Flat Glass in China Glasstec - November 2004

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Flat Glass in ChinaGlasstec - November 2004
International Finance Corporation
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Background

• Private sector development in emerging markets
• AAA Rating
• 140 member countries
• Member of the World Bank Group (IBRD, IDA, IFC,
  MIGA)

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Track Record

• 48 years in emerging markets
• Invested in gt3,000 businesses
• Committed gt37 billion
• Syndicated gt22 billion

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Products

• Loans
• A-loans IFC account
• B-Loans Syndicated banks
• C-Loans debt and equity
• Equity
• Partial Credit Guarantees
• Corporate and Multi-Project Facilities

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Glass Investments

• 55 investments
• 21 countries
• gt1.0 billion committed
• Total project cost of gt3.2 billion

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Processing

• Transaction teams
• Global one-stop-shop
• Local input
• International and local clients

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International Clients

• Reputation affords favorable response
• Politically risky countries
• Financing structures which eliminate parent
  contingent liabilities
• PFA as opposed to guarantee
• Untied from supplier credits

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Local Clients

• Restricted access to LT debt
• Improving credibility and image
• A source of finance for international expansion
• Access to capital markets
• Industry knowledge

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China Study

• Important market for IFC
• Industry players
• Supply and demand
• Success factors

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Growth 8
Other/ Specialty 50 60MM cases Growth rate 6
2731
Construction 120 130 MM cases Growth rate 8
5060
Auto 20 25MM cases Growth rate gt10
911
1012
Export 22 26MM cases Growth rate 40
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Growth is skewed towards high quality
Equivalent new lines per year
4.1
Hi Q Domestic CAGR 25
4.8 Hi Lines / yr
Hi Q Export CAGR 50
0.7
Lo Q Domestic CAGR 4
2.5
2.9 Lo Lines / yr
Lo Q Export CAGR 5
0.4
7.7 lines / yr
Total Market CAGR 10
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Over-capacity in low quality
Medium Demand Growth
Capacity
Low Quality 22 overcapacity
Demand
Demand
High quality 47 under capacity
Capacity
Research indicate 40-45 lines in 04 07
period Split of new investments based on quality
of manufacturer
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Picking the winners
Estimated 4yr Investment Imbalance ( lines)
Alternative Scenarios for Industry Development

• Scenario 1 Some companies put expansion plans
  on ice
• Requires a change in strategy as expansions are
  largely strategic (this is a race for scale)
• Scenario 2 Some companies taken over
• Today the perception is that many smaller lines
  are not willing to sell
• Scenario 3 Companies tough it out until there
  are bankruptcies (starting with non-float lines?)

• There will be winners and losers - clear
  differences in companies ability to withstand
  tougher environment in lower quality
• Staff per line ranges 3-8 production cost
• Amortization 312 RMB per case
• SGA 313 RMB per case

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Investment considerations

• Strategic
• Low quality float?
• Chinese technology?
• Partnering or investing with FJVs, New
  Generation Domestics or SOEs?
• Equity?
• Timeframe

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Potential

• Market Scale / Momentum
• Bold strategy to achieve scale
• Deep pockets
• Corporate governance
• Management culture

Well Positioned
New Generation Domestics
Majority-SOE Large Traditional
FJV
Market Scale / Momentum

• Intensity of Competition
• Specialization
• Technological Capability
• Distribution Network

Processors Entering Float
Specialty Product Manufacturers
Small Domestic Coastal
Small Domestic Inland
Less Well Positioned
Key
Priority
Intensity of Competition (based on product
focus, quality or geography)
Opportunistic
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Focus
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Contacts

• Garth Hedley, Glass Sector Team Leader
• 1-202-473-0640
• Ghedley_at_ifc.org
• Olaf Schmidt, Associate Investment Officer
• 1-202-473-1592
• Oschmidt_at_ifc.org