The Industrial Modernisation Centre (IMC), affiliated with the Ministry of Trade and Industry, has completed transferring the first six companies in the industrial sector to Union Capital to ink their restructuring plans, as part of a plan to save defaulting factories. The IMC now awaits obtaining the approval of its board of directors to begin funding them.
Ghada El-Gohary, head of financial services at the IMC and member of the board of directors at Misr Venture Capital, said that the centre is the body responsible for studying the case of defaulting loans to determine their ability to be reopened.
El-Gohary, who has 16 years of experience in the banking sector, told Daily News Egypt in an interview that the IMC set the strategy to support defaulting factories, which resulted in the establishment of Misr Venture Capital that aims to transfer three companies per month to the company.
How many faltering factories has the centre recorded during the last period?
The distressed factory inventories carried out by the IMC between 2013 and 2017 reached 871 companies. After studying them, we found out that only 74 of them have problems that can be solved.
What is the average financing for troubled companies?
The average financing for enterprises ranges from a minimum of EGP 1m to a maximum of EGP 15m to serve the largest number of factories. The allocations are expected to increase after the capital of Misr Venture Capital increases.
What are the mechanisms of financing troubled factories?
There are thee methods; through shareholding, lending, or murabaha. The perfect path is determined based on the financing need of each case.
In your opinion, what are the best funding mechanisms?
In most cases, the lending process is preferred as a way to finance the working capital cycle (buying production input) then to finance the production process through to the end of the cycle. This varies from an activity to another, as some cycles take three months only, while others take up to one year.
How does the IMC exit the factory following the end of the reopening process?
There are several methods of exit; either small and medium factories repurchase shares from Misr Venture Capital or a public offering is made through Nile Stock Exchange.
Why did the IMC not choose bank loans to end the problems of defaulting factories?
The IMC intended to head to the banking sector to resolve the problems of defaulting factories. But we changed our plan since most factories are already in debt to banks.
Hence, we decided to deal with non-banking financial institutions to help factories. This was the reason behind establishing Misr Venture Capital in May last year with a paid-up capital of EGP 150m and authorised capital of EGP 1bn.
The IMC, Ayady for Investment and Development, National Investment Bank, and Tahya Misr Fund are all shareholders in Misr Venture Capital, which received its license to operate in December last year.
What are the IMC’s basic criteria to finance defaulting factories?
There is a basic criterion for reopening factories within the private sector, as it is difficult to deal with public sector factories due to their large size. The priority is for labour-intensive factories with the aim of gradually reducing unemployment rates in the case the factories go back into production. In addition, the priority is given to factories that use Egyptian raw materials or produce market-needed output, on the condition that they face no judicial verdicts nor suffer capital erosion.
The factory must also be operational, not defaulted or suspended, as it will be hard to reopen totally closed factories as most of them have exited the market, next to the possibility of depreciation of the machines, in addition to a large volume of debts.
How does the reopening of faltering factories happen?
It begins with the assignment of a technical and financial team from the IMC. The team then measures the course and the production capacity of the factories in addition to the production volume and the condition of the machines. The financial team analyses the budgets of the factories, prepares a complete report and transforms the consulting company to develop the restructuring plan and then transfer it to the board of directors of Misr Venture Capital for final approval.
Each factory differs from the other when it comes to resolving default problems. However, in the end, a complete plan is put in place to restructure the factories, which may require taking some procedures, for example, the appointment of a financial manager in the factory, or a marketing director, or members of the boards of directors of factories to complete the restructuring process.
How long does it take for the IMC to study the status of defaulting factories?
The IMC takes about two weeks to study the condition of a factory, if they promptly provide the required documents and data and cooperate with the centre as soon as possible.
We ask the factories to cooperate with the IMC through the delivery of the required documents as soon as possible and to respond to the queries of the working team so as to be able to work to reopen the factories in the most appropriate manner and the soonest time.
What is the total number of faltering factories that the centre recorded during the current year?
The centre receives a number of defaults each month, which are difficult to reduce to specific numbers, especially that some of them can be re-operated while others cannot.
What are the main factors leading to the failure of factories?
The bad management of financial resources is the main reason. Most of the defaults are due to the misuse of the financing provided to the company. For example, some factories receive short term financing but use them to buy machines that are financed by long term financing or vice versa.
What are the services provided by the IMC to help solve the problems of faltering factories?
The centre employs all its technical and financial services to support these factories in the process of restructuring through the provision of services, such as the preparation of feasibility studies, the development of an accounting system for the companies, the development of a cost and pricing system, quality certificates, in addition to various technical and marketing services.
Does the IMC benefit from Central Bank of Egypt (CBE) programmes to finance small and medium enterprises?
Certainly, Misr Venture Capital seeks to cooperate with the CBE to benefit from the SME initiative.