Year: 2009

Cyprus’ answer to the financial downturn?

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It is rare that a financial consulting firm establishes such an impressive portfolio in such a small amount of time. MAP S.Platis, established only six years ago, already has the prestigious role of advising one of Europe’s most financially stable countries, Cyprus. Their performance has been unquestionable in that time, providing such services to the financial services sector as consultancy, research  and executive training. Despite working in an industry which has faced much hardship over the past year, the firm continues to grow.

World Finance speaks to Dr. Stelios Platis, managing director of MAP S.Platis, about how they reached such a pinnacle point and what has made them so successful.

MAP S.Platis was established in 2003 and has grown rapidly over the years. What is the key to your success?

MAP S.Platis was established in anticipation of Cyprus’ entry into the European Union, by a team of professionals and financial services experts comprising, even back then, a total of more than 60 years of combined consulting experience in advising financial services institutions. The company quickly gained the reputation of a reliable service provider, providing unrivalled compliance support to both Banks and Investment Firms in the region.  I would say that our success has been based on reliability, consistency, transparency, speed and quality of responses and comprehensive support towards our clients in the financial sector.

Your company is quite unique in the fact that it offers a number of specific services for financial companies, as well as non-financial companies. How did you develop such a wide base of core skills?

Our core service proposition is to the financial services sector. This is where we concentrate and have specialised in. Given this specialisation, we have invested and developed all the necessary peripheral skills to support all the business needs of our clients. Now, supporting our Financial Services Advisory clients, we have a Business Support team, which provides company registration and audit services, a Research Centre, an Executive Training Centre, a Hedge Fund Registration team and Hedge Fund Support teams.

Has this range of abilities meant that you have found it easier to deal with clients’ needs?

The financial services sector is the toughest to grow in and survive. You are dealing with the best of the best, which are used to a very fast decision-making process, where mistakes have a specific price. It is always a challenge, but one we are happy, ready and very able to be taking on each time.

Your Advisory has been very successful and unique in many respects. What range of services do you offer to your clients?

We are currently the only consultancy firm in the region which is able to provide the spectrum of our advisory and support services to the financial sector. But what really makes us unique is the high level of our support and the response time to compliance queries; the specific areas for which we provide support, the different departments and teams within MAP S.Platis offer, across the European Union, on-site and on-line MiFID compliance support services, anti-money laundering support, internal audit services, operational and financial risk management, and capital adequacy support.

How has your Financial Services Advisory proposition (with reference to MiFID) been so successful and popular in the region?

As a company, we have spent and continue to spend many research and training hours to ensure that our Financial Services Advisory teams are always up-to-date with the developments in the sector. This includes in-house and external training, participation in conferences, internal templates and procedures designing and assessments, monitoring and evaluation of personnel. On many occasions, we even provided the standard for the local regulators. This, of course, would mean nothing without the successful track record to match it. In fact, it is this track record, and the successes of our clients, which are communicated from one existing client to a potential one, that drives our success.

What do you think about MiFID and do you think it has had a positive or negative effect on the global financial system?

It has definitely had a positive effect, overall.  It is still, however, very much a work-in-progress piece of legislation, with a number of serious and potentially dangerous gaps still remaining. The MiFID initiative, as an attempt to harmonise the EU investment services sector, is indeed an excellent one. Now, it remains to reach its goal in the multi-dimensional and increasingly complex and globalised universe that is the financial services sector.

Do you believe it has harmonised the EU framework and what are the challenges ahead?

Up to a level it has. You have on one hand the traditional financial services economies with a detailed version of MiFID implemented and the ability to handle an ever-changing and dynamic financial sector, and on the other, the new member States, with a great many challenges before their regulatory authorities, with Cyprus being somewhere in the middle. There is also the increasing risk of systemically important pan-European financial institutions, and the issue of burden-sharing in a crisis. Setting up the framework for a single EU Regulator should become a priority, or else the next financial crisis will have its roots in the European Union. In fact, the European Commission is now proposing the establishment of a three-pillar model for banking, financial markets and assurance supervision, whereby the three new European Supervisory Authorities would work together with national supervisory authorities to combine local expertise with an overarching perspective within a European System of Financial Supervisors.

Why is MAP S.Platis so successful in the area of investment firm registration in Cyprus?

In regards to Cyprus, since the implementation of the new EU legal framework, we have registered successfully, under MiFID, over 60 percent of all Investment Firms to-date. Based on our solid experience in the field, we have developed a unique and reliable, continuously updated set of procedures aimed at offering fast and value-for-money licensing services to our clients, based on the specific practices of local EU regulators. But it is not just speed and successful track-record. We offer comprehensive support and advice throughout the process, through our transparent and tested procedures, and the guidance and consulting of our expert Investment Firm Registration and Consulting teams. Having said that, however, Cyprus is not the only jurisdiction we are offering our services to. We have already expanded into other competitive MiFID jurisdictions in the European Union, such as Ireland and Malta.

An FX expert
FX investment firms registration in Cyprus has received a lot of attention, after MiFID. What was your role in this?
It is, in fact, due to the hard efforts of MAP S.Platis that today FX registration has received such an attention in Cyprus. Cyprus has been one of the first EU jurisdictions to have issued a number of “pure” FX Investment Firm licences under MiFID (in early 2008), all of them represented by MAP S.Platis, where the first three have received their licences in approximately three months from the submission of their respective application. For this, we undertook the role of the co-ordinator between, and advisor to, the Central Bank of Cyprus and the Cyprus Securities and Exchange Commission to assist both local regulators in understanding the specific provisions of MiFID that relate to non-deliverable currency trading.

Why do you think you remain the only firm to-date to have successfully registered FX investment firms in Cyprus, under MiFID?

The obvious reason is that we have been the first to have done it whilst it remains still a cumbersome and complicated process, fraught with obstacles for the less experienced. However, it is a process through which we have managed to build the biggest and most experienced team in the region researching and working on this subject. It is for this reason that even the local regulators, keep consulting with us on FX matters. Having said this, however, we are happy to share our experiences and knowledge, and we often do exactly this, through our executive seminars and training courses. We believe the market is big enough for everyone.

What support services for the FX industry does MAP S.Platis provide?

This is yet another area in which we are unique in the region: whether a simple compliance issue or full comprehensive and continuous compliance support, dealing with any changing legislation, or meeting any new regulatory requirement, our experts provide a full range of support services across the EU for any licensed FX Brokerage Firm. Apart from the registration and licensing services, our expert teams offer, amongst others, our MiFID compliance support (on-line or on-site support), capital adequacy support, risk management support, anti-money laundering support services, operational risk support, internal audit services, and, of course, employee training. All tailored for the FX industry.

Cyprus is emerging as a potential EU financial hub for the Middle East. Why is this?

In our view, this is due to a combination of factors, such as the presence of the most favourable tax regime in the EU, combined with the proximity of Cyprus to the Middle East, whilst being a full EU and Euro Zone member. This ensures passporting abilities of such financial services across the EU, from Cyprus. Also, as regards costs, in Cyprus the operating and licensing costs remain quite low, compared to other EU jurisdictions, whilst this is combined with the availability of highly skilled and relatively cheap multilingual labour.

Why is there such a focus in Cyprus on the retail FX industry?

With regards to the FX industry, in particular, the presence of quite a few licensed (as well as unlicensed still) retail FX brokerages operating from Cyprus has also played a significant role. Also, due to the efforts of MAP S.Platis, Cyprus has granted MiFID licenses for this activity very early in the process, where this is building a mounting demand. Given these, it is not hard to see why Cyprus is increasingly being considered as a very favourable business environment for the retail FX business.

Areas of concern

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According to a UNCTAD report, cross border M&A activity in India by the end of 2008 had increased by 100 percent as against the year-end figures in 2007. FDI inflows into India, for this period, were up by 59.9 percent. Although there may be a reduction in the percentage for this year, the numbers are remarkable considering that the figures worldwide have been decelerating. The significant growth of cross-border M&A’s in India is an indication of the liberal regulatory structure and India’s growing market.

In India, the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was the nodal legislation regulating concentration of economic power, control of monopolies and prohibition of unfair and monopolistic trade practices.

However, the MRTP Act was felt to be obsolete as it did not promote competition and was too rigid and inflexible.

Therefore, the Competition Act was enacted in 2002 to promote competition that will result in industrial growth leading to greater efficiency and innovation. The Competition Act envisaged a new Competition Commission of India (CCI) whose mandate is to regulate:

a)Anti-Competitive Agreements
b)Abuse of Dominant Position
c) Combinations, in the form of Acquition, Mergers and Amalgamations

After prolonged deliberation certain sections of the Competition Act were notified in May 2009. As of this date, only the provisions related to (a) and (b) have been brought into force while (c) is yet to be notified.

On September 1, 2009, the MRTP Act was repealed and the CCI replaced the MRTP Commission. All pending investigations and proceedings under the MRTP Act will be transferred to the CCI. Further MRTP has a two-year mandate to dispose all pending cases and will be dissolved by September 1, 2011.

The main concern as regards the competition regime in India is the proposed procedure for approval of a merger from the CCI. Under the Competition Act, proposed combinations crossing the specified threshold limits must be notified to the CCI within 30 days of the execution of the merger agreement. Also, the CCI has a time-frame of 210 days to clear the combination. This is seen as an unusually long waiting period and may impact merger activities in India. The CCI has however made soothing noises and even said that they would seek to ‘fast-track’ merger approvals within a 30-day timeframe.

Downstream investments

As regards FDI in India, it is controlled and regulated by the Foreign Investment Promotion Board (FIPB), Ministry of Finance, Government of India and the Reserve Bank of India (RBI). Earlier, there were several ambiguities on laws / regulations governing downstream investments, i.e. further investment by a company that has non-resident shareholding in India. In February 2009, the Government of India clarified norms for downstream FDI through three consecutive press notes. Press Note 2 (2009 Series) put some restrictions on downstream investments by resident entities that are “owned and controlled” by non-resident entities, that is, entities where non-resident shareholding is more than 50 percent or where non-resident shareholders have power to appoint the majority of directors. The definition of “ownership” and “control” may also prove to be problematic for many foreign Venture Capital investors, since a majority of these entities are set up as trusts under the Indian Trusts Act 1882, wherein ownership and control are not defined. Press Note 3 (2009 Series) further elaborated the same and defined “foreign investment” to include all types of foreign investments (like Foreign Institutional Investments, American Depository Receipts etc). Furthermore, Press Note 4 (2009 Series) clarified some aspects of the two preceding press notes. It defined operating companies, operating-cum-investment companies and investing companies and laid down the guidelines regarding downstream investments by these companies.

It has been clarified by Press Note 3 (2009 Series) that FIPB approval will be required for downstream investment (indirect holding) if the holding company only acts as an “investment company” and is “controlled” by non-resident/overseas investors. This may become more time-consuming than before from a transaction closing perspective for companies coming within the definition of “investment companies” under the ambit of Press Note 4 (2009 Series). However, the positive side of these press notes has been to clarify the law regarding downstream investments.

Takeover Code

On listed companies, the Securities and Exchange Board of India (SEBI) is the nodal agency for monitoring publicly listed companies. Takeovers of listed companies in India are governed by the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover Code). As per the existing provisions no person is permitted to acquire shares or voting rights of more than 15 percent in a listed company without making an open offer to acquire a minimum of 20 percent of such listed company’s shares from the public shareholders (open offer requirements). However, under a concept of ‘creeping acquisitions’ under Regulation 11(1) of the Takeover Code, an acquirer who holds more than 15 percent but less than 55 percent of shares or voting rights in a listed company may acquire additional shares or voting rights not exceeding 5 percent in any financial year without making an open offer to the public shareholders of the listed company. The acquirer can continue acquiring five percent shares every financial year until reaching the limit of 55 percent when the acquirer has to make an open offer of at least 20 percent of voting rights to the public shareholders. Also, under Regulation 7(1A) of the Takeover Code, when the acquirer is holding between 15 percent to 55 percent of the target company, any acquisition or sale of shares aggregating to (+/-) two percent will have to be disclosed to the target company and the relevant stock exchanges. In this regard, some ambiguities that have been sought to be removed recently by SEBI as per its Board Meeting held on September 22, 2009 are set out below:

a) the acquisition limit of five percent under Regulation 11(1) of the Takeover Code would be permissible provided post-acquisition, the shareholding/voting rights of the acquirer together with persons acting in concert does not exceed 55 percent of the equity capital of the target company
b) the provisions of the Regulation 7(1A) of the Takeover Code have been extended to acquirers holding between 15 percent to 75 percent of the shares
c) holders of ADRs and GDRs were usually exempt from the open offer requirements mentioned above. However, under the proposed changes, ADRs/GDRs giving the holders voting rights have also been brought under the purview of the open offer requirements

Although a final analysis regarding the impact can only be made after the text of the amendments are formally issued, the changes may be an impediment to the foreign investors and especially the Foreign Institutional Investors and Private Equity players, many of who route their investments through instruments like ADRs/GDRs. These changes may adversely impact investments into India as investors will have to look out for the threshold limits while investing through the above-mentioned instruments.

Other developments

It is also worth mentioning a few significant upcoming regulatory changes which should impact the M&A landscape in the country, namely the provisions of the Companies Bill 2009 which has been reintroduced in the Parliament. This Bill will change the dimensions of company law in general and merger laws in particular in India, once it is enacted. Further, the Union Ministry for Company Affairs has enacted a draft Valuations Professionals Bill in 2007 and circulated the said bill to stakeholders for comments. Once the law is enacted and the procedures are in place, it would aid in facilitating valuation and formalising valuation principles vis-à-vis M&A activities in India. As regards taxation, presently the Income Tax Act, 1961 is the nodal legislation governing direct taxation in India. The government has recently introduced a draft Direct Tax Code, 2009 (DTC), which aims to simplify the tax provisions in India and bring them at par with the international standards of taxation.

The above discussion and analysis goes to show the stage of development and changing environment in the M&A space in India. Although these are at a nascent stage and still evolving, however a concerted effort is seen on the part of the legislators to fill the gaps and counter the shortcomings in the provisions thereby effectively addressing the demands of the corporate world, foreign investors and the interests of the various other stakeholders alike.

Hemant Sahai is the Managing Partner at Hemant Sahai Associates – Advocates (hemant@sahailaw.com). Aparajit Bhattacharya is a Partner (aparajit@sahailaw.com).

For more information
tel: +91 (11) 4340 0400 (Delhi)
tel: +91 (22) 4340 0400 (Mumbai)

Golden triangle

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Germany – Europe’s leading economic nation – remains one of the most important markets for sales and investment. Around 80 million consumers live here, with a combined purchasing power of EUR 1.3737bn. Germany accounts for 20 percent of Europe’s total economic output – more than any other European country and more than the total GDP of all the eastern European countries put together. Such a market environment offers interesting investment opportunities. The state of North Rhine-Westphalia (NRW) provides a good platform for unlocking this potential.

With more than 18 million people, the most densely populated German state contains two of Europe’s largest metropolitan regions: one of these is the Ruhr region, in which 5.4 million people live. The region between Dortmund, Essen and Duisburg was once dominated by the coal and steel industries; today, numerous highly capable companies from the service and high-tech sectors determine its economic structure. Bonn, Cologne and Düsseldorf form a metropolitan area in the Rhineland which has a population of 3.5 million. Manufacturers from the automotive and chemical industries in particular are domiciled here, as well as major service providers in the logistics, advertising, media, and consulting sectors. The former coal and steel region has developed into one of the densest research landscapes in Europe.

Besides its economic diversity and central proximity to the neighbouring countries of Belgium and the Netherlands, North Rhine-Westphalia also offers a highly interesting sales market for consumer products. Almost 150 million people live within about a 500km radius of the state capital, Düsseldorf. This represents a third of all consumers and 45 percent of the purchasing power in the EU. The inhabitants of NRW alone spend EUR 316bn on private consumption every year. North Rhine-Westphalia paints an impressive picture.

Pulling power
In a comparison of the economic locations of northern Europe, North Rhine-Westphalia competes with metropolitan regions such as Ile de France, Randstad or Greater London. However, in a direct comparison, Germany’s most westerly state is doing increasingly well with regard to key indicators. Labour costs, for example, have become competitive in nearly all sectors of the economy. Office rents and commercial site prices are considerably lower than in other European metropolitan regions.

Besides hard decision-making factors, other aspects naturally also influence companies deciding on a location. To determine the satisfaction and the needs of foreign companies, NRW Invest GmbH conducts regular surveys of different foreign investor groups in North Rhine-Westphalia. Generally speaking, what investors value most highly is the region’s central location in Europe, its proximity to the sales markets and its good transport infrastructure. This is evidenced, for example, by a survey of 1,000 foreign firms in North Rhine-Westphalia. Companies from 14 countries of origin (China, Denmark, Finland, France, India, Japan, Korea, the Netherlands, Norway, Sweden, Taiwan, Turkey, the UK and the USA) commented on their choice of location: over 37 percent of the foreign companies in NRW name the central location as the most important reason for locating here, followed by the proximity to the sales markets (33.9 percent) and the good transport infrastructure (29.6 percent).

In this respect, North Rhine-Westphalia scores points not only with its transport infrastructure, but also with its highly developed logistics services. The state possesses a dense transport route network and is one of Europe’s central transport hubs. The highly developed logistics industry in the region handles an above-average logistical volume of national and international traffic flows. The logistics industry is one of the leading growth sectors in North Rhine-Westphalia. With 21,600 companies employing 270,000 people, it is one of the largest industries in the state. If we also count the employees with logistical tasks in industrial and commercial enterprises, there are then over 600,000 people working in the logistics sector. Well-known players in the industry based in North Rhine-Westphalia are Deutsche Post DHL, FedEx, Fiege, Rhenus, UPS, Schenker, Wincanton and NYK Logistics.

Economic diversity
North Rhine-Westphalia attracts companies from both Germany and abroad, with 24 of the 50 largest German companies based in Germany’s most westerly federal state. These include leading German corporations such as E.ON, Deutsche Telekom, Deutsche Post DHL, Metro, ThyssenKrupp, Deutsche BP, Bayer, Bertelsmann, RWE and Rewe Gruppe.

The fact that NRW attracts so many companies from different industries is also due to the state’s wide-ranging industry structure. The factors critical to the success of a business settlement include infrastructure and market accessibility.

The economic structure of North Rhine-Westphalia is characterised by a balanced mixture of traditional industries, innovative economic sectors and services. The spectrum of industries ranges from waste disposal to future energies, and the variety of products from gingerbread cookies to cyanogenic compounds.

Anyone investing in North Rhine-Westphalia will find practically all raw materials, intermediate products and B2B services on the procurement side, and have access to industrial and private customers with high purchasing power on the sale side.

At the same time, the economy in the state is particularly strong in certain areas: in the chemical industry, metal production and processing, the manufacture of metal products, the rubber and plastics industry, mechanical engineering, logistics, energy supply, the ITC industry and the health care industry. In terms of their economic strength, their degree of specialisation, and their employment development, these segments are above average when compared on both a European and German scale. This is the reason why these and other sectors of industry are of particular importance in North Rhine-Westphalia.

Receiving special support from the state government, existing economic clusters are bundled here. The industry-specific networks generate projects which would not have been possible without the cumulative competencies of the companies and the specialised research institutes involved. In this way, cooperations form between firms along the value added chain and research institutes with the objective of developing innovation and growth potential. Just how seriously this is taken is demonstrated by the example of the Japanese Hitachi Corporation. The company is investing EUR 30m at RWTH Aachen University and at the universities of Bochum and Dortmund in order to jointly develop modern power plant technology with the research scientists. The industry clusters are also open to foreign companies headquartered in North Rhine-Westphalia.

Global attraction
With 27.7 percent (EUR 175.6bn), North Rhine-Westphalia recorded by far the highest direct investment share in Germany of all 16 federal states. A long way behind are Hesse with 18 percent and Bavaria with 16.1 percent. Around 11,500 foreign companies from the leading economic nations control their German or European activities from North Rhine-Westphalia. This means that almost a quarter of the foreign companies in Germany are domiciled in North Rhine-Westphalia. These include international global players such as 3M, BP, Ericsson, Ford, LG Electronics, QVC, Sony, Renault, Toyota and Vodafone. The foreign firms employ over a half million people. Although their business activities range from pure production to sophisticated services, around two thirds of the firms concern themselves mainly with sales and services.

Numerous foreign companies control their German business operations or even their European activities from their base in NRW. A clear trend is emerging: companies from Asia and North America work the European market more frequently from North Rhine-Westphalia than is the case, for example, with European investors. Furthermore, for smaller companies the NRW branch is often also the European head office at the same time.

This strong national involvement comes as no surprise because North Rhine-Westphalia is Europe’s largest sales and procurement market. 17.3 percent of German export goods are “Made in North Rhine-Westphalia” (EUR 172 bn). As an independent export country, the state would rank 19th in the world – almost level with Spain and Taiwan. 23 percent of German imports go to North Rhine-Westphalia (EUR 189.5bn). The total volume of trade is EUR 361.6bn. North Rhine-Westphalia is home to large, world-ranking industrial corporations, as well as to dozens of smaller companies which are leaders in their respective business fields. Industrial sales in North Rhine-Westphalia once again increased in 2008: up by 3.4 percent to EUR 366.3bn – equivalent to 21.1 percent of total industrial sales in Germany. 19.6 percent of the employees in North Rhine-Westphalia work in the industrial sector and 18 of the 50 largest German trading companies are based here, including such well-known names as Metro, Aldi and Rewe.

For more information tel: +49 (0) 211-130 000; email: nrw@nrwinvest.com; www.nrwinvest.com

Global leader in commodities

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“Combining Nord Pool’s expertise in the commodities market with our global distribution capabilities and customer base puts us in a unique position as a financial centre for energy-related derivatives,” says Geir Reigstad, head of NASDAQ OMX Commodities.

NASDAQ OMX Commodities is positioning for the increased competition and consolidation in the global energy market.

Tailored for growth

Growth continued to characterise the commodity derivatives market in 2008. For members of the International Options Market Association, roughly 1.5 billion futures were transacted during the year, up 38 percent from 2007. Options transactions were 154 million, a rise of 29 percent from the previous year.

NASDAQ OMX Commodities and Nord Pool have 390 members in 22 countries across a wide range of energy producers and consumers as well as financial institutions. Total traded and cleared volumes reached 2,576TWh in 2008. 

“NASDAQ OMX Commodities and we are positioned for further growth,” says Nord Pool CEO Erik Thrane. “Together, we have the expertise and efficiency, including business systems which market participants’ request. Along side, power and carbon derivatives, the exciting new markets for the future are gas and coal.”

Entering the UK market
As a result of a formal request for proposal (RFP) process initiated by the Futures and Options Association (FOA), this London-based organisation chose in November 2008 to support the N2EX market solution. This has been offered to the UK power market by NASDAQ OMX Commodities in cooperation with Nord Pool Spot.

“The N2EX market design has been tailored specially to the requirements of the UK power market, in close cooperation with the FOA members and brokers,” says Reigstad. “We will offer trading and clearing services, and our aim is to build market liquidity, efficiency and transparency.”

NASDAQ OMX Commodities and Nord Pool Spot’s objectives are to establish a physical reference price based on the physical spot market and later a derivative market, and to offer cross commodity netting opportunities. This will provide the basis for further development of the market with several new products and business opportunities.  

Nordic power market

The expertise and knowledge in NASDAQ OMX Commodities and Nord Pool derive from the position they have held at the forefront of the power market for 15 years. Ranked as the most liquid exchange-traded power market in the world, the Nordic power market is characterised by credibility, transparency and anonymity. In 2008, more than 70 percent of Nordic electricity consumption was transacted on Nord Pool Spot, the physical power exchange.
Total Nordic physical consumption was close to 400 TWh and financial trading was 6.5 times the underlying consumption in 2008, with a contract value of EUR 119.3bn.    

Carbon market

NASDAQ OMX Commodities and Nord Pool provide access to Europe’s carbon markets. They offer trading, clearing and delivery of European Union allowances (EUAs) and certified emission reductions (CERs).  

Consultancy services

Nord Pool Consulting provides consultancy services related to the operation and development of international power markets. It has contributed expertise to developing physical and financial marketplaces in 65 countries worldwide.

For more information www.n2ex.com; www.nasdaqomx.com/commodities; www.nordpool.com

Credit in Africa: the way forward?

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By the summer of 2008, the risks associated with the credit crunch were becoming apparent in the market. Years of ‘easy’ money coming out of the US and funded by China meant that the market place was flooded with credit. Assets had become over-inflated, trades had become crowded and investors were highly leveraged. Too many market participants were chasing tiny margins as the only way to make a return. “Value” had evaporated in mature markets and esoteric alternatives were becoming a viable option.

Despite the global downturn, the two areas that have retained much of their interest are sub-Saharan Africa and micro-finance. Whilst Europe, the US and Japan are looking at negative-to-flat growth, the IMF expects growth in sub-Saharan Africa to rise to four percent in 2010 and five percent in 2011. Whilst this is clearly still from a relatively low base, it shows the potential that exists on the African continent. This is partly because Africa has largely been unaffected at a local level by the credit crunch as such a small percentage of the market has historically had access to credit.

Africa is often referred to as being largely unbanked. The growth in mobile phone ownership in Africa as a whole is a significant reference point. To take Kenya as an example – two local mobile phone operators offered a mobile phone payments system, called M-PESA, which enabled participants to make payments by text message and deposit or withdraw cash from agents in petrol stations, supermarkets etc across the country. In the first two years since launch, M-PESA accumulated more accounts than the rest of the Kenyan banking system had managed in a century (The Magic of Mobile Phones, Christine Evans-Pughe, The Institution of Engineering and Technology, copyright 2009).
If you consider such a story, it is hardly surprising that Micro Finance Investment Vehicles (MIVs) are continuing to attract such attention in the developed world. If a large part of Africa has never had a bank account before, then these same people have never had an opportunity to borrow money in a formal way before. If Kenya is an example of Africans’ appetite to absorb access to new forms of finance, then the demand for micro-finance must be huge. However, the practice of those with spare capital lending it to those most in need of capital (and therefore willing to pay the highest rates of interest) is not straightforward. There are two main constraints.

Firstly there is the issue of Corporate and Social Responsibility. Those in the wealthier, developed world must respect the wishes of not only the national governments in the countries that they are lending funds into, but also the international perception of what they are doing. If they are seen to be exploiting the poor of Africa, by lending them money on terms that are unduly harsh, in the interests of seeking a greater return for their investors, they will swiftly find nothing other than international condemnation and investors hard to come by. Such investments must be seen to be ethically as well as financially sound. In fact there is much support from the Development Financial Institutions (DFIs), such as African Development Bank, where the investment is seen as beneficial to the local market. Here organisations such as Blue Financial Services of South Africa combine private money with support from the likes of the World Bank’s IFC and FMO of the Netherlands, in order to make a social contribution and a healthy return for investors.

Secondly, and perhaps more importantly, the investment must be economically sound. There is no point lending funds at high yields to a client base that is incapable of repaying it. Calculating the capability of repaying the funds has to depend on what currency is being lent to the local Micro Finance Institution (MFI) and its individual clients – partly because of the issues of exchange rate fluctuations (and the burden of carrying them) and partly because of the issue of access to hard currency in order to repay the loan.

Historically both these risks have sat with the in-country borrower. This has placed an undue burden on the local institutions and borrowers, so that either the intermediary MFI has lost all its profits due to the added cost of buying back the USD, EUR etc it was lent in the first place, or the individual borrower is saddled with a much larger debt than they initially envisaged. As an example, let’s take a look at the behaviour of the Ugandan Shilling in the run up to and the aftermath of the collapse of Lehman Brothers.

On September 1, 2008 the Ugandan shilling (UGX) stood at 1638 to USD1. However, as Lehman’s collapsed and the international banks started to call in all their loans to the highly leveraged hedge funds, a dollar squeeze started. Whilst this was most apparent in the west, it also had a severe impact on Uganda. Uganda had started to attract speculative investment in the previous seven years, on the back of a more stable economy, higher yielding interest rates and a relatively unvolatile currency. Unfortunately the global credit crunch saw a panic, as investors attempted to return everything to cash and otherwise perfectly sound investments were dropped.

This had the effect of unwinding, in six months, a steady six years’ worth of investments into Uganda and saw the UGX move from 1638 on Sep 1, to a high of 2300 by May 15, 2009, a depreciation of 40 percent – this in a country that barely knew what credit was. It hadn’t partaken in the global asset inflation bonanza, it hadn’t leveraged itself up to its eyeballs in order to punt CDOs, it had simply committed the sin (?) of providing a stable environment in which to invest. As an example, the USD/UGX exchange rate on September 1, 2000 was 1696 – so in the eight years leading up to the fall of Lehman’s the exchange rate moved less than four percent and then in the following eight months it moved 40 percent.

For those local MFIs who had borrowed money from the international market in USD in order to lend money locally, they were suddenly faced with a huge liability. They had to find up to 40 percent more UGX in order to repay their loans.

The solution here is obvious and also very complicated. In order for the loan to be ‘fair’ and socially responsible, the exchange rate risk must be removed from the borrower. The loan should be denominated in local currency and the repayment amounts fixed.

The complication is that the initial investor is not that interested in taking this foreign exchange risk themselves (although one could argue that if they are willing to take the risk of investing in Uganda for the potential returns available, they must also assume the downside risk of currency devaluation).

Fortunately a third way is starting to appear, with the emergence of organisations such as The Currency Exchange Fund (TCX) in Europe and the approach of a number of international banks. These organisations allow an investor to make their loan in local currency and then hedge the foreign exchange risk, so that they are left with a dollar (or euro) look-a-like loan, without extreme exchange rate movements weighing on the local party or devaluing their own investment. Further, via a partnership with ourselves, INTL Global Currencies (IGC), TCX is allowing its investors to even pass on the settlement risk, so that a shortage of hard currency liquidity does not affect the transacting parties to the original loan. This becomes something for the experts in the local currency, like IGC, to manage, as they are able to access more sources of local currency than a stand alone local MFI (or its local bank) can do.

This way, all parties are winners. The MIV gets to make a socially responsible and much lower risk investment into a potentially lucrative and still growing market; a local borrower can get access to previously unavailable funds, without having to take the risk that the repayments could spiral beyond their control; and the local currency volatility and liquidity risks are outsourced to professionals whose job it is to handle such matters, rather than left sitting as an unwanted side-effect with one party to an initially mutually interesting transaction. An innovative solution indeed. It is our belief such arrangements will become the market norm going forward and will be the benchmark by which all MIVs are judged.

For more information +44 20 7220 6087; www.intlassets.com

Integrated solutions

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A professional partnership of lawyers and tax advisors, Hemmelrath & Partner Rechtsanwälte Steuerberater offer
tailored solutions for decision makers. The firm provides full-service advice on complex projects and transactions such as mergers and acquisitions, company restructurings, private equity and venture capital, privatizations, structured finance and real estate as well as succession of enterprises and tax planning for high net worth individuals. The firm enjoys an excellent reputation for the high quality of advice it offers in the area of tax law. Superior legal and tax advice and a prompt personal service to its clients are the key elements in the firm’s approach. Teamwork is an essential part of the Hemmelrath & Partner culture while each partner takes responsibility for his or her tasks.
Hemmelrath & Partner stand for consistently high-quality work, an entrepreneurial approach which looks beyond the purely technical aspects and integrated teams which save costs and time both at the planning and the deal-making stages of a project.

Hemmelrath & Partner advise companies on all aspects of their daily business and is particularly renowned for providing first-class advice on restructurings, conversions and corporate transactions.

Corporate work and transactions are the core business of Hemmelrath & Partner, in particular in cross-border contexts. Such transactions have become more and more complex over the years. At the same time, client expectations in terms of quality and speed of documentation, negotiation and closing of deals have grown. Hemmelrath & Partner provides their clients with exceptional legal and business advice on a broad range of transactions such as share and asset acquisitions, disposals, mergers, buy-outs, joint ventures, strategic alliances and equity investments.

The firm does not only identify the problems and risks involved in a transaction but focuses on finding proper solutions that are suitable to the specific client’s needs and expectations. The extensive experience of its lawyers allows the firm to provide its clients with the appropriate advice, an extensive support throughout the entire acquisition or reorganisation process, the drafting of transaction documentation as well as the professional management of the deal from due diligence over negotiation through to signing and closing.

The firm’s extensive domestic and cross-border transaction experience is recognised in the market by multinational blue chips, mid-cap companies, banks, funds and other investors. Hemmelrath & Partner have advised on numerous transactions in various industry sectors, with a focus on telecoms, automotive, banks and financial services.
In recent years their transaction practice has been strongly extended to include Private Equity (PE) and Venture Capital (VC) transactions. Hemmelrath & Partner advise regularly on leveraged and management buy-outs (LBO / MBO) as well as, together with their tax team, on fund structuring. Together with its banking and finance team, the firm also provides advice on and implements sophisticated equity capital market investments, acquisition finance structures and refinancing. Hemmelrath & Partner’s comprehensive approach is the key to providing their clients with a full range of services at every step of a transaction project: legal and tax due diligence, drafting and negotiation of contracts, representation before the domestic and European anti-trust authorities, tax structuring and acquisition financing. The firm’s Corporate / Transaction team is supported by its teams of experts in complementary disciplines necessary to handle complex transactions such as tax, banking & finance, competition, labour, restructuring and litigation.

The firm’s finance practice covers a broad range of products and services from global loans via syndicated lending to acquisition financing, real estate financing and project financing, assistance in refinancing situations as well as tax structuring of funds. In addition, the firm provides advice on Capital Markets issues including stock exchange rules, financial instruments, provision of financial services, as well as compliance with listing and disclosure requirements for listed companies. Hemmelrath & Partner are also regularly involved in both debt and equity capital markets transactions acting throughout Europe, advising either issuers and institutional borrowers or banks and financial institutions. On initial public offerings and takeovers, the firm works closely with the colleagues of its Corporate / Transaction department.

Hemmelrath & Partner’s Acquisition Finance and Corporate / Transaction teams work hand in hand in order to provide integrated solutions taking care of all aspects of their clients’ corporate finance activities. The firm provides all types of acquisition finance structures, including senior and subordinated loans, mezzanine and bridge financing, high yield bonds, primary and secondary buy-outs as well as recapitalisations in order to ensure the funding for any type of transaction.

Hemmelrath & Partner’s real estate finance team comprises property, finance and corporate lawyers in order to offer its clients integrated and appropriate finance solutions with respect to the underlying real estate projects. Hemmelrath & Partner assist both real estate investors and banks in connection with the drafting and negotiation of loan agreements, their performance and, at times, the forced sale of the secured property or the pledged shares of real estate companies.

Hemmelrath & Partner offer both equity and debt capital markets advice. In particular, their teams have been involved in numerous IPOs and secondary offerings, acting mainly for issuers. In addition, the firm’s practice covers advice on compliance with stock exchange rules, listing and disclosure requirements, market integrity rules (use of privileged information and prevention of market manipulation) and provision of financial services across the EU. Hemmelrath & Partner’s tax practice covers all aspects of tax law and assists its clients, both companies and individuals, on their national and international tax issues. Their tax expertise and independence allow Hemmelrath & Partner to provide their clients with innovative and high end tax advice, targeted at its clients’ needs and expectations. Hemmelrath & Partner’s tax practice is traditionally one of the core areas of expertise of their professionals, and has gained an international recognition and reputation. Its experience enables the firm to assist companies with proactive tax planning in every area of tax law and, due to its international network within the MAZARS group, to implement worldwide tax optimisation strategies and tax planning schemes dedicated to its clients’ objectives. The firm constantly focuses on giving the most precise and personalised advice to its clients both on a country by country basis and globally. Hemmelrath & Partner provide their clients (mid-cap companies and international blue chips) with tax expertise covering the whole range of taxes and investment incentives: day-to-day issues, tax optimisation, group reorganisation, restructuring, tax planning, etc. They have developed a specific know-how in special industry sectors like food, pharmaceutical, automotive or the financial sector. Hemmelrath & Partner bring solutions to investors and management teams in the structuring of private equity and venture capital funds, by proposing adapted investment vehicles (regulated or non-regulated, tax transparent / tax opaque, carried-interest, VAT issues, etc.) Over the years they have developed a genuine expertise in the structuring of crossborder real estate funds, and they are thus able to propose, from the structuring and the investment phase up to the elaboration of an exit strategy, tax optimised and secured solutions by taking into consideration each type of vehicle specificities (closed-ended and open-ended funds, REITs, listed and non listed real estate companies, etc.). The tax and legal teams also provide integrated advice on real estate investments, both domestic and international: real estate financing, structuring investment vehicles (including real estate funds) and the taxation of the assets during their acquisition, operation and disposal.

Hemmelrath & Partner are one of the founding members of Marccus Partners, a combined international practice of lawyers and tax advisors. Four leading business and tax law firms in France, Germany, Italy and Spain share the same values of quality, independence, responsibility and integrity. All four firms have a long-standing experience in both domestic and international transactions, are thoroughly established in their home markets and are well connected worldwide. Marccus Partners have been elected Cross Border Law Firm of the Year at the ACQ Global Awards 2009 in London and have also been awarded the price of Entrepreneurial Firm in the section of Up and Coming Firms 2009 at the 8th Legal Trophies Ceremony in Paris. Marccus Partners work closely with “best friends” firms, in particular in the UK and the US, and with Marccus Alliance members throughout Europe, such as Pellicaan Advocaten (The Netherlands). They are also a network member of the international audit and accounting group MAZARS. In Germany, the respective services are rendered by MAZARS Hemmelrath GmbH Wirtschaftsprüfungsgesellschaft. In terms of assurance such services comprise statutory and voluntary audits of single and consolidated financial statements, limited reviews, special audits (according to Sec. 53 of the German Law on Budgetary Procedures, audit of assets in kind, etc.), expert opinions on prospectus assessment or arbitrator’s awards etc., certifications (e.g. for software) or conversion to international accounting standards (IFRS, US-GAAP). Internal audit, risk management and forensic investigation services cover support and completion of internal audits, analysis and optimisation of internal control systems, support in regulatory compliance, IT governance and IT security, forensic investigations into white-collar crime or consulting and expert opinions on claims establishment and enforcement. Further to that MAZARS Hemmelrath’s transaction services cover financial, tax and legal due diligence, in combined teams with Hemmelrath & Partner, transaction advisory services, carve-out consulting or purchase price allocation consulting. In addition corporate finance services, like business valuation, valuation of tangible and intangible assets, impairment tests, advisory for financial structuring and financial modeling are rendered to its clients as well as restructuring and recapitalisation services, such as business process analysis, action plan development and implementation, temporary management, project and task controlling or interest group moderation and mediation.

Best method analysis

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Although some may consider transfer pricing a “black box,” the shared adage among most finance professionals is that transfer pricing is comprised of both art and science. The science of transfer pricing is grounded in financial data and the relevant tax laws while the art of transfer pricing is based upon an intuitive sense of which adjustments and assumptions may best align the scientific aspects with the realities of the business. At present, many transfer pricing practitioners believe that the recent dynamics in the global economy, such as unprecedented increases in corporate borrowing costs coupled with limited access to capital markets as well as total system losses for multinational companies, may require a different perspective in defining arm’s length behaviour. It is precisely this shift of economic reality that has created both a necessity and an opportunity for organisations to rethink their global transfer pricing.

Cyclicality of the sector

An industry analysis is the foundation of a transfer pricing framework and should seek to explain any deviations from the industry’s historical trends experienced during the recession. Most industries have been impacted by the current economic environment while a chosen few have been recession resistant. The cyclical industries that have been severely impacted by the recession, such as the financial services and automotive sectors, will require reconsideration of their financial analytics given the newfound government intervention and ensuing regulatory changes. As such, benchmarking in these industries must ensure accurate comparisons of financial results either through a search for comparable companies that are subject to similar regulatory conditions or the application of appropriate financial statement adjustments to account for differences in capital costs or SG&A burdens.

Best method analysis

The fundamental assumptions around the “best method” selection, as defined in most tax jurisdictions, must be challenged to test the relevancy of the method during recessionary periods. Although each country will address the best method and data requirements differently, as an example, the US tax law presents the rule under the Internal Revenue Code Section 1.482-1(c). For a transaction-based method, whereby an intercompany policy is established using the same terms as in third-party transactions, current market conditions may have changed a company’s terms with those third parties, creating a need to evaluate the applicability of that change to the intercompany transaction. For a profit-based method, the basic method may be appropriate yet an alternative profit level indicator may yield a more reliable result under depressed market conditions.

In the current environment, a comparison of the company’s performance to the comparables may prove challenging for several reasons. On the practical side, comparables used for profit-based methodologies will normally incur a natural attrition, which has now been accelerated during the recession through an increase in bankruptcy volumes. Moreover, there is a natural time lag in the availability of financial data that will create a misalignment in some cases and the potential risk of inappropriate comparisons of recessionary years with pre-recession years. According to US tax law, a basic premise of the best method selection is to employ the method which produces the most reliable measure of an arm’s length result given the degree of comparability between the taxpayer and the third-party transactions as well as the quality of the data and the assumptions (Ibid). As such, sensitivity to these fundamental data issues is always considered a best practice yet should be viewed as essential in this environment.

Legal and tax

Opportunities as well as risks may be found in a review of the current transfer pricing policy and the supporting intercompany agreements. The legal and tax departments of a company should jointly scrutinize and validate the use of the current terms of the intercompany agreements to ensure that the “…terms are consistent with the economic substance of the underlying transactions,” as outlined in the Internal Revenue Code Section 1.482(d)(3)(ii)(B)(1). For most companies, certain intercompany terms are worth further consideration, including a minimum return “guaranteed” for distributors or a minimum royalty paid to an affiliate for marketing intangibles. In the event of systemic losses, a company should reconsider the arm’s-length validity of such arrangements; it is likely that the tax authorities will do the same.

Risks and opportunities

Global transfer pricing policies must be reviewed in light of the current economic conditions to ensure that the risks have been properly mitigated and the opportunities have not been overlooked. The risks may be found either in the scientific dimension or the artistic dimension, the changes in the financial foundation or in the assumptions made surrounding the business model and the value drivers; the worthwhile opportunities will be found in the balance of the two.

Kathrine Kimball is VP of Ballentine Barbera Group, a CRA company. For more information kkimball@crai.com

Local team, global success

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Karaman Law Firm was established by Mahmut Karaman in the early 2000s and specialises in maritime law. Having worked together since 2000, his team approach each case with solidarity and stability; they are respected for their legal expertise, client relationships, and  strategic vision.

Karaman Law Firm is committed to serving clients within the legal areas of their expertise. Shipping has been the traditional focus of the firm but it has equal expertise in insurance, reinsurance, ship finance, international trade and general commercial law.

The firm represents clients by handling each case with clarity and precision, providing detailed solutions in a swift and timely manner.  In litigation disputes, the clients are kept informed and are always briefed on future expectations. The firm provides effective advice on which risks are worth taking. The team is ambitious but not adventurous.

Areas of practice

Karaman Law Firm handles all types of commercial matters, from marine casualties to assisting parties in non-contentious matters, including owners, insurers, ports, shipyards, banks, traders and foreign investors.
The firm is well known for its experience in both foreign and domestic litigation. The firm draws on the diverse strength of individuals with a variety of education and practice backgrounds, which allow them to handle a wide range of commercial disputes and liability litigations in both Turkish Courts and foreign jurisdictions. The law firm has handled arbitration before the Chambre Arbitrale de Paris on behalf of Turkish companies as well as representing foreign companies with seven digit claims before the Turkish Courts. Recently, Karaman Law Firm obtained declaratory relief in international arbitration proceedings relating to gas turbine damage in the Turkmenistan-located Dashoguz Power Plant in favour of the London reinsurance market.

Karaman Law Firm, with its wide experience in debt recovery, provides efficient service in the arrest of ships in Turkish waters or in foreign jurisdictions. The firm, in cooperation with a large network of correspondents, has managed the arrest of vessels in several jurisdictions including Singapore and Jamaica. Serra Unsal, the most experienced senior associate in arrest of ships spoke at the Tenth Annual Conference on Ship Arrest, organised by the Lloyd’s Maritime Academy in London on 29-30 November 2004. Since the beginning the of global financial crisis, Mahmut Karaman and Serra Unsal led arrest cases for the recovery of approximately US $20,000,000.

 The firm not only offers litigation services, but combines its wide litigation experience with a deep knowledge of business practices. This allows the team to continuously offer quality services on a non-contentious basis. In the Ministry of Defence Tender Project for the construction of 16 new types of patrol boats, the firm assisted the shipyard in the meetings with administrative authorities and also in tough negotiations with the main suppliers. Last year, the firm has assisted a major port in the Istanbul region in transactions exceeding €10,000,000 for the purchase of crane units and in terminal contracts concluded with major lines at the port.

The firm is also involved in numerous ship sale and purchase, and finance transactions. Recently, the firm assisted the sale and purchase of a ship registered in Lithuania, and managed her post-sale certification under the Panama flag and her registry to the Russian Bare-Boat Registry simultaneously with the closing in Denmark. The firm manages many similar transactions in cooperation with its wide network of correspondents.

In recent years, Karaman Law Firm has expanded its commercial practice to include general corporate issues and administrative litigation. The firm assisted one of the largest tour operators in its reorganization of its employment system in Turkey. The firm also obtained successful outcomes in administrative and environmental litigation, related to the construction of one of the largest shipyards in Middle East.

The team
Karaman Law Firm’s is a niche team well respected for its legal expertise, for its client relationships, and for its strategic vision. The lawyers of the firm combine their various backgrounds and experience in a friendly and stable working environment.

Mahmut Karaman, the founding partner of the firm, has ten years of experience on vessels as a marine chief, which helped him develop an outstanding marine law career. As a former marine engineer, he is in close contact with the shipping community in Istanbul. His background in engineering also assists the team with the complex, technical issues that arise. He was President of the Maritime Academy Alumni Foundation between 2005 and 2006. Over the last 15 years, he has played a major part in the most catastrophic casualty cases in the Bosphorus and Dardanelles. Karaman’s outstanding legal experience provides the foundation and support for this impressive team. He continues to develop the firm’s strategy and provide leadership within his firm.

Serra Unsal is a specialist in maritime claim handling, including bunker supplies, cargo and charter disputes. In the current market fall, she manages at least three ship arrests every week in Turkey or in different jurisdictions. She assists P&I Clubs in personal death and injury matters. Serra has also developed an expertise in ship and sale purchase and ship finance, overseeing 20 ship sale and purchase transactions in the past two years.

Ercan Demir handles recovery actions on behalf of local and foreign insurance companies, including large scale industrial damages cases. He is currently handling cases related to cargo loss recovery from the May 24, 2006 fire at Atatürk International Airport. Last year, he won a recovery action related to freezing damage sustained in Afsin Elbhistan power plant station. Ercan is also the major consultant to the largest and most prominent salvage and tug services company in the Tuzla region.

Fatma Kurt mainly provides non-contentious assistance to owners, shipyards and terminal operators. She represents a major Istanbul port on a regular basis by drafting and negotiating its supply and terminal contracts. Her ongoing doctorate studies, following her Masters of Law at New York University, enable the team to handle very complex legal issues. Last year, she achieved success in a seven digit tax case before the Istanbul Tax Courts. She has been instructed by foreign clients to handle court and arbitration cases in Turkey. Most recently, while representing the London reinsurance market, she won an international arbitration case related to a complex cargo reinsurance dispute.
There are two associates in the firm, Serpil Yılmaz and Miraç Uçankale. Serpil is a bright associate who joined the team in 2004. Serpil is involved in most of the major cases at the firm, including civil and administrative litigation. Her assistance in debt recovery and arrest cases is indispensable. Miraç Uçankale joined Karaman Law Firm’s team bringing her experience in non-contentious work, in particluar the purchase, sale and finance of ships. Her hard work is already appreciated by the firm’s clients.

Vision for the future
Karaman Law Firm strives to serve clients in areas where the firm is fully equipped with knowledge and experience. The firm offers the advantage of working with lawyers with a high level of understanding of the Turkish legal system as well as the needs and implications of international trade.

The firm’s vision is to always maintain the quality of our legal services. Wheras other law firms standardise work and sacrifice quality as they grow, Karaman Law Firm insists that each file and each client is carefully represented and all options are considered. The firm’s purpose is to grow if and only with the quality of its services.

For further information +90 212 219 18 18; www.karamanlaw.com

Europe’s green capital

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Stockholm, which promotes itself as the Capital of Scandinavia, can now also add the slogan Green Capital of Europe, after the announcement of the European Commission last year.

“It is a great honour. A lot is happening in cities around Europe and the rest of the world, which is very inspiring, but the fact that we are the first city to be awarded is very flattering and a proof that we are on the right way.” said Mr. Olle Zetterberg, CEO of Stockholm Business Region, the investment promotion company for Stockholm.

The European Green Capital Award is an initiative to promote and reward the role that local authorities play in improving the environment, and their high level of commitment to genuine progress. Starting in 2010, one European city will be selected each year as the European Green Capital of the year. During 2010, Stockholm will be the first European Green Capital. It was also announced that Hamburg will be Green Capital 2011.

Said Mr. Zetterberg: “Stockholm’s reputation is high in these matters. Ranking lists puts us practically every time in a top position when it comes to environment and quality of life.”

“Before, we got a lot of study groups from both public and private sector visiting for example Hammarby Sjöstad, one of the world’s top sustainable urban development projects. But the Green Capital prize has further increased the international interest, not at least in investment matters.”

The cleantech cluster of Stockholm consists of some 2,500 companies and the market is a fast-grower. New infrastructure for €20 billion is on its way, and combined with 80,000 planned apartments it is attracting investors, construction, consultants and ICT companies to Stockholm.

The Green Capital Award comes as a bonus for Stockholm, but the award was preceded by a careful review, including everything from water protection plans, to public transport and work against fossil fuel emissions. Stockholm was considered the front-runner in all of the categories.

The EU Commissioner Stavros Dimas said: “I congratulate Stockholm and Hamburg for their efforts in giving priority to the environment and quality of life. Four out of five Europeans now live in urban areas, and that is where the environmental challenges facing our society are most apparent. With their measures to tackle air pollution, traffic and congestion levels, greenhouse gas emissions, and waste water management, Stockholm and Hamburg can act as role models for the rest of Europe.”

The City of Stockholm considers the prize as motivator for private and public partnerships in cleantech and sustainable urban development to further develop innovation and terms of collaboration.

“The prize is a good indicator that we are doing the right thing, right now, and not just leaning on previous successes. We have a strong R&D heritage which is essential for the progress, for the international competiveness of the private sector as well as the public sector. Important institutions such as Karolinska Institutet, Royal Institute of Technology and the Ångström Laboratory in Uppsala are great stakeholders in our part of contributing in shaping the society of the future,” said Mr Olle Zetterberg.

For more information www.stockholmbusinessregion.com; invest@sbr.stockholm.se

Retailer resilient to economic slowdown

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The history of NG2 Group, a leading producer and distributor of footwear in Poland, is over ten years long. The beginning of the company dates back to the mid ‘90s. During all these years it has been established in the consciousness of the clients as CCC Company. The CCC trade concept was launched in 1999 as a platform to cooperate with franchisees. These three letters stand for Polish Cena Czyni Cuda – Price Makes Miracles and CCC is still one of the best recognised brands in Poland. In 2002 the sale of footwear commenced in their own stores and a nationwide advertising campaign was launched to build an awareness of the brand. Successful IPO in December 2004 enabled the company to continue their investments in their own retail network, increasing the efficiency and profitability. The year 2006 marked a completely new chapter in the history of the company. It was not only a period of lively development for CCC, towards the end of that year NG2 introduced two new distinct brands into the market: Quazi – offering leather footwear to women conscious of themselves and their style as well as BOTI – directing products to clients with more modest tastes, located in average and small towns. A crucial date was  January 24, 2007 when through the decision of the shareholders, the name was changed from CCC to NG2 (New Gate Group). This was a specific consequence of company’s expansion on the domestic market, aiming for better identification of particular brands and sales channels.

According to Datamonitor, the footwear market value in Poland is expected to increase to PLN 8.2 billion in 2009E (2.3 percent up year on year) while the market volume should rise to PLN 129.5 billion pairs. With a population of  around 38 million, the Polish footwear market is one of the least concentrated among the EU countries. Moreover, the Polish footwear market is one of the least saturated markets among those in the EU, with an average of 3.5 pairs of shoes per inhabitant while in the EU this ratio is two times higher (approx. 6.0 in 2008). With a 12 percent stake in the market, NG2 is a market leader offering shoes and accessories in 700 locations – 585 owned and 115 franchised – 350 CCC stores, 300 BOTI shops and 50 Quazi boutiques.

The CCC store format is developed as a “house of brands” in both proprietary and franchisee distribution channels. Most CCC products are positioned in low and medium price segment, which is reflected by an average price ranging from USD6 to USD100. Stores are located in both the most attractive locations in the biggest cities and “second tier” locations around Poland. Due to the fact that CCC retail chain contributes to 80 percent of total NG2 sales and it has a strong brand awareness among the customers, the retail chain will be gradually developed in coming years.
Both BOTI and QUAZI are relatively young brands, which were launched in 2007 and 2006, respectively. Accordingly, the store concept of BOTI is dedicated to clients looking for cheap shoes at a reasonable price (prices range from USD6 to USD60), the brand is targeted at low income customers in cities of every kind. In contrast to CCC and BOTI, QUAZI brand is positioned in medium price segment (prices range from USD30 to USD200). NG2 entered a higher price segment as a part of a differentiation strategy, which allowed the brand to penetrate other niches and gain some additional profits.

Salons in all three sales network have a uniform internal and external fit-out. The Group makes sure that both its own and franchised stores characterise each brand with a suitable arrangement of the interior and shop window. Within the scope of its brands the network applies seasonal image changes. Twice a year, for the autumn-winter period and spring-summer, the salons undergo a fundamental metamorphosis. All changes create a coherent notice for the consumer, they are clear and attract attention.    

NG2 has its own production facility located in Poland which manufactures around 10 percent of total supplies. The remaining 90 percent of production is outsourced, mainly to China and India. Supplies from these sources account for 80 percent and ten percent of all supplies, respectively.

We can already say that NG2 Group avoided the negative consequences of economic slowdown. This was possible thanks to adopting wise development tactics. The NG2 business model in its own right is defensive, since middle and lower shelf products sell just fine at the time of possible recession. Precisely set budget and successive reduction of costs at the level of negotiating prices with contractors constituted the significant factor of defence against the crisis. And last, but not least, NG2 concentrated in the past on the domestic market and based its strategy on the organic growth rejecting all M&A proposals. CEO and founder of the company, Dariusz Milek, believed strongly in NG2 business model and managed to avoid expensive acquisitions.

After strong performance in the years 2007 – 2009, when the number of NG2 stores doubled and floor space was tripled, the company intends to continue the robust development. High profitability combined with low leverage provide NG2 Group with the unique opportunity to invest in new locations and increase the market share.
NG2 believes that through new openings of proprietary stores it will be able to reach the strategic goals. The company, with its limited exposure to foreign markets and focus on the low- and middle segments of the market, is capable of strengthening its leading position and doubling its market share to 25 percent by 2014.

Banking on diversity

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Seeking to highlight women who not only outperform within the financial sector, but who actively support other women in finance, Joanna Fielding, Chief Financial Officer of Standard Chartered Bank China, was considered in an extensive 2009 survey by World Finance as one of the top women operating in the field. Not only has Ms Fielding held senior finance positions at the bank since her early 30s, in 2006, at the age of 37, she was asked by the bank’s CEO, Mervyn Davies (now Lord Davies of Abersoch, Minister for UK Trade and Investment) to establish and chair the bank’s Group Women’s Council. Last year, Ms Fielding also became the first woman to chair the British Chamber of Commerce in Shanghai.

World Finance caught up with Standard Chartered Bank China’s CFO to discuss her career and how Standard Chartered is taking diversity in banking to a new level.

How has your career in finance at Standard Chartered evolved?

Joining Standard Chartered 12 years ago in London, I soon found myself in New York on a secondment. My original plan was to stay a few months on a short term contract while I was in the process of applying to INSEAD to do my MBA. However it quickly became obvious that I was a good fit for the bank, and vice versa. It was the first time in my career where I felt I was actually making a tangible difference and I could apply my financial training to real business issues. I never did go to INSEAD, but my career has gone from strength to strength.

I was also fortunate at the beginning of my 30s to work for Mervyn Davies, who has a knack for identifying talent and helping people realise their potential. Because of the faith placed in me by Mervyn and subsequent managers, including our current Group Chief Executive, Peter Sands and Jaspal Bindra, CEO for Asia (who is also Chair of the Group’s Diversity and Inclusion Council), I have had amazing opportunities to learn and grow – not only through the positions I have held, but also as a result of living and working in different cultures across our footprint.

As finance is a traditionally male-dominated industry, what advice do you give to women who are just starting?
To be successful and achieve one’s potential, you need to believe in yourself. One of the challenges many women face is what we call ‘self-limiting beliefs’. Women will tend to emphasise what they are not good at, rather than reinforce what they are good at. As a result, women are less likely to push themselves forward, or to take a risk by going for a role that may be out of their comfort zone. This is exacerbated by the lack of role models in some organisations – women who have not compromised their own individuality, and who have still made it to the top.

Why is Standard Chartered increasingly being known for its approach to diversity?

Diversity is a natural strength for the bank and has become a distinctive part of our brand. We operate in over 70 of the world’s most dynamic markets and employ more than 70,000 diverse employees, located mainly across Asia, Africa and the Middle East. Our chief executive also leads from the top, and actively supports diversity and inclusion both internally and externally, for example through his membership of the World Bank Private Sector Leaders’ Forum.

The cornerstone of our approach is that we integrate diversity into everything we do. Our ambition is to lead the way through diversity and inclusion, supporting not just our employees, but also our customers and our communities. We believe that this inclusive approach will enable us to understand and serve all our stakeholders better – and I would argue this has become even more relevant following the global financial crisis. Banks need to not only ensure that they are economically responsible, but also that they are socially relevant to the communities they operate in.

How exactly do you support the diversity of your customers?

The bank values the diversity of our clients and we’re committed to developing a deep understanding of each customer’s needs. This involves adapting products and services and tailoring them to be appropriate and accessible.
For example, research has shown that women are powerful, yet often overlooked customers. Since 2006, the bank has launched specific propositions for women in several of our African markets, offering a package of products tailored to their needs and interests. Launching the products has given the bank a first mover advantage, market differentiation and better loyalty from female clients. Another targeted proposition for women is the all female branches in India and Pakistan. These are seen as safer environments for many women who feel more comfortable conducting business with female employees. For entrepreneurs, the Bank offers business instalment loans designed specifically for women.  

So is this customer diversity just about women?

No, not at all. Take Islamic Banking for instance. With a global network that covers much of the Muslim world, we are ideally placed to play a prominent role in Islamic banking. Standard Chartered’s Islamic Banking has been widely recognised, winning a number of awards since inception, including Best Islamic Services from an International Bank from World Finance in 2009.

The bank believes that with wealth comes responsibility. The Standard Chartered Private Bank, for example, helps clients and their families invest in a range of philanthropic options. The bank has combined its internal fiduciary and sustainability expertise with specialist, independent external philanthropy advisers. One option available to clients is to contribute donations to the bank’s Seeing is Believing Programme, with Standard Chartered matching each donation (up to the USD 20 million target). Seeing is Believing is a collaboration of Standard Chartered Bank and the International Agency for Prevention of Blindness that works to help tackle avoidable blindness. With 45 million blind people in the world and given two thirds of people with avoidable blindness are women, this is yet another way in which the bank’s commitment to diversity has transpired.

Our focus on diversity is also relevant to our Wholesale Banking business as well. Take microfinance for example – most of our portfolio is in Africa and South Asia, with 80 percent of the end users being women. After committing to providing USD 500 million to microfinance institutions in 2006 at the Clinton Global Initiative (CGI), we are now well on track to meet this target. But again, it isn’t all focused on gender. In 2007 in China for example, the bank launched a very successful project, now in its second phase, with one of our corporate clients to provide financing to cotton farmers in Urumqi, and at the end of 2008 we opened our first Village Bank in Helingeer, Inner Mongolia. These initiatives all support financial inclusion and reinforce how banks must be socially relevant to the communities in which they operate.     

What role does the Group Women’s Council play?

The Council champions not only the advancement of women in the workplace, but also women’s empowerment in the community and the importance of women as customers. The Council is made up of 12 women from markets as diverse as Columbia, Ghana, India and China.

Our activities are incredibly varied. In terms of the workplace, we have developed women’s leadership programmes for talented women. Over the last 15 months, we ran these for women from Europe, Africa, the Middle East and Korea. We have also established women’s networks and mentoring programmes.

On the customer side, in October 2009, we hosted the Global Banking Alliance for Women’s annual summit in Singapore. This was followed by The Standard Chartered Bank 2009 Women in Business Summit where we brought together 100 successful female customers from retail, SME and corporate clients, alongside representatives from government bodies and global institutions such as the IFC and the World Bank to share, learn and network.

At this event we also launched the ‘Standard Chartered Women in Business Resource Centre’ (www.standardchartered.com/sme-banking/resourcecentre), a website targeted at female entrepreneurs. The website offers educational modules for women who are starting and growing SMEs with topics ranging from cash flow to negotiation.

We recognise that financial literacy is the first step to increasing women’s entrepreneurship and at the first Asia CGI meeting in 2008, the bank committed to provide financial education to at least 5,000 women in Asia. Basic financial literacy training is also provided by the bank’s ‘Goal’ programme. Goal provides sport and life skills education to transform the lives of young underprivileged girls. Piloted in India, Goal is currently expanding to an additional four markets and aims to reach 100,000 girls over the next four years.

While Standard Chartered was one of the few banks to emerge from the economic crisis relatively unscathed, will you continue focusing on diversity given the challenging economic environment?

It is even more important now than before the financial crisis. With changing client expectations, only the banks that show a long-term commitment to their people, customers and communities will survive. Adopting a strategy of diversity, however, isn’t just about being a force for good. The return on investment is real – greater creativity and innovation, better local knowledge, stronger customer loyalty and improved access to talent. In today’s financial environment, I don’t know any bank that can afford to ignore a potential competitive advantage like this.

The value of data

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Any business that relies on market information and decision support tools can appreciate the value of reliable data, accessible from the road or office. As a global desktop solution, eSignal Pro offers in-depth, streaming, real-time and delayed data and news for stocks, futures, options, FX, Treasuries (Cantor Market Data) and indices from more than 125 exchanges worldwide.

Both independent advisors and broker/dealers seeking an enterprise-wide desktop solution will find that eSignal Pro helps them work more efficiently. With pre-defined screens and the ability to create their own, users can view content they use most often. Innovative, time-saving features, such as colour-coded window linking, provide a solution designed for the way they work.

An all-inclusive platform

eSignal Pro’s advanced charting includes hundreds of technical indicators, numerous chart types, such as marketprofile, tabular and candlestick, a comprehensive set of drawing tools, as well as the ability to create and modify formula studies.

Audio/video alerts can be set via an easy right click from a variety of fields. Time alerts will notify users of the open and close of a market.

For additional pools of liquidity, there’s market data from the LSE and Euronext, as well as from Canada’s TSX and the NASDAQ and NYSE in the US. Historical data is available for all security types – tick, daily, weekly and monthly.

Back testing and other analysis tools provide the opportunity to look at strategies from a total performance perspective and to dissect individual trades, measuring them in relation to time and evaluating consistency.

Streaming or snapshot option chains permit users to track the strike prices, expiration dates, put and call status for each underlying security and feature colour-coding for in-, near- and out-of-the money. Options-Plus, an advanced options analytics tool, facilitates analysis of existing and hypothetical positions and situations using features such as Position Quest, which instantly creates positions, and Position Performance Charts for building “what-if” scenarios.
eSignal Pro’s ease of use saves time with enhanced functionality – windows linked by common symbols, built-in screens and the ability to create customised screens, as well as pop-out windows for keeping track of information (for example, the news) separately.

Market-moving news from reputable sources such as Dow Jones can be searched for by symbol, service and/or keyword and viewed in several different modes.

To reduce the load on bandwidth, eSignal Pro can be configured for private connectivity to eSignal’s reliable servers with an Enterprise Server solution. It is also designed to run in a Citrix environment.

With eSignal Pro, exchanging real-time, delayed or historical data among third party applications to perform proprietary analysis is easy and can be done using a variety of technologies well suited to the purpose, including a desktop API, programming languages (such as C++ and Visual Basic), Dynamic Data Exchange (DDE) linking, data export and QLink, next-generation data export.

Behind the product

eSignal, the desktop solutions division of Interactive Data Corporation, has received a number of awards for its real-time, delayed and end-of-day data, including “Best Real-Time Data Feed” from World Finance, Trade2Win’s Members’ Choice Award for four years in a row for “Best Real-Time Data” and Stocks & Commodities’ Readers’ Choice Award for “Best Real-Time/Delayed Data” for 15 years in a row.

Delivered over one of the most sophisticated market data infrastructures, with geographically diverse data centres and multiple co-location facilities run in tandem, eSignal’s real-time information reaches users no matter where they connect. All sites are staffed 7x24x365. State-of-the-art network performance and reliability meet the ever-changing demands of the market.

For further information www.eSignal.com

Housing: an economic curative?

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Housing has always been a staple of the economy, an important driver of the economic infrastructure and a key indicator of health and welfare in communities. Although the US has seen a drastic slump in housing over the past few years, housing in other nations of the world – particularly heavily populated regions – has strengthened and become an important economic and social stimulant. In the past year the housing slump, in new builds and resales, was both a cause and effect of the credit crisis in the US market; and there was a spillover effect of the US’s economic challenges to other nations of the world. But despite this, housing has thrived as a means of rejuvenation and societal growth. 

Take Mexico, for example, where President Felipe Calderon has pledged to  improve housing conditions in the country and help unlock a pent up demand for quality, affordable housing. This, of course, has been crucial to society and an important part of our success at Homex.  Working in a public/private partnership environment, Mexican homebuilders have been encouraged, with the government’s mortgage market support, to continue building much needed homes despite the economic slowdown.  In fact, the industry can’t meet the demand because there aren’t enough builders capitalised well enough to invest in this growth opportunity.

For many people, homeownership is a means of improving health, education and socio-economic status.  In places like Mexico, overcrowding has been a serious concern, with multiple generations living under one roof. It is a fact, for example, that infants living in overcrowded conditions are four times more likely to get sick or die during childhood than those living in single family dwellings. Yet there are many families who still live in substandard conditions, in some cases without access to electricity or water.

There are also strong economic arguments for a well-supported housing industry, as on average, homeowners are ten times wealthier than non-homeowners.  At the same time, the industry also assists with job creation, as every home that is built in Mexico creates approximately four jobs. This provides for immeasurable benefits to the greater economy.

It is no surprise that this year the economy has presented a challenge for Mexican homebuilders. Cash flow and mortgage financing constraints have negatively impacted middle income and high-income housing starts. At the same time, smaller, less well-capitalised builders are facing an increasingly constrictive capital market.  Consumer confidence has dropped as a result of unemployment, which in Mexico had hit a 14-year high in September of 6.28 percent. All of these factors have hurt homebuilders as a whole.

But, in the affordable entry-level sector, demand still far outpaces supply, and with the help of well financed and dedicated mortgage finance entities and government subsidised mortgage programmes, a large number of eligible subscribers, many of them first time homeowners, have been able to obtain mortgages and purchase homes, and they are lining up to do so.

Under President Felipe Calderon’s administration, the government has pledged to make six million mortgages available over his six-year presidential term. This has been an important step for Mexico, where an estimated 21 million additional houses are needed to meet the demand over the next 25 years, which translates to approximately 633,000 homes, recognising an existing shortage of 2.3 million new homes, according to the Mexican Housing Commission (CONAVI).

Mexico’s two dedicated mortgage finance entities, INFONAVIT and FOVISSSTE, facilitate mortgage access for many first-time buyers. In 2009 alone, INFONAVIT planned to offer 450,000 mortgages, while FOVISSTE (a programme for Federal employees) targeted 100,000 throughout the year.  The commitment from these agencies has been important as many commercial banks and sofoles (non-bank financial institutions supervised by the National Banking and Securities Commission) were restricted by the softer economy.  Most of these mortgages are in the affordable entry-level segment, which provides an opportunity for well-capitalised homebuilders, such as Homex.
A recent USD 50m investment in aluminum mold construction technology has served Homex in cutting costs and speeding up time-to-completion in its projects. Aluminum molds have never been applied to detached homes in Mexico, until now.

In Brazil, where Homex recently invested in its first entry-level housing project beyond Mexico, the government has launched its one million homes Federal Housing Subsidy Program, designed to provide one million mortgages to eligible families.  The country also provides financing through Caixa Economica Federal, the federally controlled savings bank, reaffirming the Brazilian government’s strong support for the housing industry.  Demand for this programme is high and Homex has sold more than 65 percent of its 700 units in less than six months.

Social responsibility

Besides providing financial support, the Mexican government recognises a variety of sustainable, environmental and socially friendly attributes under its Integrated Sustainable Urban Developments (DUIS) initiative. This encourages builders to improve the quality of life for Mexican families as part of the urban planning process.  Under the initiative, parks, community centres, orderly trash management, environmental care programmes and urban design are addressed, while providing efficiently for commercial space and transportation.

To leverage the DUIS initiative, Homex has embarked on several education and health programmes, including vaccinations and even organised sports in its communities. Integral to each neighbourhood, homebuilders have a unique opportunity to address the need for societal growth through better education and enhanced social services. A commitment to social initiatives is an important responsibility that provides for the greater good, not only for the community but also for the entire country.

Common areas such as sports fields and playgrounds help to provide a better sense of community for residents. This neighbourhood infrastructure encourages community interaction and increases the residents’ commitment to the area.  In some communities, Homex has organised competitive sports programs, such as soccer tournaments, and at the end of 2008 there were 124 soccer teams competing enthusiastically throughout the country. 

Programming needs to focus on both children and adults within developments. As an example, youth education programmes in the region are a joint venture between Homex and the Altius Foundation in Mexico, while other programmes focus on adults who wish to advance their education.  Homex has successfully worked with the National Institute for Adult Education (INEGI) to launch schools within its communities, teaching basic literacy as well as elementary, middle and high school curricula. Thousands of individuals are currently benefiting from this program throughout Homex developments.

Furthermore, community centres are shared areas where neighbours can attend high school classes, improve computer literacy and take online training for a number of different jobs. The availability of internet access and other multimedia resources encourages sharing and education among community members.

Undoubtedly, housing is an individual and societal need. And for the less fortunate and populous developing countries of the world, the housing industry needs the support and cooperation of a public/private partnership to succeed. Success in homebuilding doesn’t just come from superior production and technological advancements; it also includes a sense of community that focuses on larger socioeconomic needs creating communities that enhance the basic needs and welfare of society.

Gerardo de Nicolás is CEO of Homex

The choices we make

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Life is all about the choices we make. Late in 2006, we made the choice to expand the energy presence of Renova Group beyond Russia to Europe and established Avelar Energy, headquartered in Zurich.  Our initial choice of industrial focus was Italy, with its second largest continental consumption of gas and very hydrocarbon-based energy structure.

The original logic was to focus both on conventional energy, centered around gas and power, and renewable energy, initially centered on wind. Both concepts evolved over time. In conventional energy, we have made a decision to avoid a common path of low-WACC utilities, and were very discriminative about entering into expensive infrastructure assets. Instead, we sourced gas and power from existing capacities, focused on delivering structured products to our medium-size customers, less of a target for larger competitors. We were building only what made economic sense and what would be strategically important, which in our case was some gas-fired power generation and gas storage assets.

In renewable energy, we quickly realised that our ambition to build scale in wind was seriously hindered by two very important market realities. First, the wind market became quite mature by 2006 – 2007, bringing in large utilities and, as a consequence, bidding up prices of not only finished parks but also projects in early stage of development. Second, the authorisation process for medium- to large-scale wind installations (50Mw+) in the Italian market took substantially longer than a startup (which we were at that time) could afford. On the other hand, the solar (PV) market was in its infancy, enjoying a highly simplified authorisation process, a fixed tariff, and was overlooked by our competitors. All of it sounded very attractive, assuming we could create an effective business model.

 2009 was a very difficult year for the business community around the world, the energy industry not excluded. The price of oil dropped, bringing down, through contract formulas, prices for natural gas in Europe. The price of electricity followed the gas trend. Banks froze project finance, a critical component of any energy development. We happened to use difficult times to become bigger and fundamentally stronger, growing business beyond USD 1 billion in revenues. More importantly, we established a very strong platform for further growth in 2010. Our results were based on several relatively simple decisions made in late 2008, in the course of commercial campaign for the next year, and early 2009.

We watched, with increasing skepticism, raising energy prices of the summer of 2008, and ultimately decided that the world of USD 140 oil, and everything that came with it, was not sustainable. We continued selling energy contracts to customers for 2009 delivery. By December 2008 the world was different, and we suddenly found ourselves with a highly profitable set of 2009 supply contracts amid a vastly different pricing environment.

As the market was getting more and more nervous, we put in place stricter risk management and credit risk guidelines. In the first half of 2009, we often had to make a difficult choice of turning down sizeable top-line opportunities if we felt they were accompanied by greater-than-the-policy credit risks. 

In assessing the solar value chain, we were not persuaded to invest into upstream – neither by skyrocketing polysilicon prices, nor by long panel delivery lead times of the first half of 2008. We were seeing from the ground that the abundant new panel manufacturing capacity had more and more difficulty transforming itself into solar installations. Banks somehow did not catch equity market enthusiasm for solar and were slow and careful to lend; network operators took their time connecting projects to the grid; communities were slow to approve large and intrusive photovoltaic fields. Change of tariff regime in Spain left the solar industry essentially in limbo, and we realized that the game of the next five years will be played in the downstream segment of the market, and the most attractive market for the next three years would be Italy, where we already had home field advantage. Pursuing the downstream strategy, we made a strategic investment into Kerself S.p.a., the Italian market leader in photovoltaic business.

These fundamental choices determined our results in 2009. We have managed, crossing our fingers, to reach our sales target in electricity and gas without being hit by significant customer defaults. Unlike pure upstream players in solar, we were not dealing with rapidly depreciating solar panel inventories and spare capacity. Consistent with the earlier decision, we developed and profitably sold 80Mw of wind assets. And we went forward with developing our key projects.

In conventional business, we continue to build a business model which would be profitable irrespective of the direction of the underlying energy (electricity and gas) prices. This model implies operating control over several assets, allowing us to exploit the volatility. Our most important project in this area, a 1.4 Bcm depleted-field gas storage facility in southern Italy, has received critical environmental approvals in 2009 and will go into construction in 2010. Once it becomes operational in early 2012, we would be able to trade gas around summer-winter differentials, and lock spark spreads for our electricity contracts. Another very important project for us in conventional power is a 400Mw combined-cycle gas power plant, which we are building in partnership with Alpiq of Switzerland and which is scheduled to go into operations in December 2010.

In the solar business, we are very busy building the pipeline for solar parks across Southern Europe, most importantly in the Italian market. This is a very time-consuming process, requiring very local-level effort with communities, grid operator and regulators. In some respect, we like the distributed nature of the effort since it deters competition and makes our position ultimately quite defensible. Fortunately for us, these are the same locations where we are already present with our conventional-power projects. Our goal is to achieve 200-250MWp of installed capacity in Europe in the next two years and then take this credibility and expertise to the new markets.

With growth of the business come new choices and new challenges. Some of the questions we are facing today require quick answers, and would be fundamental for our further development.

The future of independent conventional power players in the not-yet-so-liberalised land of incumbents is difficult, and options are relatively limited. We are facing some critical tests for the governments in terms of their commitment to true liberalisation of the energy market in Europe. This commitment should manifest itself in some decisions about further privatisation of energy infrastructure and support of private investment into energy projects. One of the most important areas of required government support is permitting third-party access (TPA) exemptions. It is impossible to expect that private investors would be able to continue financing energy projects – LNG terminals, gas storage facilities, commercial power lines – without the prospect of being able to use it commercially (in the absence of TPA exemption an asset falls under regulated regime, which would fail cost-of-capital tests of most private investors).
Government support aside, our success would depend on whether we can find defensible niches for growth and gather strength in the next two to three years without facing a direct competition of balance sheets. It means offering highly customised energy solutions to a targeted customer segment, being very creative in financing our balance sheet commitments, growing scale by entering adjacent segments, fortifying ourselves with selected infrastructure investments and ultimately adapting very, very quickly.

 Despite all the excitement, solar business is still far from securing its place as a legitimate part of the energy menu of tomorrow. It is expensive, offers relatively low intensity and is confined to a specific set of geographies. The beauty of solar lays in its abundance (the world does not need anything else if we crack the technology and business model) and predictability. However, strategic viability of the solar business is as of yet far from certain and depends on a dynamic interplay between two seemingly unrelated processes. On one hand, the political discussions that took place in Copenhagen at the end of 2009 will determine the scope of government support for the renewable energy industry in general and solar in particular. (We, of course, remain highly optimistic.) On the other hand, technological progress, taking place around the world, may deem such support less and less relevant in a short period of time. (And we are carefully watching new technologies and applications coming to the market.) At a more tactical level, in the next two years success in the solar business will depend on a correct judgment on the level of post-2010 tariffs in Europe and strategic choice of the new big market.

As in 2008, we smell a distinct aroma of discontinuity, bringing with it an opportunity for change. While we are now much bigger than in early 2008, we still retain the most important source of competitive advantage – the ability to sense such opportunities and act on them quickly.  

Igor Akhmerov is CEO of Avelar Energy

Making an African brand global

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The financial services industry in Ghana was for a long time dominated by western banking practices and procedures which could not meet the needs of SMEs as a result of the cumbersome processes. This was because training in banking was deeply rooted in the western syllabus and hence the western way of financial practices. Also in Ghana, the 1990s were characterised by bleakness in the banking and finance industry. Banks were failing in their core activity of making loans accessible to the informal business sector.

This story however changed when in 1997, through the rare partnership of two men, the financial services landscape in Ghana experienced a radical revolution with the establishment of UT Financial Services. For the first time in Ghana an indigenous son defied all banking norms and demystified access to loans to the ordinary man and woman. In addition to providing accessibility, UT broke the jinx that governed the disbursement of loans such as having to wait for several weeks, sometimes months in order to receive whatever loans one had applied for.

UT Financial Services Ltd (formerly Unique Trust Financial Services) is the leading non bank financial institution in Ghana specialising in loans and investment. The company has for the past decade committed itself to serving the needs of indigenous traders and business entities not being catered for by the traditional banks through simple, fast and a very efficient business model. This resonates with the desire of the shareholders to create an entity set apart by its nonpareil standards of integrity in dealing with clients and stakeholders.

In the words of Moky Makura, the prolific TV presenter, producer, writer, actress and businesswoman: “what seems to make UT so successful is the company’s strategy of applying African solutions to an African environment. Commercial Banks in Ghana have tended to apply western standards when they lend money looking for things like collateral, business plans and fixed business addresses. But like much of the rest of Africa, well over 70 percent of Ghana’s business takes place in the informal sector; so UT threw out the rule book.”

The initial focus of UT was centered on servicing the “unbanked” informal sector, but over the past few years, UT’s services have extended to cover the formal sector and providing stop gap loans and trade financing to SMEs.
What sets UT apart in the financial services market is the solid business structure and flexibility that allows for tailoring products to meet the specific needs of clients hence the tag line “they say no, we say why not”.

The core business is to provide credit for businesses and individuals to expand their business, import and export financing and social loans for salaried workers and take care of other social needs. In addition to this, the company has a high yielding investment instrument which provides clients with carefully selected investment products that balance risk with robust reward.

UT’s vision is “to be recognised as Africa’s leading provider of unique financial solutions”.

In all dealings, UT is dedicated to providing timely and effective financial assistance to the customer. 

The company which started with a staff of four in a one room office in the Central Business District of Accra now boasts a diverse and highly skilled workforce of about 600 spread over 20 branches in Ghana.

Performance highlights

Under the dynamic leadership of the visionary CEO, Prince Kofi Amoabeng, (described by the media as the “Prince of Corporate Ghana), UT has won a number of awards. UT has been awarded the 5th Best Company, 2nd Best Financial and Indigenous Business for 2008 as well the Best Non-Bank Financial Institution for four consecutive years (2003, 2004, 2005 and 2008) by the Ghana Investment Promotion Centre (GIPC) in its Club 100 rankings which represent the top 100 companies in Ghana. In 2006 the company was recognised as the Best Financial Institution and 2nd Best Overall Company in Ghana. In the same year the CEO received the Marketing Man of the Year Award by the Chartered Institute of Marketing (CIMG). During the celebration of Ghana’s 50th anniversary in 2007, UT won a Gold Award for its contribution to the Social and Economic Development of Ghana.

In March 2008, UT won the second Most Respected Company, while the CEO won the most Respected CEO in the maiden edition of Ghana’s Most Respected CEO and Company Awards organised by PricewaterhouseCoopers.

CSR

Wealth creation at UT Financial Services is not just about how much profit we make, but also how much we are able to impact on the community in which we operate. Our social responsibility therefore is about being responsive to the needs of our people and contributing significantly to the social and economic development of the disadvantaged in society.

Apart from prompt and timely payment of corporate and income tax, we also make significant donations and sponsorships to the under-privileged sectors of society.

We have been committed to improving health, education and the social wellbeing of the ordinary and under privileged in society. UT has over the past four years spent five percent of our profit before tax on our social responsibility. UT has a unique Yuletide outreach programme where the chairman of the board leads a team of staff volunteers to distribute food parcels to the street children and homeless on Christmas day.

UT makes donations to the Ghana Society for the Blind, Ghana Heart Foundation, Hope for Kids and the Ghana National Trust Fund among other charities.

UT today

From humble beginnings as a privately owned company in Ghana, UT in 2008 evolved into a publicly owned company with shares listed and actively traded on the Ghana Stock Exchange, in one of the most successful IPOs to date in Ghana. The IPO was recently awarded the 2nd Best in Africa by the New York Stock Exchange.

– UT Financial Services has over the past two years opened branches in other countries in line with its vision of having a presence in five countries outside Ghana by 2010 – UT is taking an African brand global.

– UT Financial Services (Germany): In 2008, UT started operations in Hamburg, Germany as UT Logistics GmbH. The major products being offered were acquisition and registration of land, building supervision and as well providing travel assistance to Ghanaians in the diaspora.

– UT Financial Services (Nigeria): At the beginning of 2009, UT obtained a license to operate and replicate its services in Nigeria, thus serving the needs of indigenous traders or business entities not being catered for by the traditional banks, by providing stop gap loans and trade financing to SMEs.

UT Holdings
Apart from UT Financial Services the UT Group comprises of the following
operating companies:

UT Logistics : UT Logistics is the trading and logistics arm of UT Holdings. The company undertakes clearing and warehousing business activities.  UT Logistics, in addition, trades in soft commodities and provides collateral management services.

They are also into freight forwarding and clearing of goods.

UT Bank : A recent acquisition majority shares in BPI Bank Ghana Ltd gave birth
to UT Bank which operates as a licensed universal banking institution offering a
suite of banking products and services to customers.

UT Properties: This company offers real estate services such as valuations and funding options. It offers advisory and consulting services aimed at acquisition, development and management of land and real estate in Ghana.

UT Collections: This is the debt collection subsidiary of UT Holdings and specialises in the collection, management and recovery of debt. The company provides innovative and professional debt collection services and receivable solutions across a broad spectrum of industries.