% Cover
Disbursement Cash or bank transfer
Typical loan types:
Standard consumer loan
Employee consumer loan
Products: Consumer Loan
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Maximum Amount MNT 100,000,000 (US$70,000)
Maturity 1 – 12 months
Annual Initial Interest Rate 45.6% - 54%
Loan Analysis - Analysis of available collateral- Analysis of stable income
Repayment Monthly interest paymentsFlexible principal payments possible
Collateral Immovable Property, Automobile, Yard, Other
Collateral Amount 120-150% of Loan Amount
Disbursement Cash or bank transfer
“high-yield loans for individuals with short term cash flow needs”
Typical loan types:
Apartment collateralized
Car title loan
Car collateralized
Old car leasing
Yard collateralized
Products: Short Term Loan
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Name S. Sumiyadorj
Business Grocery shopping center
Loan amount MNT10,000,000 (US$5,700)
Monthly interest rate 4.0%
Collateral Vehicle
Name D. Myagmarsuren
Business Physical Therapy
Loan amount MNT50,000,000 (US$28,500)
Monthly interest rate 4.5%
Collateral Service Center
Our Clients
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Name G. Javkhlantugs
Business Construction Manufacturing
Loan amount MNT120,000,000 (US$70,000)
Monthly interest rate 4.0%
Collateral Apartments
Name D. Nyamsuren
Business Lump sugar manufacturing
Loan amount MNT35,000,000 (US$20,000)
Monthly interest rate 4.0%
Collateral Apartments
Our Clients
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Key Figures 12nd June 2014
Total Assets US$4.8 million
Gross Loan Portfolio US$4.2 million
Owners Equity US$1.4 million
Return on Equity 41%
Number of Borrowers 70
Average Maturity 6 months
Portfolio at Risk > 180 Days 11%
Ownership Structure: Asia Pacific Investment Partners LLC – 100%
Current Position
Collateral by Type: Collateral by Cover:
Apartment Car
Wages & other
1.0x-1.5x
1.6x-2.0x
2.1x-2.5x
2.6x- more
0-10 mil MNT10-50 mil MNT50-100 mil MNT100-150 mil MNT150-200 mil MNT200-250 mil MNT
Loan Size:
Total collateral value: MNT6,980m (US$4m) Total loan portfolio: MNT2,906m (US$1.65m)
100% of Our Portfolio is Secured
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INVESTMENT CASE
CORPORATE GOVERNANCE
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Origination
Initial Application
Credit review- 2 step process
Loan approval Ongoing Monitoring
Direct and indirect Marketing & Advertisement
Loan reconstruction
Client referral
Loan officer interview with Customer about:
Business operation &
Collateral Diamond loan
conditions Required
materials
Physical check of the collateral
Physical check of business operation
Loan application analysis
Prepare proposal
Introduce the proposal to the Credit Committee (CEO, CCO, CFO, 2 other loan officers )
Credit committee checks if everything is in accordance with Mongolian laws, regulations & Diamond Finance internal loan policies
2nd review of client’s repayment ability
Final approval of each loan by APIP senior Management
Finance department checks for the contract completeness before issuing the cash
Regular review of NPLs
Physical check of business and asset every 3 or 6 months depending on the loan product
Monthly interview with the client regarding their business operation and loan performance
Reporting to APIP senior Management on any problem loans
Collateral Enquiry Review of borrower
credit history Financial
Statements /Projections
Our Loan Approval Process
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Byambajav B. CEO
Enkh-Amgalan B. Loan Officer Oyuntuul B
Accountant
Enkhtogoo G. CCO
Nominchimeg R.CFO
Oyunbileg B. Teller
Ganzorig P. Loan Officer Tsolmonchimeg L.
Accountant
Nanzaddulam BLoan Officer
Total Employees: 9 with total 35+ years experiences in Micro Finance industry
Organizational Structure
APIP Management & Board of Directors
Mr. Byambajav is the CEO of the company overseeing daily operations, the credit committee and managing
public relations
He started his career at Khan Bank in 2003 as an Auditor where he oversaw 65 branches and detected 800
million MNT in misstatements due to bank officers’ errors or fraud. He became Senior Auditor later that
year.
In 2004, he joined Credit Mongol as a Senior Auditor and in 2006, he was promoted to CFO where he was
in charge of daily financial operations, monitoring and preparing the accounting policies manual and
implemented the accounting information and bonus systems. He also supervised a 1.5 million Euro
Microcredit Line mutual project between KFW, the Mongolian government and Credit Mongol, as well as
successfully leading a project team for international funding organizations such as Planet Finance, Oiko
Credit, BlueOrchard, Kiva, Developing World Market and Symbiotics.
He attended high level Microfinance conferences as a company representative in 2008 and 2010.
Mr. Byambajav is a MBA from University of Humanities and pursued his Bachelors degree in Statistics and
Economics from National University of Mongolia.
Byambajav Bandi, CEO
Management Biographies
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Mr.Enkhtogoo joined Diamond Finance in 2011 as its Chief Credit Officer and is in charge of marketing
strategy, daily credit operations and risk management.
From 2004-2011 he worked at Credit Mongol NBFI LLC as a Loan officer, Internal Auditor, Finance Manager,
Branch Director and Risk Manager. During his employment with Credit Mongol, he successfully prepared
and implemented loan policies and procedures, and received awards several times for the profit he
generated as well as for his work in lowering credit risk and NPLs.
Mr. Enkhtogoo graduated from Mongol Business School with a Bachelors of Tax audit.
Enkhtogoo Gombosuren, CCO
Ms. Nominchimeg is the Chief Financial Officer of the company and is responsible for all financial operations.
Before joining Diamond Finance, she worked at Deloitte as an audit and advisory associate and performed
audit and commercial due diligence work for clients in various sectors including; security, mining and
banking. She was transferred from Tavan Bogd Cosmetics as a foreign relations manager to JV of Tavan Bogd
Group and Marubeni corporation, where she implemented internal organizational and labor policies
effectively as a HR manager.
Ms. Nominchimeg is a Business Mentor at Youth Business Mongolia, supporting young entrepreneurs in
Mongolia.
She graduated from Colorado State University with a Bachelors in Accounting and Business Administration.
Nominchimeg Rinchinjugder, CFO
Management Biographies
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Group Structure
Diamond Finance LLC (“DF LLC”) is the operating company for
Diamond Finance NBFI
DF LLC is a wholly owned subsidiary of Asia Pacific Finance LLC, with
its ultimate holding company being Asia Pacific Investment Partners
Limited HK (“APIP Group”)
Diamond Finance Limited (HK) raises third party debt financing and
provides the proceeds to DF LLC
Board of Directors and Governance
The Board of Directors of APIP oversee the operation of Diamond
Finance as part of their broader Group oversight responsibilities
Lee Cashell is the sole director of APF LLC and Byambajav Bandi is
the sole director of DF LLC. Mr Cashell is the CEO and a director of
APIP Group, and Mr Bandi is CEO of DF LLC
There are no special shareholder agreements within the entities and
the company charters can be provided if required
Asia Pacific Finance LLC (Mongolia)
Diamond Finance LLC
(Mongolia)
Asia Pacific Investment
Partners Limited (HK)
100% 100%
Diamond Finance Limited
(HK)
100%
Intercompany loans
Shareholder Overview
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Do’s
Focus on credit/repayment
Pay attention to market fundamentals
Separate loan origination and approval
Emphasize security and collateral value
Take physical possession of collateral
Actively monitor every loan
Evaluate Loan officer performance over the life of
the loan
Monitor portfolio exposure to:
o Currency
o Underlying industry
o Loan size
Don’ts
Approve every loan
Focus on fees and higher rates at expense of credit
Ignore underlying collateral value
Ignore cashflow and ability to repay
Believe optimistic borrower projections
Lend long
Compensate staff for loan volume
Our Credit Standards
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INVESTMENT CASE
MACROECONOMIC FUNDAMENTALS
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Source: World Bank 2013
2010 2011 2012 2013 2014 2015 20160%
5%
10%
15%
20%
25%
Mongolia Global
Observed and Forecast Change in GDP
Although Mongolian GDP growth has slowed due to the poor performance of the mining sector, it still remains one of the highest growth economies globally
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20132014
While government policy has attempted to control inflation, it remains high due to exchange rate movements and Mongolia’s reliance on imports. Despite this, Diamond Finance’s monthly rates have remained relatively constant
Inflation
Source: World Bank 2013
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2010 2011 2012 20130
50
100
150
200
250
300
350
400
450NBFI Asset (bil. MNT)
2010 2011 2012 20130
50
100
150
200
250
300
Number of NBFIs operating in the market
Mongolian NBFI Market Growth
Despite the economic down turn over the last couple years, NBFI Assets and the number of NBFIs operating in the market are growing due to strong demand
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INVESTMENT CASE
BUSINESS PLAN
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24%
42%
48%
Average Loan Interest Rate
Banks NBFIs Diamond Finance
Comparative Performance
POTENTIAL to GROW due to:
Strong brand name
Powerful shareholder base
International investor network
Experienced human resources in the investment
banking and micro finance industries
Significant demand from borrowers
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Portfolio Yield Net Income
43%
22%
36%
5%
Portfolio Yield and Net Profit as a Percentage of Total Gross Loan Port-
folio
Diamond Global
Superior Cost Structure and Higher Returns
Diamond Finance Global Average
Operating expense
7% 21%
Funding Ex-pense
2% 7%
Provision Expense
2% 2%
7%
21%2%
7%
2%
2%
Costs as Percentage of Total Asset
Operating expense Funding Expense Provision Expense
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2014F 2015F 2016F0
1,000
2,000
3,000
4,000
5,000
6,000
Net Profit Gross Loan Portfolio
Growth Forecast (Thousand USD)
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INVESTMENT CASE
HISTORICAL FINANCIAL PERFORMANCE
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Description Audited 2011 (USD)
Audited 2012 (USD)
Audited 2013 (USD)
Asset 324,249 971,673 2,341,352
Liabilities 2,256 478,068 1,421,970*
Owners Equity 321,993 493,606 919,326
Revenue 69,700 338,613 817,948
Expense 39,707 167,001 414,880
Net Profit 29,993 171,613 403,068
MNT/USD 0.00073 0.00073 0.00062
* Includes a 600 million MNT shareholder loan that we are in the process of converting into equity
Financial Growth History
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Indicators 2011 2012 2013
Portfolio Yield 51.0% 63.7% 64.5%
- Provision expense ratio 0.9% 1.2% 6.3%
- Funding expense ratio 0.1% 6.6% 8.1%
- Operating expense ratio* 25.5% 14.4% 7.2%
= Net margin 24.4% 41.5% 42.8%
ROE (net operating income + tax)) 18.6% 41.9% 62.6%
ROA (net operating income + tax)) 18.5% 26.3% 25.0%
* Because APIP is the parent company of Diamond Finance NBFI, our operating expense is lower
Profitability
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Indicators 2011 2012 2013
GLP Growth - 214% 165%
Liquidity ratio 12.1% 11.6% 19.0%
Debt/Equity ratio 0.0 0.9 1.5
Capital Adequacy Ratio 112.9% 57.5% 48.5%
Total lending activity (%portfolio in assets) 83% 83% 77%
Open Currency Position* - 19.1% 37.3%
% of portfolio lent in USD - 41% 22.8%
Loan loss reserve ratio 0.5% 0.9% 4.8%
* In 2011, Diamond Finance did not have any assets or liabilities in any foreign currencies however, starting from 2012, DF started borrowing USD funds. This ratio illustrates the foreign exchange risk of these liabilities.
Financial Management
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Items 2011 2012 2013
Operational Expense Ratio 25.5% 14.4% 7.2%
Cost/Income ratio 50.2% 41.3% 33.2%
Operational Self Sufficiency 192% 232% 232%
Financial Self Sufficiency 105% 178% 161%
Loan officer productivity (clients) 6 11 20
Loan officer productivity (USD) 88k 263k 586k
Staff productivity (clients) 3 6 8
Staff productivity (USD) 44k 132k 220k
Number of Staff 4 6 9
Number of loans* 19 33 53
Average loan size (MNT) * 19,387k 33,334k 54,883k
* at year end
Efficiency
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Loan size (US$)
Client number
Total loan size (US$)
Percentage based on
total value
Product type
# of loans
Amount by type (MNT)
Secured vs. Non-Secure
Government tender related
loans*
0-5.7k 20 38,934 2.36% Employee 10 22,549 Secured 5%
Short-Term 3 6,200
Consumer 7 10,185
5.7k-28.5k 11 181,925 11.03% Short-Term 10 174,154 Secured 9%
Consumer 1 7,771
28.5k-57k 14 653,509 39.64% Short-Term 13 614,104 Secured
0%
Consumer 1 39,406
57k-85.5k 2 160,141 9.71% Short-Term 2 160,141 Secured 100%
85.5k-114k 5 472,388 28.65% Short-Term 5 472,388 Secured 20%
114k-142.5k 1 141,804 8.6% Short-Term 1 141,804 Secured 100%
Total: 53 1,648,701 53 1,648,701
* The government tender related loan percentages are calculated based on the number of clients
Loan Portfolio Breakdown YE 2013
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Aging Amount due (US$) Delinquent Loans Collateral Cover Amount (US$)
1-90 23,354 1% 158,820
91-180 84,320 5% 204,668
181-360 900 0% 2,365
361- Up 56,721 3% 166,761
Total 165,293 9% 532,615
Notes
Due to political risks, and currency depreciation, our delinquent loan ratio increased from 5% to 9% in 2013. The biggest driver of this increase is due to the fact that the government is low in reserves and has delayed tender job accounts payables. Approximately two thirds of the total NPL amount is related to government budget issues.
We expect the government will pay all its payables and we will recover all of our related loan proceeds with no loss sustained.
Diamond Finance values its client relationships and tries its best to understand the clients’ situations, negotiate with them and allow a grace period before taking any actions through court.
NPLs as of YE 2013
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Process
1. We actively monitor our portfolio to identify problem situations before loans become delinquent2. Once a loan becomes past due, we call the borrower and send him/her a past due notice within a week 3. If we have not received a response after 10 days, the CCO and his team call the borrower on a weekly basis, visiting their home
and work to negotiate a resolution 4. Depending on the borrower’s situation, after six months or so, if we have not resolved the situation, the CEO will initiate a court
proceeding
Resolving Our NPLs
Performance
Throughout history we have only needed to take one borrower through the court system. This case is still proceeding. The remainder of our loans have been repaid in full.
We have over MNT294 million market price collateral cover for the MNT100 million loan in the court system and expect full recovery of our principal.
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INVESTMENT CASE
INVESTMENT OPPORTUNITY
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Competitive Advantage
Superior Returns and High-Quality Assets
Favorable Macroeconomic Conditions
35+ Years Management Experience
Active Oversight by Senior Credit Committee
Advanced Lending Technology
Powerful Management Information System (MIS)
Successful operating group as parent company, significantly reducing cost base
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Borrower Diamond Finance Limited, a company incorporated in Hong Kong and a wholly owned subsidiary of Asia Pacific Investment Partners Limited (APIP)
Lenders Individual lenders with a minimum loan size of US$50,000, increasing in multiples of US$10,000
Facility Up to US$3 million to be split into three (3) tranches of US$1 million
Term Two (2) years from the end of each tranche close
Repayment In full at the term of the Facility
Margin 1,300 bps per annum
Interest Period 6 months in arrears
Security Package Guaranteed by Asia Pacific Investment Partners HK
Governing Law and Jurisdiction Laws of Hong Kong and subject to the exclusive jurisdiction of Hong Kong courts
Timetable to Close of Second Tranche 4 to 6 weeks
Investment Opportunity
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Asia Pacific Investment Partners (“APIP”) is a Mongolia focused operating group that owns a number of subsidiaries related to property development, cement and financial services. Apart from our number of developments in both the commercial and residential sectors over the years, APIP has a strong asset base, which includes one of the largest and most highly valued land banks in the country and the only cement producing facility in the capital. Apart from our cement production and property development companies, APIP successfully manages a prudent lending business with significant collateralization and highly attractive rates. In addition, APIP owns a top tier brokerage and underwriting company.
The cement factory’s future long term growth is underpinned by a strategically placed limestone deposit and the land bank provides key sites for APIP’s ten year property development pipeline. To date, APIP has successfully designed, constructed, marketed, managed and fully sold five major residential and mixed-use developments in Ulaanbaatar. It is currently building its next two developments. The larger of the two is the the Olympic Residence, which is a mixed-use development with 97 luxury residential units and four floors of retail and leisure facilities. The second is the Village at Nukht; a 9,000 sqm plaza consisting of retail, F&B, office and entertainment venues.
APIP has also successfully obtained a securities and underwriting license and a non-banking financial institution license. Asia Pacific Securities is now one of the most active brokerage firms on the country’s burgeoning stock market and Diamond Finance is successfully lending to SMEs at up to 4.0% per month. APIP is forecast to return approximately US$ 33 million in net income for 2014.
The Guarantor
Other
Real Estate Development
Construction Services
Real Estate Agency Cement Production SME Lending Various
- Owns the land bank- Acts as the developer for all APIP projects
- Provides construction services to APL and 3rd party clients
- Sales and leasing services to APL and 3rd party customers- Property management services
- Produces and sells 80,000 tons of cement to MPCC and 3rd party customers
- Secured loans to small businesses and individuals
- Asia Pacific Securities- Held for rental income real estate- Other businesses
An integrated business model reduces operational risk and increases margin capture
2014E revenues (US$m)1:
13.0 4.3 3.0 7.9 2.8 1.6
% of Total: 40% 13% 9% 24% 9% 5%
Employees: 8 40 38 23 9 35
1Unconcolidated revenues, before inter-company consolidation eliminations; assumes USD:MNT exchange rate of 1,700
The Guarantor – Company Overview
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