OTO Finance

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26428
Company name	PT Summit Oto Finance
Country	Indonesia
Sector	Finance & Insurance
Environmental category	C
Department	Global Financial Markets Group
Status	Active

Date SPI disclosed	March 26, 2008
Projected board date	May 16, 2008
Previous Events	Invested: December 2, 2008 Signed: September 26, 2008 Approved: July 22, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed project consists of an IFC loan in fixed rate Indonesian Rupiah to PT. Summit Oto Finance (SOF or the company), a motorcycle finance company based in Jakarta, Indonesia, and part of Sumitomo Corporation Group. The proposed investment is consistent with all aspects of IFC’s strategy. It would represent a stable source of funding which would help SOF to:

- expand its motorcycle financing activities to low income consumers,
- diversify its funding base, and
- reduce interest rate risks and better match its assets and liabilities.

Project sponsor and major shareholders of project company

Sumitomo Corporation:

Sumitomo Corporation owns 99.5% of the company with direct ownership of 85% and indirect ownership through PT. Sumitomo Indonesia and PT. Summit Auto Group with 10.0% and 4.5% ownership respectively. Sumitomo is an integrated trading company which was established in Japan in 1919 as Osaka Hokko Kaisha Ltd., with a capital of 35 million yen ($300,000). In 1978 the company adopted the English company name “Sumitomo Corporation”. The company is now listed in Osaka, Tokyo and Nagoya stock exchanges.

As of March 2007, financial institutions own 44.4% of Sumitomo Corporation, followed by foreign corporations (33.6%), other corporations (10.8%), securities firms (2.5%), and individual and others (8.7%).

In Indonesia, Sumitomo operates under its subsidiary PT. Sumitomo Indonesia, which has two offices in Jakarta and Surabaya. Additionally, Sumitomo invests through its principal subsidiaries and associated companies.

PT. Sinar Mas Multiartha, Tbk:

PT Sinar Mas owns a stake of 0.3 % in SOF, a residual stake following the exit of Sinar Mas from its participation in SOF. In 1990, PT Sinar Mas Tunggal (SMM) used to own 30% of SOF, but subsequent to the financial crisis in 1997, at the end of 2002 and in early 2003, Sumitomo Corporation injected capital to revive SOF, and changed its business focus from corporate leasing to motorcycles financing. Since SMM did not inject capital at that time, their shares became diluted.

Djohan Marzuki:

Djohan Marzuki is currently the President Director of SOF and owns 0.2% of the company. He joined SOF in 2005 as a President Director. From 1994 until present, Mr. Marzuki is also a member of the senior management of PT. Oto Multiartha and PT Summit Auto Group, both Sumitomo’s subsidiaries.

Total project cost and amount and nature of IFC's investment

The proposed project consists of an IFC loan of up to $45 million equivalent in fixed rate Indonesian Rupiah to SOF. The Loan will be a senior loan secured in full by eligible receivables. The proposed investment will represent a stable source of funding to SOF.

Location of project and description of site

SOF’s head office is in Jakarta, Indonesia. SOF has 76 branch offices located in Java, Sumatra, Sulawesi and Kalimantan. Additionally, SOF also collaborates with PT Pos Indonesia (Pos) and Bank Rakyat Indonesia (BRI) to allow its customers to pay their installment at Pos and BRI branches.

Anticipated development impact of the project

Strengthening the Micro and Small Business Sector:

A large number of motorcycle owners use these as part of their SME/ micro businesses as an efficient mode of transportation to deliver goods and services. The project will facilitate the increase of motorcycle financing available to SME/micro businesses which is necessary to expand their operations.

Deepening NBFI Sector:

Indonesia’s financial sector is still heavily dominated by banks, which account for 80% of the financial sector assets. Indonesia needs to develop Non-Banking Financial Institutions (NBFI) sector, which can efficiently provide financing to consumers and SMEs by lowering operational costs and serving smaller customers than most banks target. Additionally, NBFIs can provide healthy competition to banks which will eventually further foster the development of the financial sector. The project will provide the company with long-term fixed rate financial resources for its growth. The support IFC provides to SOF will help it develop its own funding sources which can provide it with the ability to compete with the banking system on an ongoing basis and provide efficient, competitive financing to consumers.

Create Significant Job Opportunities:

The vast majority of motorcycles sold in Indonesia have a significant local value added component involving assembly within local factories as well as parts sourced from local suppliers. Not only does the project support job creation within the company, but also as the demand for motorcycles increases due to more availability of financing, the project will also indirectly support job creation along the value chain from local suppliers to distributors.

IFC's expected development contribution

Through the proposed investment, IFC will be playing an active role by supporting the company growth and diversifying SOF’s funding sources.

SOF has issued bonds and intends to continue issuing bonds in the future. However, to support its growth, SOF will need funding from different sources. Outside bonds, there are very limited sources of fixed rate rupiah financing. IFC’s $45 million equivalent, three-year, fixed rate Indonesian Rupiah loan will help the company achieve its financing target and diversify its funding sources, and improve the asset-liability structure and reduce the balance sheet risks.

Environmental and social issues - Category C

This project has been classified as a Category C project according to IFC’s Environmental and Social Review Procedure. No further review is required. The company is required to inform IFC in the event of any change in nature or scope of its business or operations.

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