Presentation outlining the financing criteria of the IDC, including the preparation of Business plans or bankable feasibility studies, marketing study and strategy, competitive analysis, development cost estimates, concept, design and product offering, operator identification, business structuring, financial feasibilities, legal requirements and potential constraints.

1. Technical Workshop on Concessioning and Investment in TFCA’s in SADC WHAT MAKES A PROJECT BANKABLE? Martin Potgieter, Tourism SBU
1 September 2014

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Introduction to IDC Tourism SBU Funding Activities
Sectors covered by SBU:
SBU Approach to development of these sectors
Accommodation: Hotels, guest houses, game lodges (efficiency of room size currently under review)
Niche Tourism: Adventure & sports tourism, business tourism, attractions (including theme parks and natural attractions), health tourism.
Exclusions: Stand alone restaurants (unless linked to an attraction), casinos and gambling facilities, property development, timeshare/fractional developments.
No direct funding of public sector → Require PPP
•Proactive development of projects in subsectors through identifying potential projects, project scoping, pre-feasibility and feasibility studies.
•Assessment and funding of applications as received
•Active participation and sponsorship of industry events (HICA, Sports Exhibitions, Imvelo)
Key elements to IDC’s funding approach outside RSA:
•Strategic alignment towards supporting development of business-oriented accommodation supply in ROA
•Funding outside RSA largely limited to debt funding
•Min. project sizes apply (R5m in SACU; USD3m in SADC; USD10m in ROA)

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Financing Criteria of the IDC
•Consider funding of start-ups, expansions and refurbishments
•Project must demonstrate significant development impact
•Security is tailored to the transaction and may include personal suretyship, corporate guarantees, bonds over fixed and movable assets, pledge and cession of shares
•Comprehensive business plan/bankable feasibility study must be submitted.
•Minimum local (RSA) content requirement, where >25% of value of IDC funding needs to consist of goods and services procured from RSA
•Appropriate funding structure, with general starting assumption being a 50/50 debt/equity ratio, and with equity having been secured.
•Maximum IDC exposure of overall funding requirement of 60%.

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The Business Plan / Bankable Feasibility Study
The Business Plan / Bankable Feasibility Study must:
•Be concise but comprehensive
•Cover all of the elements mentioned before, i.e.
•legal requirements;
•business structuring;
•marketing study;
•development cost estimation;
•developed concept, design and product offering;
•financial feasibility;
•competitive analysis;
•SWOT analysis;
•identified operator;
•HR, skills development and CSI plan; and
•Any other pertinent and material aspects to the relevant project.
•Must present a compelling investment case So let us unpack the above a little more…

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What Makes a Project Bankable?
Marketing Study, Competitive Analysis PLUS Strategy
•Does the study evidence a clear understanding of the target markets, their relevant buying patterns and decision-making processes, and potential factors that will impact demand from these markets?
•Does the study evidence a clear understanding of the competitive landscape, as well as provide reliable information regarding the existing and expected performance thereof?
•Does the business plan present a feasible and acceptable expected positioning and performance vis a vis the competitive landscape?
•Does the study provide a compelling enough understanding of the intended marketing strategy to be used, tailored to the relevant market and competitive landscape?
Over-reliance on generic national tourism statistics remains a risk. Data and information need to be as specific as possible to project.
Failure to frame competitive landscape appropriately, in global terms, also remains a risk. An understanding of global positioning is of critical importance.
A non-generic, specific understanding of the marketing channels that are most effective vis a vis the target market must be evidenced.

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What Makes a Project Bankable? (Cont.)
Development Cost Estimation PLUS Project Team
•Periodically updated to remove risk of cost escalations in the interim
•Are the costs prepared by a suitably qualified and experienced, and independent QS expert?
•Will the development be managed by a suitably qualified and experienced professional team?
•Use of fixed-cost contracts, and contractors that provide liability insurance and carry working capital flows?
Potential cost overruns remains a key concern, especially in ROA. The comprehensiveness of cost estimates and quality of professional team are key in managing this risk.
Concept, Design and Product Offering
•To which extent does the overall design and product offering support its intended positioning within the competitive landscape?
•Have the inclusions been properly motivated?
Operator
•If a sizeable project, has a reputable operator been appointed?
•Has the design, product offering, architectural plans and costings been discussed and signed-off by the identified operator?
•Will operator be agreeable to the required terms and conditions of the funding provided?
The impact of scope creep on capital cost & serviceability of funding needs to be managed.
Failure to involve operator early on in design and project development could lead to eventual complications

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What Makes a Project Bankable? (Cont.)
Legal Requirements
Business Structuring
•Is the structuring of shareholding and ownership sufficiently nimble to cater for funders’ needs, but not overly complicated?
•What ‘leakage’ is being introduced in terms of distributable cash flows, and what potential disincentives for investment are being created?
•Have all the appropriate project development steps been followed and completed?
•If not completed, what are the residual risks that remain, and the expected time for completion?
•Are all the licensing and approvals in place and aligned to actual project plan?
•Concession/PPP agreements; EIA and geotech studies; building approval; operating licenses
•Has the potential funder been provided with a bird’s eye view of the legal framework impacting on the relevant project, and how it is positioned to meet these?
TFCAs could involve complex legal frameworks, and the failure to frame these correctly for the funder could delay the assessment process significantly.
Funders will be very sensitive to any value extraction prior to the servicing of the funding provided.

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What Makes a Project Bankable? (Cont.)
Financial Feasibility
SWOT Analysis
•Does the SWOT analysis reflect a comprehensive and accurate understanding of the strengths, weakness, opportunities and threats of the business?
•Are these properly addressed in the rest of the business plan?
•Do the forecasts provide a clear and comprehensive view of the underlying assumptions used, especially relating to revenue line items and key cost components?
•How comprehensive and conservative are the forecasts?
•How do these forecasts reflect on the level of understanding and sensitivity present among the promoters regarding the key business risks
Overly optimistic forecasts raise concerns regarding level of understanding of business risks and market dynamics by promoters.
Complimenting the SWOT with a Risk Mitigation Matrix could be of value.
HR, CSI and Skills Development
•Are community participation and relevant CSI activities in the project appropriately structured, to add value to community and the project?
•Will the required skills necessary to deliver an appropriate guest experience be and remain available to the project?
Community participation should be meaningful and sensible. Availability of skills is a key business risk.

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Potential Constraints Experienced in Projects
•Suitability of the land for the intended development
•Challenges in raising the required equity contributions
•Support and buy-in from affected communities
•Onerous EIA and other regulatory requirements
•Availability of bulk infrastructure services (energy; water; sewage)
•Accessibility to key demand markets
•National, provincial and local government support and effectiveness of services provided
•Ability to secure debt funding, relating to ability to cede/assign concession or lease

10. Tourism SBU
Industrial Development Corporation
19 Fredman Drive, Sandown
PO Box 784055, Sandton, 2146
South Africa
Telephone (011) 269 3509
E-mail: lorrainema@idc.co.za
Website: www.idc.co.za
Thank you