Diamond Finance

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About Diamond Finance

2011 2012 2013 2014F

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Clients:Founded in 2011, Diamond Finance is a Non-Banking Financial Institution (NBFI) which provides loans and currency exchange services to support SMEs and individuals’ financial needs.

NBFIs in Mongolia are regulated by the Financial Regulatory Commission and offer loan products to SMEs and individuals at competitive rates, and serve as an alternative to other financial institutions such as Banks.

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Loan Type Avg. Interest Rate (%) Avg. Amount (US$)

Consumer Loan 42% 4,235

Short Term Loan 48% 46,415

Portfolio Structure by Collateral:

Apartment Collateralized

Car Collateralized

Other CollateralTypical Loan Collateralization: 200%

Lending Activity

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Maximum Amount MNT 250,000,000 (US$175,000)

Maturity 1 - 24 months

Annual Initial Interest Rate 37.2% - 44.4%

Loan Analysis - Analysis of business - Analysis of proposed project

Repayment Monthly interest paymentsFlexible principle payments possible

Collateral Immovable Property or other assets

Collateral Amount 150% of Loan Amount

Disbursement Cash or bank transfer

Typical loan types:

SME loan

Micro loan

Products: Business Loan

“typically for Micro and SME business owners and enterprises that operate in manufacturing, trade, services or agricultural sectors.”

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“for individuals and legal entities that have stable income through operations in manufacturing, trade, services or agricultural sectors.”


Maturity 1 - 18 months

Annual Initial Interest Rate 18% - 48%

Loan Analysis- Credit analysis- Income and employment verification- Total loan < 60% net salary

Repayment Monthly interest paymentsFlexible principal payments possible

Collateral Immovable Property, salary

Collateral Amount 165% Cover


Typical loan types:

Standard consumer loan

Employee consumer loan

Products: Consumer Loan

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Maturity 1 – 12 months

Annual Initial Interest Rate 45.6% - 54%

Loan Analysis - Analysis of available collateral- Analysis of stable income

Repayment Monthly interest paymentsFlexible principal payments possible

Collateral Immovable Property, Automobile, Yard, Other

Collateral Amount 120-150% of Loan Amount


“high-yield loans for individuals with short term cash flow needs”

Typical loan types:

Apartment collateralized

Car title loan

Car collateralized

Old car leasing

Yard collateralized

Products: Short Term Loan

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Name S. Sumiyadorj

Business Grocery shopping center

Loan amount MNT10,000,000 (US$5,700)

Monthly interest rate 4.0%

Collateral Vehicle

Name D. Myagmarsuren

Business Physical Therapy



Collateral Service Center

Our Clients

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Name G. Javkhlantugs

Business Construction Manufacturing



Collateral Apartments

Name D. Nyamsuren

Business Lump sugar manufacturing



Collateral Apartments

Our Clients

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Key Figures 12nd June 2014

Total Assets US$4.8 million

Gross Loan Portfolio US$4.2 million

Owners Equity US$1.4 million

Return on Equity 41%

Number of Borrowers 70

Average Maturity 6 months

Portfolio at Risk > 180 Days 11%

Ownership Structure: Asia Pacific Investment Partners LLC – 100%

Current Position

Collateral by Type: Collateral by Cover:

Apartment Car

Wages & other

1.0x-1.5x

1.6x-2.0x

2.1x-2.5x

2.6x- more

0-10 mil MNT10-50 mil MNT50-100 mil MNT100-150 mil MNT150-200 mil MNT200-250 mil MNT

Loan Size:

Total collateral value: MNT6,980m (US$4m) Total loan portfolio: MNT2,906m (US$1.65m)

100% of Our Portfolio is Secured

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INVESTMENT CASE

CORPORATE GOVERNANCE

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Origination

Initial Application

Credit review- 2 step process

Loan approval Ongoing Monitoring

Direct and indirect Marketing & Advertisement

Loan reconstruction

Client referral

Loan officer interview with Customer about:

Business operation &

Collateral Diamond loan

conditions Required

materials

Physical check of the collateral

Physical check of business operation

Loan application analysis

Prepare proposal

Introduce the proposal to the Credit Committee (CEO, CCO, CFO, 2 other loan officers )

Credit committee checks if everything is in accordance with Mongolian laws, regulations & Diamond Finance internal loan policies

2nd review of client’s repayment ability

Final approval of each loan by APIP senior Management

Finance department checks for the contract completeness before issuing the cash

Regular review of NPLs

Physical check of business and asset every 3 or 6 months depending on the loan product

Monthly interview with the client regarding their business operation and loan performance

Reporting to APIP senior Management on any problem loans

Collateral Enquiry Review of borrower

credit history Financial

Statements /Projections

Our Loan Approval Process

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Byambajav B. CEO

Enkh-Amgalan B. Loan Officer Oyuntuul B

Accountant

Enkhtogoo G. CCO

Nominchimeg R.CFO

Oyunbileg B. Teller

Ganzorig P. Loan Officer Tsolmonchimeg L.

Accountant

Nanzaddulam BLoan Officer

Total Employees: 9 with total 35+ years experiences in Micro Finance industry

Organizational Structure

APIP Management & Board of Directors

Mr. Byambajav is the CEO of the company overseeing daily operations, the credit committee and managing

public relations

He started his career at Khan Bank in 2003 as an Auditor where he oversaw 65 branches and detected 800

million MNT in misstatements due to bank officers’ errors or fraud. He became Senior Auditor later that

year.

In 2004, he joined Credit Mongol as a Senior Auditor and in 2006, he was promoted to CFO where he was

in charge of daily financial operations, monitoring and preparing the accounting policies manual and

implemented the accounting information and bonus systems. He also supervised a 1.5 million Euro

Microcredit Line mutual project between KFW, the Mongolian government and Credit Mongol, as well as

successfully leading a project team for international funding organizations such as Planet Finance, Oiko

Credit, BlueOrchard, Kiva, Developing World Market and Symbiotics.

He attended high level Microfinance conferences as a company representative in 2008 and 2010.

Mr. Byambajav is a MBA from University of Humanities and pursued his Bachelors degree in Statistics and

Economics from National University of Mongolia.

Byambajav Bandi, CEO

Management Biographies

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Mr.Enkhtogoo joined Diamond Finance in 2011 as its Chief Credit Officer and is in charge of marketing

strategy, daily credit operations and risk management.

From 2004-2011 he worked at Credit Mongol NBFI LLC as a Loan officer, Internal Auditor, Finance Manager,

Branch Director and Risk Manager. During his employment with Credit Mongol, he successfully prepared

and implemented loan policies and procedures, and received awards several times for the profit he

generated as well as for his work in lowering credit risk and NPLs.

Mr. Enkhtogoo graduated from Mongol Business School with a Bachelors of Tax audit.

Enkhtogoo Gombosuren, CCO

Ms. Nominchimeg is the Chief Financial Officer of the company and is responsible for all financial operations.

Before joining Diamond Finance, she worked at Deloitte as an audit and advisory associate and performed

audit and commercial due diligence work for clients in various sectors including; security, mining and

banking. She was transferred from Tavan Bogd Cosmetics as a foreign relations manager to JV of Tavan Bogd

Group and Marubeni corporation, where she implemented internal organizational and labor policies

effectively as a HR manager.

Ms. Nominchimeg is a Business Mentor at Youth Business Mongolia, supporting young entrepreneurs in

Mongolia.

She graduated from Colorado State University with a Bachelors in Accounting and Business Administration.

Nominchimeg Rinchinjugder, CFO

Management Biographies

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Group Structure

Diamond Finance LLC (“DF LLC”) is the operating company for

Diamond Finance NBFI

DF LLC is a wholly owned subsidiary of Asia Pacific Finance LLC, with

its ultimate holding company being Asia Pacific Investment Partners

Limited HK (“APIP Group”)

Diamond Finance Limited (HK) raises third party debt financing and

provides the proceeds to DF LLC

Board of Directors and Governance

The Board of Directors of APIP oversee the operation of Diamond

Finance as part of their broader Group oversight responsibilities

Lee Cashell is the sole director of APF LLC and Byambajav Bandi is

the sole director of DF LLC. Mr Cashell is the CEO and a director of

APIP Group, and Mr Bandi is CEO of DF LLC

There are no special shareholder agreements within the entities and

the company charters can be provided if required

Asia Pacific Finance LLC (Mongolia)

Diamond Finance LLC

(Mongolia)

Asia Pacific Investment

Partners Limited (HK)

100% 100%

Diamond Finance Limited

(HK)

100%

Intercompany loans

Shareholder Overview

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Do’s

Focus on credit/repayment

Pay attention to market fundamentals

Separate loan origination and approval

Emphasize security and collateral value

Take physical possession of collateral

Actively monitor every loan

Evaluate Loan officer performance over the life of

the loan

Monitor portfolio exposure to:

o Currency

o Underlying industry

o Loan size

Don’ts

Approve every loan

Focus on fees and higher rates at expense of credit

Ignore underlying collateral value

Ignore cashflow and ability to repay

Believe optimistic borrower projections

Lend long

Compensate staff for loan volume

Our Credit Standards

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INVESTMENT CASE

MACROECONOMIC FUNDAMENTALS

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Source: World Bank 2013

2010 2011 2012 2013 2014 2015 20160%

5%

10%

15%

20%

25%

Mongolia Global

Observed and Forecast Change in GDP

Although Mongolian GDP growth has slowed due to the poor performance of the mining sector, it still remains one of the highest growth economies globally

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20132014

While government policy has attempted to control inflation, it remains high due to exchange rate movements and Mongolia’s reliance on imports. Despite this, Diamond Finance’s monthly rates have remained relatively constant

Inflation

Source: World Bank 2013

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2010 2011 2012 20130

50

100

150

200

250

300

350

400

450NBFI Asset (bil. MNT)

2010 2011 2012 20130

50

100

150

200

250

300

Number of NBFIs operating in the market

Mongolian NBFI Market Growth

Despite the economic down turn over the last couple years, NBFI Assets and the number of NBFIs operating in the market are growing due to strong demand

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INVESTMENT CASE

BUSINESS PLAN

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24%

42%

48%

Average Loan Interest Rate

Banks NBFIs Diamond Finance

Comparative Performance

POTENTIAL to GROW due to:

Strong brand name

Powerful shareholder base

International investor network

Experienced human resources in the investment

banking and micro finance industries

Significant demand from borrowers

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Portfolio Yield Net Income

43%

22%

36%

5%

Portfolio Yield and Net Profit as a Percentage of Total Gross Loan Port-

folio

Diamond Global

Superior Cost Structure and Higher Returns

Diamond Finance Global Average

Operating expense

7% 21%

Funding Ex-pense

2% 7%

Provision Expense

2% 2%

7%

21%2%

7%

2%

2%

Costs as Percentage of Total Asset

Operating expense Funding Expense Provision Expense

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2014F 2015F 2016F0

1,000

2,000

3,000

4,000

5,000

6,000

Net Profit Gross Loan Portfolio

Growth Forecast (Thousand USD)

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INVESTMENT CASE

HISTORICAL FINANCIAL PERFORMANCE

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Description Audited 2011 (USD)

Audited 2012 (USD)

Audited 2013 (USD)

Asset 324,249 971,673 2,341,352

Liabilities 2,256 478,068 1,421,970*

Owners Equity 321,993 493,606 919,326

Revenue 69,700 338,613 817,948

Expense 39,707 167,001 414,880

Net Profit 29,993 171,613 403,068

MNT/USD 0.00073 0.00073 0.00062

* Includes a 600 million MNT shareholder loan that we are in the process of converting into equity

Financial Growth History

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Indicators 2011 2012 2013

Portfolio Yield 51.0% 63.7% 64.5%

- Provision expense ratio 0.9% 1.2% 6.3%

- Funding expense ratio 0.1% 6.6% 8.1%

- Operating expense ratio* 25.5% 14.4% 7.2%

= Net margin 24.4% 41.5% 42.8%

ROE (net operating income + tax)) 18.6% 41.9% 62.6%

ROA (net operating income + tax)) 18.5% 26.3% 25.0%

* Because APIP is the parent company of Diamond Finance NBFI, our operating expense is lower

Profitability

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Indicators 2011 2012 2013

GLP Growth - 214% 165%

Liquidity ratio 12.1% 11.6% 19.0%

Debt/Equity ratio 0.0 0.9 1.5

Capital Adequacy Ratio 112.9% 57.5% 48.5%

Total lending activity (%portfolio in assets) 83% 83% 77%

Open Currency Position* - 19.1% 37.3%

% of portfolio lent in USD - 41% 22.8%

Loan loss reserve ratio 0.5% 0.9% 4.8%

* In 2011, Diamond Finance did not have any assets or liabilities in any foreign currencies however, starting from 2012, DF started borrowing USD funds. This ratio illustrates the foreign exchange risk of these liabilities.

Financial Management

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Items 2011 2012 2013

Operational Expense Ratio 25.5% 14.4% 7.2%

Cost/Income ratio 50.2% 41.3% 33.2%

Operational Self Sufficiency 192% 232% 232%

Financial Self Sufficiency 105% 178% 161%

Loan officer productivity (clients) 6 11 20

Loan officer productivity (USD) 88k 263k 586k

Staff productivity (clients) 3 6 8

Staff productivity (USD) 44k 132k 220k

Number of Staff 4 6 9

Number of loans* 19 33 53

Average loan size (MNT) * 19,387k 33,334k 54,883k

* at year end

Efficiency

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Loan size (US$)

Client number

Total loan size (US$)

Percentage based on

total value

Product type

# of loans

Amount by type (MNT)

Secured vs. Non-Secure

Government tender related

loans*

0-5.7k 20 38,934 2.36% Employee 10 22,549 Secured 5%

Short-Term 3 6,200

Consumer 7 10,185

5.7k-28.5k 11 181,925 11.03% Short-Term 10 174,154 Secured 9%

Consumer 1 7,771

28.5k-57k 14 653,509 39.64% Short-Term 13 614,104 Secured

0%

Consumer 1 39,406

57k-85.5k 2 160,141 9.71% Short-Term 2 160,141 Secured 100%

85.5k-114k 5 472,388 28.65% Short-Term 5 472,388 Secured 20%

114k-142.5k 1 141,804 8.6% Short-Term 1 141,804 Secured 100%

Total: 53 1,648,701 53 1,648,701

* The government tender related loan percentages are calculated based on the number of clients

Loan Portfolio Breakdown YE 2013

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Aging Amount due (US$) Delinquent Loans Collateral Cover Amount (US$)

1-90 23,354 1% 158,820

91-180 84,320 5% 204,668

181-360 900 0% 2,365

361- Up 56,721 3% 166,761

Total 165,293 9% 532,615

Notes

Due to political risks, and currency depreciation, our delinquent loan ratio increased from 5% to 9% in 2013. The biggest driver of this increase is due to the fact that the government is low in reserves and has delayed tender job accounts payables. Approximately two thirds of the total NPL amount is related to government budget issues.

We expect the government will pay all its payables and we will recover all of our related loan proceeds with no loss sustained.

Diamond Finance values its client relationships and tries its best to understand the clients’ situations, negotiate with them and allow a grace period before taking any actions through court.

NPLs as of YE 2013

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Process

1. We actively monitor our portfolio to identify problem situations before loans become delinquent2. Once a loan becomes past due, we call the borrower and send him/her a past due notice within a week 3. If we have not received a response after 10 days, the CCO and his team call the borrower on a weekly basis, visiting their home

and work to negotiate a resolution 4. Depending on the borrower’s situation, after six months or so, if we have not resolved the situation, the CEO will initiate a court

proceeding

Resolving Our NPLs

Performance

Throughout history we have only needed to take one borrower through the court system. This case is still proceeding. The remainder of our loans have been repaid in full.

We have over MNT294 million market price collateral cover for the MNT100 million loan in the court system and expect full recovery of our principal.

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INVESTMENT CASE

INVESTMENT OPPORTUNITY

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Competitive Advantage

Superior Returns and High-Quality Assets

Favorable Macroeconomic Conditions

35+ Years Management Experience

Active Oversight by Senior Credit Committee

Advanced Lending Technology

Powerful Management Information System (MIS)

Successful operating group as parent company, significantly reducing cost base

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Borrower Diamond Finance Limited, a company incorporated in Hong Kong and a wholly owned subsidiary of Asia Pacific Investment Partners Limited (APIP)

Lenders Individual lenders with a minimum loan size of US$50,000, increasing in multiples of US$10,000

Facility Up to US$3 million to be split into three (3) tranches of US$1 million

Term Two (2) years from the end of each tranche close

Repayment In full at the term of the Facility

Margin 1,300 bps per annum

Interest Period 6 months in arrears

Security Package Guaranteed by Asia Pacific Investment Partners HK

Governing Law and Jurisdiction Laws of Hong Kong and subject to the exclusive jurisdiction of Hong Kong courts

Timetable to Close of Second Tranche 4 to 6 weeks

Investment Opportunity

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Asia Pacific Investment Partners (“APIP”) is a Mongolia focused operating group that owns a number of subsidiaries related to property development, cement and financial services. Apart from our number of developments in both the commercial and residential sectors over the years, APIP has a strong asset base, which includes one of the largest and most highly valued land banks in the country and the only cement producing facility in the capital. Apart from our cement production and property development companies, APIP successfully manages a prudent lending business with significant collateralization and highly attractive rates. In addition, APIP owns a top tier brokerage and underwriting company.

The cement factory’s future long term growth is underpinned by a strategically placed limestone deposit and the land bank provides key sites for APIP’s ten year property development pipeline. To date, APIP has successfully designed, constructed, marketed, managed and fully sold five major residential and mixed-use developments in Ulaanbaatar. It is currently building its next two developments. The larger of the two is the the Olympic Residence, which is a mixed-use development with 97 luxury residential units and four floors of retail and leisure facilities. The second is the Village at Nukht; a 9,000 sqm plaza consisting of retail, F&B, office and entertainment venues.

APIP has also successfully obtained a securities and underwriting license and a non-banking financial institution license. Asia Pacific Securities is now one of the most active brokerage firms on the country’s burgeoning stock market and Diamond Finance is successfully lending to SMEs at up to 4.0% per month. APIP is forecast to return approximately US$ 33 million in net income for 2014.

The Guarantor

Other

Real Estate Development

Construction Services

Real Estate Agency Cement Production SME Lending Various

- Owns the land bank- Acts as the developer for all APIP projects

- Provides construction services to APL and 3rd party clients

- Sales and leasing services to APL and 3rd party customers- Property management services

- Produces and sells 80,000 tons of cement to MPCC and 3rd party customers

- Secured loans to small businesses and individuals

- Asia Pacific Securities- Held for rental income real estate- Other businesses

An integrated business model reduces operational risk and increases margin capture

2014E revenues (US$m)1:

13.0 4.3 3.0 7.9 2.8 1.6

% of Total: 40% 13% 9% 24% 9% 5%

Employees: 8 40 38 23 9 35

1Unconcolidated revenues, before inter-company consolidation eliminations; assumes USD:MNT exchange rate of 1,700

The Guarantor – Company Overview

FOR MORE INFORMATION

[email protected]

Diamond Finance

Business

Transcript of Diamond Finance