RM500mil loan facility for high-performing companies

Source From (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2012/7/7/business/11619141&sec=business

Published: July 07, 2012

PETALING JAYA: Teraju (Unit Peneraju Agenda Bumiputera) and SME Bank have created a RM500mil loan facility to provide financing at below market rates to high-performing bumiputera companies in a bid to accelerate their growth.

Minister in the Prime Minister's Department Tan Sri Nor Mohamed Yakcop told reporters at a briefing that the loan, dubbed the TeraS Fund, offered up to RM20mil per company and was open to small and medium enterprises under Teraju's TeraS programme.

The TeraS programme, launched last July, aims to identify 1,100 high-performing bumiputera firms with potential for growth. It has to date selected 130 companies.

Under the fund, companies may seek financing for either working capital or asset purchases, with the range set at RM1mil to RM10mil for working capital and RM1mil to RM20mil for asset purchases.
In terms of margins, the fund may finance up to 100% of working capital needs and 90% for asset purchases.

No collateral is required for companies applying for working capital, but the purchased asset would serve as collateral in the second category.

The fund, which is based on the Islamic principle of Ibra, charges a 5% profit rate per annum instead of interest for working capital loans, although good paymasters would be incentivised with a lower rate of 4%.

The loan for asset purchases, meanwhile, is charged at the prevailing base financing rate, which currently stood at 6.6%.

Despite the lack of a requirement for collateral, Nor Mohamed said applicants would be vetted thoroughly to ensure economic viability and their ability to repay the loan.

Teraju CEO Husni Salleh said the criteria included good credit standing, a growth test, and three-year track record, on top of a three- to five-star rating the companies must acquire from SME Corp's SME Competitiveness Rating for Enhancement, also known as Score.

Explaining the rationale for the fund, he said access to financing from mainstream financial institutions for these firms could prove difficult, especially if they were in the growth phase.

“Most banks require one to one. This means if you need a loan of RM1mil, you have to put RM1mil in the bank as a fixed deposit. Growth companies find it hard to get financing this way,” he said.

Teraju, which was set up last year to spearhead initiatives to drive the bumiputera agenda under the Economic Transformation Programme, would inject RM50mil into the fund as risk capital, with the rest to come from SME Bank.

The start-up capital, Husni said, was essential as a buffer against non-performing loans, which were quite high among SMEs.

Meanwhile, Nor Mohamed also announced that the RM2bil facilitation fund for infrastructure projects jointly set up by Teraju and the Public Private Partnership Unit last year would see a RM600mil portion carved out to finance smaller projects.

In addition, the country's five economic corridors have been roped in, namely the Northern Corridor Economic Region, Iskandar Malaysia, East Coast Economic Region, Sarawak Corridor of Renewable Energy and Sabah Development Corridor.

Previously available for projects with a minimum contract value of RM20mil, the threshold has been reduced to RM5mil based on feedback with the respective corridor development agencies.
This facility is capped at RM30mil per project.

Of the RM600mil, RM100mil would be allocated to each of the corridors, with the remaining RM100mil to be managed by Teraju for non-corridor projects.

“One of the advantages of leveraging on the corridors is that they understand the companies and industries operating in their regions and what they need to succeed,” Nor Mohamed said.