PW -ZM/fl.\-. ' ' ttl'lF. U Y Q I A tt?blsD1^ ffR E ST R IC TE D
Report No. DB-55a
Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibHftv fnr its ntrorvn r rnmnpltenes The report may not be published nor may it be quoted as representing their views.
TMTVPMATT(hNAT&L BANK PC)R RECONSTRUCITION AND DTlVP.T.CPMVNT
INTPRNATTCONAT DEVELOPMENT ASSOCTATION Public Disclosure Authorized
APPRAISAL OF
DEVELOPMENT BANKC OF SINGAPORE LTD. Public Disclosure Authorized
December 29, 1969 Public Disclosure Authorized
Development Finance Companies Department Currency Equivalents
3$ 1 US$ C).327
US$ 1 ,S$ 3.06
S$ 1 million = US$327,000 APPRAISAL OF
DEVELOPMENT BANK OF SINGAPORE LTD.
CONTENTS
Page Paragrc+h
SUTPINARY i - ii i - vi.i
I. 2ITRODUCTION 1 - 2 1 - 2
II. ENVEIRONMENT 1 - 5 3 - 21
Recent Economic Growth 2 4 Industrial Expansion 2 - 5 - 8 Industrial Finance 2 - 9 9 - 21
III. ESTABLISHIDENT OF DBS 5 - 9 22 - 38
Formation 5 22 - 24 Scope of Operations 5 - 6 25 - 26 Ownership 6 - 7 27 - 30 Board of. Directors 7 31 Executive Committee 7 - 8 32 - 33 MlaInagement and Staff .8 - , 3) = 3
vT. RESOURCES ldrID PFOOR`TFOLIO -l 1 1 39l GP
Resources 9 - 39 - 4 Loan Portfolio taken over from 7B 10 - 11 42 - 46 Undisbursed EDB Commitments 11 47 EDBis Equity Portfolio 11 48
V. POLICIES AhD PROCEDuRES 12 - i4 49 - 58
Policies 12 - 13 49 53 Procedures 13 - 1 5 - 58
VI. DBS'S OPERATIONS l - 18 59 - 67
Summary of Operations 14 59 - 60 Long-term Lending Operations 15 - 16 61 Light lndustries Loans 16 62 Equity Investments 17 63 Conmercial Banlcing Operations 17 6L Guarantees 17 65 Underwriting Activities 17 66 Real Estate Operations 17 - 18 67 Page Paragraph
VII. FIqANCIAL RESULTS AND POSITION 18 - 20 68 - 7)4
]3alance Sheets 18 68 - 69 Profit and Loss Accounts 19 70 TCaxation 19 71 Rleserves Policy 19 72 73 Audit 20 74
VIII. FU'URE OPERATIONS 20 - 25 75 - 93
General Investment Outlook 20 75 ]3usiness Forecasts 20 - 23 76 - 83 ;Foreign Exchaige Risk 23 8)4 ]'rojected Profitability 23 85 87 J)ebt Service Coverage 24 88 P'rojected Balance Sheets 2h 89 _ 9].
TV r'(L'T TTcOTf(\T. 2O - 25 92 -9
This report is based on thle findinLgs of a mission to Singapore in August 1969 by Messrs. D. Gustafson and E.5dgar Su. LIST OF ANNEXES
1. .Economic Development Board 1A. 'Financial Assistance Granted by the Economic Development Board 2. List of 3areholders by Sectors as of June 30, 1969 3. Board of ELirectors, June 30. 1969 4. Organization Chart, zJuly 31, 1969 5. fLoans Assumed by DBS at September 1, 1968 6. 'Loans in Arrears as of June 30, 1969 7. lndisbursed Loan Commitments Assumnd bea DB)S as of September 1, 1968 8. Policv Statement 9. DBS's Cperations, September 1, 1968 - June 30, 1969 10. 31assification of TndustrilTLoans Approved Septemrber 1, 1968 to June 30, 1969 by Industrial Category, Period and Size 11. Equity Investments as of June 30, 1969 12. Balance Sheets, December 31,196 and Juurn 30, 1969 13. Profit & Loss Accounts, July 16 - December 31, 1968 and January 1 JunreJ 30, 1969 14. Projected Statements of Income, 1969 - 1973 P-rojected Balnce Sheets, December 31, 1969-1973 16. -..h Flow Fmrecast, 1969 - 1973 17. .W on C.sh Flow 'rojections S UTYMlARY
(i) The Development Bank of' Singapore Limited (DbS) was incorporated in July 1968. It has a wide scope of operations including commercial property de-velopment and some commercial banking activity but it primarily provides finance by way of long- and medium-term loans, equity participations or guarantees to manufacturing and other industries in Singapore. It took over the financing functions of the Economic Development Board (EDB) and assuned the Boardis loan portfolio. Its issued share capital amounts to s$ Io0 million, of which 49% is held by the Government, 33g by local and fo-reign financial institutions and 18% by private companies and individuals. DBS,'s share capital is supplemented by Government loans totalling S$ 125 million and a loan of US$ 10 million from the Asian Development Bank. The Kreditanstalt fur Wiederaufbau provided technical assistance in the establish- ment phase of DBS.
(ii) Singapore's manufacturing sector has been expanding at a rapid riate during the 196 0's. Manufacturing output tripled between 1961 and 1968 and future growth of the Singapore economy depends to a great extent on continued growth of the export-oriented manuacturing sector. DBS was established with the expectation that it would have a vital role in financing this anticipated growth.
(iii) DBS has a Board of twelve Directors, of which six represent the Government, three represent local banks and three represent foreign banks. The Chairman and President is Mr. Hon Sui Sen. The Executive Committee has four members including the Chairman, a Government representative, a foreign banker and an industrialist. DRq is well-organized and the staff. whiTh mostly young and therefore somewhat inexperienced, are competent and hard- working. In+trnril procedures are thorough and the work flow is efficient. Project appraisals are reasonably good, although some lack of engineering analysis is nntAceabh1eP The PvPec11'irt. flnmMit+ has exercised igidiart- ment in the investment decisions. DBS operates as an autonomous corporation andl its. dec:isions a-ro based onA -o11rlaswlas economi^ criteria.
(iv)Apcxi fro.l tshag porqforio transferredrnsP -- A4-- from 'B,nnnn0 DBS has, s collgitlitted.om41e,1 4tS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~44 1 ~ ~ - I. 'JlL I4J~ ~JJ.L VU.JLL'.%J LI 1I4V . L .. ±IVIIL JLWIJ.l~ W1,1i l ~U1,UiL., LI LJL 4.L D resources rapidly since it started operations. DBS's approvals during the period SepW-ue r 'I to DeIJ-ce.nbLter 31, -Ilg6 n4 o-_;|^AZo&- 3,2.1.llin T- the ~. dLa . J _LLLI JJ, ±71-Jv dILmou LVt A~. LUo JW 2) * ILL-LL.LU11. ±-11 uJle first half of 1969) its approvals amounted to 3$ 49 million and in the seco hal itCLA.J.isLo t to;_,,VU%;kJVUaUppr-VVU aUUtrLalU_ Projects alriuwbin UgLto -,$ million. Consequently, DBS's original resources consisting of its equity and Go--,Ove rnMent loans w1ll be mlore than fully ear marked for use by the etnd of 1969. The portfolio inherited from EDB is basically sound. The proJects app roved by DnB ar_ er wl div _g_ne _u m n . I s r . l sts i6ypruviDd by UDD are gerwrally well aiversliieai among inaus-Griai sectors. (v) For the next two years, DBS will need approximately S$ 250 million to
its-tr lonC%. o &nd lar.equivy C VpparovLoo .Jn adIJIna Ld.LJ1on woUrkin cap1LA credits wil'L be finanoed out of term deposits that DBS hopes to secure. It has obaLe4d a LoarL of MU$ 10 ML!U±±ULM-. firJom tLhe Ist_cU1 VeJ.Up11t7I1U JdilN nL and hopes to negotiate a loan of about US$ 2.5 million with Kreditanstalt fur VViedeCraCL-LU& in1 theR±r.&L few ITlonRbLbS. Internal cash generation -Ofor litU two years will total about S$ 30 million. The Government is expected to pro-vide additional lines oI credit, but DBBS is also consiaering ways of rais- ing additional funds from the market to help fill the resource gap in the next two years. DBS has applied -fora Bank loan of US$ 5 million for financing the private manufacturing sector.
(vi) DBS will have low operating costs but because of rather narrow spreads it will not be very profitable, in terms of return on equity, for the next few years. DBS pointed this fact out in its prospectus and stated that the primary objective of DBS was development of sound projects, not a high return on equity. Nevertheless, the private sector has strongly supported DBS and invested heavily in it. DBS has recently revised its interest rates upward and its charges are now in line with market rates in Singapore.
(vii) DBS is a well managed and dynamic company with an important role in Singapore. It is a suitable borrower for the recommended US$ 5 million loan, to bo used for imported goods ard servicos. This loan should follow the terms applied zenerally to loans to development finance - companies, including payment of the standard coirn±tment fee. The borrowing limit should be set on the basis that debt iwith an original maturity of one yoar or longer should not exceed three times not worth. It is recormnded that the free limit be set at US$ 150,000, with a limit of $1,2500,OCO on the aggregate amount which may be used for projects below that limit. On this basis the great bulk of the loan wi.l come to the Bank in the form of su-projects requiring the Bank's prior approval. A TWrr AISALAT v'F
Th1rflr'T .n~AlAhT A AfT? [Vl 0rTT~T'AflI'fTIA Th LizvUn hi,u r r OFr SiNGLEmUGAE LTD.
I. INTRODUCTION
1. In 1967 the Government of Singapore undertook consideration of a number of organiz.ational measures to facilitate industrial growtvh in thse country. One of these was the establishment of a long-term financing institution. In early 1968, a 49% Government-owned development finance company, the Develop- ment Bank of Singapore (DBS) was established. A Bank economic mission in 1968 confirmed the vital need of further industrialization for Singapor-e's future economic growth and it became clear that the new development bank would have a key role in this growth. 2. In view of this, the Bank informed the Government in June 1968 that it would explore the possibility of the Bank Group's financial assistance to DBS. In August the Government indicated that IBRD association with the DBS would be welcome and useful. DBS was relying on Kreditanstalt fur Wiederaufb)au (KfW) for general technical assistance in setting up the new bank and DBS commenced operations on September 1, 1968. Subsequently, Mr. Hon Sui Sen, President of DBS requested a $10 million line of credit from the Bank to help meet part of DBS's capital and foreign exchange requiremenits, and in this connection a mission visited DBS August 4-17, 1969. DBS then diecided to cut its request for a line of credit in half, in view of the cormmitment fee on the loan and DBS's uncertainty about the willLngness of SiingnnlOrn enterprises to negotiate loans involving foreign or international financial institutions.
II. THE ENVIRONIENT
3. Since its founding in the early part of the 19th century, Singapore has become the prin-cipal entrepot and commercial center serving the colntries of Southeast Asia. This is attributable to a combination of factors: a favorable geographic location, a fine natur-al harbor with excellent nort facilities, a free trade policy, the existence of a large and cosmopolitan mercha.nt cormmunity as welill as the existen…ce of effi…ient essential ancillary services such as banking, insurance and communication. However, with the rap increase i p 'at40on the trad it- er.trepot trade- alonee-o ld no longer support rapid economic growth nor absorb the increasing number of workers entering the labor market and in 1961 Singapore embarked on an aggressive program for industrialization. With no significant local market and no raw material resources, Singapore has of necessity begu,n to focus on export-oriented industries. The need to rapidly expand new industries has been heightened by thte accelerated withdrawal of the British defense establishment in Singapore, the impact of which in the past accounted for about i5%, of GNe. -2-
Recent Economic Growth
4. Between 1960 and 1967, Gross Domestic Product increased on average about 9% annually. Si`nce 1966, the first year of Singapore's lndeoendence, when the entrepot trade with Indonesia was resumed, the economy has been in a boomn situation. In 1966 and 1967 the growrin rate of the econo.,u in real terms reached 11%, and in 1968 it further advanced to 13%. The rate of growth was well above the average planned target of 7% per arn-num and the a-vrage annual increase of 6.6% experienced in the First Development Plan period, 19%61-1965. The major factors contr-ibuting to this growth were a rapid increase in entrepot trade, a surge of domestic exports, a sharp increase in tourists, and a sizeable increase in private investments in manufacturing industries, shipbuilding, ship repair and hotel construction.
Industrial Expansion
5. Since the First Development Plan was launched in 1961, Singapore has made remarkable progress on a vigorous industrialization program. Manufacturing output of firms employing 10 or more workers increased from S$ 518.4 million in 1961 to 5$ 1,687.2 million in 1968. About 1/3 of this output is exported. Manufacturing value added in the sector as a whole rose from 8.1% of GDP in 1961 to 12.1L% in 1968.
6. Fixed investment in the manufacturing sector (firms employing more than 10 Dersons) increased from about S$ 30 million a year in 1960 and 1961 tc over S$ 100 million in 1967 and seems to have risen sharply in 1968 to a record level of over S$ 150 million.
7. Singapore is ranidlv building a reputation as an ideal place in Nsiea for export-oriented industries in the Hongkong tradition. Singapore is valued by foreign invsestors for its political stability, readily trainable labor, excellent supportincg services, a stable currency, relative freedom from red tape that plagues other coulntri es in the area competing for investments.and generous financial incentives. Available incentives include 5-year tax holidays for pioneer industries, n7ite liberally given; a low tax rate (tck) on profits on exports for a minimum period of 15 years, accelerated deprecia- tion (up to lO%), douible deduction on advertising exnenses, duty-free import of equipment and raw materials, in some cases tariff protection, financial assist ance and technical services provi bhv EPRDand free ren ntriation of profits and capital,
growth record of the manufacturing sector has been impressive, 8. Although the 4 4.1- 4rIg 4 ~ -44-,.4-an,,+hannc+ nr nrmDnp J: _- not. in- he suurong feeling Ln Singapore 13 that n -h past perfon-ance is n dicative of future developments. Much greater accomplishments are expected.
Industrial Finance
9. EDB. The Economic Development Board, a Government agency which has had overall resconsibiiity for designing and administering all asuectus of Singapore's industrialization program, was the principal institutional sDurce of long-term industrial finance in Singapore before DBS was established, although the stock market has also been Dlaying an increasingly significant role in channeling new equity finance to industries and the commerclal ban'ks have financed the acquisition of fixed assets by rolling over short-term facilities and on occasion by extending term loans. -3-
10. In its seven years of operation (1962-1968), EDB made 308 loans totalling S$ 94 million, and 30 equity investments totalling S$ 41 million. The sectors which received the largest share of EDB's financing (in the form of loans and equity participations) are shipbuilding and hotels, 19% each of the total. Food and textile industries received 12; each, metal and enzineering 11% and the other industrial classifications received less than 10% of EDB Ts financing. EDB cheaged 7% for industrial loans and 8-1/2% for hire-nurchase and working capital loans extended to small industries via the commercial banks. EDB also granted guarantees for deferred pavment in resnect of plant, machinery and equipment. Mlore details on EDB's financial activities are given in Annex 1.
1 1. When DBE commrenced operations in September, 1968, EDB's financing fLunc- tions were discontinued. As a resul t Dn5S hecame the principal source of ned- and long-term financing for the private sector in Singapore.
12. Stock Exchange. The Stock Exchange serves both Singapore and PMalaysia. The nl-m1,er of' ComPanies 1s+sd on the E+Chrhig_e totalled 226 as of June 30, 19629 compared with 210 at the end of 1968. This total includes 96 industrial firns, 23 hotels and property companles, 57 rubber comp anies, 45 tin companies a.d 5 palm oil companies. The turnover of shares on the Stock Exchange for th.*.e I,rs+fP04o h I± was -76.1- "l±ion un.Lus karket val. S$P 5'74 ri.Ulion) 1 /O higher than in 1968 and 114% higher than in 1967, on an annual basis. Vigorous speculative acti-vity as been mairuy responsible for the e.panded uurnoverL
1 k Prices of all shares except rubber dropped during the first half of 1965. The riots on M4ay 13, 1969 in Malaysia caused the sharpest decline in several years. From January 1 to June 30, 1969, the average pDrice for industrials declined 6% (properties shares declined 23%, tin shares maintained the same level, hotel shares declined 15- and rubber shares increased about 5%). The average dividend yield on shares of dividend-paying industrial firms is aronnd 6% and that of bank shares 6.5%.
14. During the first half of 1969, 18 new issues for S$ 127 million were floated, all over-subscribed, compared to 20 new issues totalling S$ 337 million in the entire year of 1968. After the set-back in May, the market; is becoming bul:Lish again. As noted, the market is speculative. New shares are regularly soLd at significant premiums within a short period after issue, and for the newer firms, share prices do not reflect the earnings potentials of the companies.
15. Commercial Banks. There are now 35 commercial banks operating in Singapore; these include 10 banks incorporated in Sirngapore, 4 in Malaysia and 21 foreign banks. The commercial banks are the main source of working capital for industries and while a few term loans are made to old clients, these banks do not generally provide long-term credits as such to industry although they have in effect provided such funds by rolling over short-term loans. Deposits with the banks increased from S$ 1,137.2 million at the end of 1964 to S$ 2,309.7 million at the end of 1968, and loans and advances increased f:rom S$ 1,126 million to 5$ 1,942 million during the same period. i6. Interest rates were raised gererally ln Singapore after the sharp increase in London and other foreign financial centers following the November 1967 sterling devaluation. The pra-ime rate now is 8%* The minimum (preferential) rate on advarnces to Government and public authorities is 7-1/2%. Interest rates on overdrafts range from the prime rate to more typical rates of bett'ieen! 9% and 11%, and the rates on 8-day call loans range between 5% and 5-3/4%. To encourage savings, the Ministry of Finance urged banks to raise thelr savings deposit rates and relatively low 2-1/2% rate for 1-month fixed deposits. The rate has been raised to 3% but the deposits have to maintain a minimur., level of S$ 25,000. The banks are paying 5-1/2% on 3-month deposits, 5-3/4% on 6-month deposits and 6% on deposits for 9-12 months, with no minimum levels specified. With effect f'rom Nay 1, 1968, the maximum rate of interest payable by banks on savings deposits wras raised from 3% to 3-1/2% per annum, and the savings depositf, rate at the Post Office Savings Bank was raised from 3% to 4% per annum. The slightly higher rate for the latter was necessary so that it could compete more effectively Trith commercial banks and check the decline of its deposits.
17. During the past two years the commercial banks have been fairly liquid. At the end of 1968, the overall loans/deposits ratio of the 10 SingaDore registered banks was as low as 48%, although that of all banks was much higher, at 84%. Since inter-bank borrowings are common and the foreign banks can also draw on finance from their offices overseas, the banks which are not very liquid seem to face no difficulties in improving their liquidity position when the need arises. In view of the fairly high liquidity of the banking system, well established firms have heavily relied on rolling over their overdrafts from the banks to finance their medium- or even long-term requirements.
18. The conmrercial banks' loans and advances to the manufacturing sector increased sharply during the past six years. During 1963 such loans and advances tot.aled S$ 83.5 mil lion representing 10%/ of commercial banks, totcl lending. In L968 the amount outstanding increased to S$ 360 million represent- inng approxi-mately 27,' of their total loans.
19. Finance Companies Many_ f'inance companies have been established in Singapore during the past decade, most being subsidiaries of commercial bancs. They col-lect fixed deposits from the- public at a higher deposit rate than the commercial banks, usually at least 1% higher. Effective lending rates range durable financing at rom 2 /o-2 Al' though their main business is consumer times they make loans to manufacturing concerns against mortgages on buildings and properties. Some of the finance ce in stock exchange, land and property speculation. As of the end of 1968, the total assets of the finance com-panies operating in Singapore reached S$ 1431 rillion, corresponding to about 12% of the total assets of the commercial banks. A new Finance Companies Act which came Into effect in January, 1968 provides for licensing and regulation of such companies.
20. Insurance Companies. Singapore has 12 locally incorporated insurance companies among a total of 88 companies registered for operation. The invest- ment of insurance funds is mainly in industrial shares (which have trustee status) and secondarily in government securities. The ins urance companies provide limited credit for customers to build houses and for other purposes; such credits represent less than 20% of the statutory funds. The insuranze companies are also a source of funds for comrercial real estate ventures. Government regulations require life insurance companies to invest at least 75,- fthir 11-Lva-liti,es in Singapore (5d in approvred assets in qlirngapre and 20,: in Singapore Government securities). General insurance companies have to ir. t at, -least ofheirtv2 lVliabi.LL4;es in SingarV -n approved assets and 15% in Goverrment securities). Approved assets include shares and deben- tu-res of Singapue- re istered cornpan:Les quoted on the 3tock Exchange.
21. Generally speaklng, Singapore has relatively well developed and efficient financial institutions and financial services. The present strength and con- vertibility cf its currency are important factors in -the soundrness and stage of development cf the banking system.
!II1. ESTlABLISJHMtNT OF DBS
Formation
22. In order efficiently to accelerate its industrialization program the Government considered it necessary that some of the functions of EDB, which had become a very large and multi-purpose agency, be spun off and taken over by other specialized agencies. Consequently, EDB's industrial estates operations were taken ovrer by the Jurong Town Corporation, a statutory corporation3 its trade promotion work was taken over by a commercial firm with Gover.rnent support, INTRACO; the light industries training center was truned over to the Ministry of Education; and, as already mentioned, EDB's financing activity was given to DBS.. EDB retains its industrial promotional functions and continues to act as a coordinating body for investors seeking assistance.
23. The DBS was incorporated as a public limited company under the Companies Act (1967) on July 16, 1968 and obtained a license to operate as a bank under the Banking Ordinance on August 1, 1968. Business commenced on September 1, 1968. On the sane date, EDB ieasedto nronvide finance to industries and trans- ferred most of its e-isting portfolio an-! some of its staff to BBS.
2l,. The basic concents concerning the capital structure and scope of activi- ties of the institution were completely develoeped by the Singaporeans. How- ever- after its formationn the KreditAnstnlt fur Wiederauhbau of Germany was invited to advise DBS on general matters including organization, policies and procedur,es and a m ssion. from Grermany vicsited DBS in OctOber 1968 to carry this out.
Sco2e of Operations
25. W4hile DBS is primarily oriented toward providing long-term finance to privale industry in the form of loans and eqity participations, its scope of operations is much broader. Apart from industrial term lending and invest- ing in shares, DBS is becomi.ng invol v-ed in the following:
(a) cormiercial banking operations including making short-term loans, opening letters of credit and accepting demand and fixed-term deposits;
(b) underwriting debenture or share issues; - 6 -
(c) guarantee business including export credit guarantees and export credit insurance;
(d) financing projects of sectors other than industrial, such as tourist schemes, real estate development connected with Singapore's urban renewal program, projects related to the conversion of the British military bases, fishing projects and projects for providing facilities and services to the oil-drilling firms operating in Southeast Asia.
26. The prinmary purpose of DBS in taking on such additional tasks is to supp2e- ment the servrices which are inadequately provided by the existing financial institutions, rather than operating as a competitor to these institutions. However, it i.s clear, and the banks recognize this, that there will be an element of competition between DBS and other financial institutions. This in itself is probably constructive provided DBS does not use its power to enter deeply into the fields now adequately served by the private banks. Generally, the banks welcome DBS and feel that they will have enough influence to establish reasonable working relationship with it.
Ownership
27. DBS's authorized capital amounts to S$ 200,000,000 of which S$loo,nor)0,nn) (par r-ef 1 each) has been. issuen d and fllrl nnirh up. The Government of Singapore subscribed 49,000,002 shares first and the rerlain- ;ng 1,000,000 shaares were o - red for4 u tio. * In7 -'-e , - Ivv -"- , .r e eEXA_ fL oV1- @u,"k c1- VipVi; ow i;-.s VWVWo Q, a October 1968, DBS invited commercial. banks, insurance companies and other financial ins,itUtiOnS operating in Singapore to subscribed for 25,n000,000 shares. The issue was considerably over-subscribed.
28. In November, a further 26,000,000 shares were offered to the public, of w` shares were reserved L.or fre.Lign l_na.Lual insl LqJU notU operating in Singapore. The portion for the investing public in Singapore was over-subscribea, but onily I,890,000 shares of t-le 7,000,000 shares resuerved for foreign financial institutions have been sold to nine European banks. The unsold portion has since been taken up by local investors. In making the issue to the investing public, DBS pointecl out in its prospectus that the main pur- pose of the bank was to foster development and not to maxirmize profits. W:h;i Le most of the financial institutions subscribed for DBS Ts shares as an indication of support for the Government development efforts, the investing public s motives varied. Some, especially the industrial firms, would like to establish their relationship with the development bank from which they may seek support in the future. Many no doubt invested thinking in terms of a capital gain, wnile others may feel that investment in DBS will have advantages of safety of principal. and stability of income.
29. The entire issued capital is now paid-in. A list of DBS's shareholders as of June 30, 1969, is shown in Annex 2. The Government of Singapore ouns 49% of the shares issued; eleven Singapore banks own 12%, twenty foreign banks operating in Singapore 12%, twenty-six insurance companies 7%, nine European financial institutions not operating in Singapore 2%, and private companies arLd individuals, about 7,000 in number, hold. the remaining 1.8%. The shares are listed on the Stock Exchange and like other new issues DBS shares have been very speculative, the highest price of S$ 2.30 per share -7-
was reached 1n April :L969 and the quotation since then has ranged from 5$ 1L.60 to s$ 2.00 per share. The turnover has been between individuals holding shares; there is little turnover in DBS shares held by financial institutlons and private companies.
30. Since the Government holds 49% of the shares of DBS, it is the dominant shareholder. Nevertheless, as DBS has a large number of private sharehold,rs (including alL the major financial institutions operating in Singapore), who hold 51% of its shares, this bloc will no doubt be a restraint on actions that might be proposed by the Government that would conflict with the interest of non-government shareholders. The widespread ownershlp reflects the general confidence of the private sector in Singapore in the Government's stated desire to allow DBS to be run on an efficient, sound and commercial basis.
Board of Directors
31. DBS's Ar-ticles of Association specify that the number of Directors shall not be less than five nor more than fifteen. It has been decided that the first Board will be composed of twelve members, six of whom represent the Government. The.Government Directors were apnointed when DBS commenced opera- tions in September 1968 and the Directors representing non-Government interests were nominated in earlu 1969 (see Lnnex 3). Mr. Hon Sui Sen; fonner Cha4rman of EDB, has been appointed Chairman of the Board and President. All of the six noln-G-overlim.ent Directors are bar.kers; three are Singaporeanrs and three are foreigners.
Executive Comnittee
32. DBS's Board has established a 4-member Executive Committee to which it dele gat 'Ahe o.LULW4ng executive functions:
(a)\ estUDbl.ct ,dIJ± LLUIIcL1 is,,e nt ofL det:a-± -e 4~.L±eI I'Ied 'ILdiI.LU±IUiI-le nding andldI f:-=nla.r Lrg polic-.DOLU±4 es olf DBS covering such items as the terms of financing, activities to be firnanced, etc.;
(b) decisions on applications for loans, equity partlcipations, guarantees, underwriting and short-term working capital advances;
(c) the study and recommendation to the Board, as and when necessary, of all matters pertaining to arrangements for additional so-urces of finance for DBS operations.
Mr. Hon Sui Sen is the Chairman of the Committee and the other three members are Board members or alternates appointed by the Government, the financial institutions and other shareholders respectively - Mr. J. Y. M. Pillay, Acting Permanent Secretary of the Ministry of Finance, Hvr. J. D. van Oenen, Vice- President of the Bank of America, and Mr. Goh Seong Pak, Mlanaging Director of National Iron & Steel Mill, Ltd. The Executive Committee meets at least; once a month, while the Board will meet only 2 or 3 times a year to deal w:ith important policy matters. - 8 -
33. The EIxeclutive Committee, as autnorized by the Boara, h'as delegated to t President power to decide on all loan applications not exceeding S$ 1 million to any one fi-m and equity participations not exceeding S$O.5 million in anly one firm. The President is required to report all such decisions to the E}cecu- tive Committee for information.
Management and Staff 34. Mr. Hon Sui Sen, Chairman and President of DBS, is the chief executive officer. Prior to 1961 Mlr. Hon was Permanent Secretary, Ministry of Finance. He then became the first Chairman of the EDB (since its inception in 1961) and has been closely involved in the formulation of Singapore's industrial policies and strategies. He relinquished the EDB post at the end of 1968, and is now devoting most of his time to DBS. Dr. VT. P, Wabnitz, a staff membcr of the Kredit- anstalt fur Wiederaufbau, was engaged in Mlarch 1969 under a two-year contract, to fill the position of Executi-ve Vice-President. When DBS was established in September 1963, one expatriate consultant, fourteen professional staff and four junior clerks of EDB were transferred to DBS. Since then the size of the staff has increased to 97- 40 professionals and 57 others.
3 5. lS. S Dahnabalan, the senior member of the staff, has been appointed Vice- President. 1His principna function is sunervising development banking opera- tions, including appraisal and follow-up of projects and economic studies. HTe aln s direcths mormrninI banki ng onrartions which are not likely to loom large in DBS since DBS does not intend to vigorously compete with the existing conmm.rc-i al bns
36. At presern.t, there are seven divisions, nanmlly: openrationr:- fol oTw-up; economics, comnmercial banking, finance and administration, internal contro:l and properties. There are two counsellors: on.e for develonment financing and one c commercial banking. The Operations Division, responsible for appraisal of project pr oposaLs , -s dui video-d ir.ito f our sc tiU. on s, e acI. ' 'w - ch- S I few industry lines. The follow-up division (Implementation and Supervision DivLsion) is :responsi[LLeL%; fUor dcaw±Lng uap 'lega'l Udc1X,LJ, DU_ervlVng disbse= ments and end-use inspections. The Economic Division maintains statistics of1 LDSs operations as we1ll as genterU-l L daaUecoCL",UcI .whic LLCbVa ai on DBS's business. The Commercial Banking Division handles all commercialbanking .Lunc tLons. TJLAe Financ;e anud ±iuJ,WInliSLat i-LUJ. DLi±vision vtr is a spoin}J v handling accounts, personnel and other administrative matters. The ControLs Division carries on internal control and coordination of work betw-een the divisions, and checks overall operations to ensure that they are in accordance with the policies established. The Properties Division is in charge of construction of office blocks and factory building, for lease or sale. It also acts as a real estate broker on a fee basis, for the Go-vernment on leasing of Government-owned houses and assists the operations and follow-up divisions in evaluating properties and appraising the civil engineering aspects of projects.
37. An organization chart as of July 31, 1969 is attached as Annex 4. Almost all vacancies in each division have now been filled. The positions of the manager of the follow-up division and the manager of the commercial banking division are still vacant but they will be filled by internal promotion shortly. -9-
I-larry stiaff rreaiuers are young and tnus inlexperienced. However, tney are weti- educated, hardtiorking, and their quality, on average, is good. At present, DBS's pay scale parallels that of EDB and this scale is somewhat lower than that of other financial institutions and private industrial firms. DBS is aware of tnis and will probably have to modify its scale in order to avoid excessive turnover.
38. One noticeable deficiency at present is a lack of engineers competent to appraise the engineering aspects of projects. Although DBS is able to appraise the civil engineering aspect of its projects, personnel who can make sound engineering judgments are lacking. DBS does not intend to build a large engineering s1taff for several reasons. First of all, for large projects sponsored by major foreign firms, DBS intends to rely heavily on the sponsors' own engineering appraisals, or, in special cases, to hire outside consultants. DBS will make use to some extent of the engineering capability of the EDB. Finally, it is difficult to get technical people, with the specialized skills required, in 3ingapore. DBS is, however, now looking for two more engineers who if they are competent and experienced, will to a large extent, rectify DBS's weakness in this area.
IV. RESOURCES AND PORTFiOLIO
Resources
39. DBS's initial resources consisted of the following:
(S$ million)
(a) Paid-in shnre rpitn lIlOO 7 (b) Government Credit I 5 (e-) Gouvermn-rnrn C.reit II 30 (d) Government Credit III 50
The first Government credit results from a decision made in Seotember 196c to transfer EDS' s outstanding loan porttfolio, amion.tincg to S$q million, to S, in the form of a loan to DBS which bears interest at the rate of )% per annum and will hp rpaynhle over 8 years beginning Septem.ber 1l 190W. Under the terms of this credit, DBS is free to relend the repayments collerted against +.he ndivr;dral lons etenDD lon pportl l b +t rest+t :so be charged by DBS on such new loans cannot exceed 7% per annum. A second Govern-
credit a +.r Qo I30 .4 ,74-5o wa me.t , . s etende 4to- LOTwhn theEDBloa portfolio was assigned to DBS, at a rate of 4% per annum repayable over 12 years start-ng Septermber 1, 1971. This credit was granted specifically to enable DBS to meet EDBIs undisbursed loan commitments at the end of August 1968.
4o. Finally, the Government has agreed to grant a third line of credit of S$ 50million at 4% per annum on exhaustion of the second credit. As of the end of June 1969, DBS had committed more than 70% of the third credit. The loan has a maturity of 11 years including a grace period of 3 years. The lending rate to be applied by DBS on loane funded out of the second and third Government credits is also limited to 77 .per annum. 41. In July 1969, DBS obtained a US$ 10 million loan from the Aslan Devel- onment Bank. ThA Ionn bhers an intenest rntm of 6_7/8%3c npr annum and will be repayable in 1L years including a grace period of 2 years. As of the end of July 1969, DBS had n+. it- drispoal reso -r,r-f S$ IC0 millinn nli7. TMJS 10 million to finance its lending and investment operations excluding transferred EDhR resoress ancd fund to covrer operations already approvaed (bumt not dlisbhrsjn' by EDB. In addition to its application for an IBMu loan, D B S has also
J. nL t .L U d .f a loan of DlvL10 millioVn DBS also counts on the Guverrment for additional credits of S$ 30 - 50 million each year.
Toan PortfPolio 4-al- o-ver fror,, LnD
42. TheILv1 di se'Ld. portULoli. talkven over from EiID atJ - 1, 1968, consists of 55 industrial loans (to 41 borrowers) of S$ 42,918,000, one working capital ".LoA.n1 o _ S 2 _ r lJI J U A_ A 1 _ _ -A.. U -.4U - 'I-- - - -_ - -4_A 4U - S$ 2,200,000., all together totalling S$ 45,568,000. A complete list of the above loan3 1.s g±-vtr n L fruex 5.
43. Thle ternz of the industrial loans range from 1 to 13 years. Forty-six out of the 55' industrial loans (58% of total portfolio amount) are to mature wthi 4 years. About in' of the loans (in amount) were made to metal and engineering firms, 16% each to the shipbuilding industry and the manufacture of wood and paper products, 15% to food plants and 11% to textile mills. The remaining 24% represent loans to chemical companies, electric products manu- facturers, real estate and cement factories. The average size of these indus- trial loans Ls approximately S$ 811,000. All the loans bear interest at 7% per annum. In 11 loan agreements, EDB has the option to convert portions of the loans (9% - 50%) into shares, irnvolving potentially S$ 11.3 million. As of June 30, 1969, only one conversion had been exercised: S$ 70,000 ollt of the loan of S$ 800,000 to Malaysian Feedmills Ltd.
44. The single working capital loar was made to a client of DBS that had exhausted its normal banking facilities. The loan has been made by way of a deposit placed in a commercial bank, which the bank has relent to the ultimate borrower at its own risk. The commercial bank has been paying interest at 7% per annum on the deposit while collecting interest at 9-1/2% from the borrowing company. The loan is for 2 years. h4. The light industry loans are a:Lso in the form of deposits with commercial banks, yielding interest to DBS at a rate of 7%, and relent by the commercial banks to the ultimate borrowers at 8-1/2% and at the banks' risk. These loans include two-year working capital loans and four-year hire-purchase loans. All the applications for such loans have been appraised by the Light Industry Services (LIS) appraisal staff, formerly of the EDB but now under DBS. This system is welcomed by those commercial banks which are anxious to do business with small industries but which do not have either sufficient term resources of their own to accommodate these borrowers or to appraise the projects. Genernllv speaking, the banks whose liquiidity postion is good woluld nref£r to make such loans out of their own resources, although many of the customers wourld have had diffinulty obtaining these loans withou_t the help of EDB. - 11 -
46. The quality of the transferred loan portfolio is generally sound. EDB during the past years incurred no losses. However, there are some problem projects and delinquencies. When the loan portfolio was turned over to DB- on September 1, 1968, there were principal or interest arrears on 19 of the 55 loans outstanding. The total outstanding principal of the 19 loans amounted to S$ 11,588,388 (25% of the entire loan portfolio transferred to DBS) and the principal and interest in arrears amounted to S$ 2,543,,623. Within two months after the portfolio was taken over by DBS, 8 of the delinquent loans had been rescheduled and the arrears of 6 others had been paid. The delinquent principal and interest dropped to S$ 1.3 million. Since then some additional loan resched- uling has been done and some other loans have become delinquent. As of June 30, 1969, 16 loans were in arrears. The total outstanding principal of these loans amounted to S$ 10,292,025 and the principal and interest in arrears amounted to S$ 2,255,526. A list of the loans in arrears on June 30, 1969 is given in Annex 6. In most cases, the arrears were short-term but installments of 3 loans (to 2 companies) were overdue for more than a year. One company manufactures clay products and the other manufactures chemical products. The former has been encountering difiiculties in its production processes. The latter company has productive capacities larger than the local market can absorb, resulting from investmenlts made when Singapore was a part of Malaysia with the expectation of sales in HAlaysia, and so far the company has not been able to expand its export sales. DBS is closely following the performance of all the companie!s which are behind in their loan repayments and does not anticipate any losses.
Undisbursed E]DB commitments
47. Apart from the loan portfolio of S$ 45 million, EDB's undisbursed counit- meonts amouinting to Sh 30$million were also tr nsferred to DBS. In the cowuse of the past 10 months, loan agreements had been executed and disbursements made against the second GovrLmen.t lii of cf'reit of S$ 30 million made avail- able to DBS specifica:Lly for this purpose. A complete list showvjing these loans and their fe atures is given in Annex 7. With the excenti on of 2 hotel loans totalling S$ 13 million (43% of the total), the pattern of these loans is com.parable wilth the loans in the portfollo tu-ned over by EDB. As these loans were newly disbursed, there were no arrears as of June 30, 1969.
EDB's Equity Portfolio
48. As of the end of August 1968, EDB had approved 30 equity participations in 29 cciparids totalling 3$ hI,219,908 of which 3$ 27,80,5 had been pald up. W4hen DBS was established, negotiations were held between EDB and DBS on uli urarsLer of IJDBs e qulUy portfoio.g. Originally, EDB wnted to sel e portfolio to DBS but the Government wianted to charge more than DBS would pay. Subseque ntly, it was suggested that BDS rm,anage the equity portfoLio on behalf of the Government on agency basis, but no agreement on the terms for such services could be reachled. Finally, the Governmeint decided to transfer EDB!s equity portfolio to the Ministry of Finance to be handled by its Investment Section. DBE agreed to take over the undisbursed portion of EDBts equity investment approvals of S$ 13,412,750. DBS actually invested in the shares of 6 companies totalling S$ 8,216,100. The balance between the undisbursed portion of EDB's equity portfolio and this latter amount represents projects cancelled or withdratm. - 12 -
V. POLICIES AND PROCEDURES
Policies
49. As a gui(leline to DBS's operations, the Board adopted a Policy State-- m e n t on July 26, 1969, spelling out DBS's development financing and commer- cial banking policies (Annex 8). It provides that DBS will extend financial assistance to manufacturing industries, primary industries, tourist industries, commercial building construction Droiects, shipDing and other services. The types of financing include medium- and long--term loans, equity participations, Muarantees. underwriting of nublic issues, short-term working capital advances, leasing of buildings and equipment, hire-purchase financing of equipment and credit for eport. of locan nroduct- C o m c r rc 2 1 h-nkinrr opera- tions will include accepting deposits from its clients, for amounts not less than St 50,00!), ond exter.ding working capitln advances, discioirnting bills. opening letters of credit and performing commercial services for its clients or for firms who are unable to obtain the facilities from omup.errciial hanks.. The Statement emDhasizes that finance will be made available to projects which are in line with tle development requirements of the country and wrhich are economically and technically viable and financially profitable.
50. DBS's lending and investments will be subject to the following restric-
(a) Mazilumau lon1t-Ut:er,m 1inLLcUiU.di assistanceluU to single fr 2/- o paid-up share capital and reserves (or about US$ 8.2 million equivalenlt at present);
(ob)maximum equity sudscription in a single firm: l1Or o paid-u share capital and reserves (or about US$ 3.3 million equivalent at present);
(c) DBS will generally take a minority position in an enterprise, but in special circumstances it may take a majority interest, or wholly own such an enterprise;
(d) aggregate equity commitments at any one time will not exceed its paid-up share capital and reserves.
51. DBS considers that the 25% limit under (a) applies only to long-term loans, equity participations and guarantees. IWhile the limit on long-term. financing is specified, no restriction is imposed on total exposure to a single enterprise. Since DBS may also provide short-term finance to its clients, prudence should require that DBS's policy cover working capital and overdraft facilities as well. This has been discussed with DBS and >nnnit.inn of ei: cti.-ncss OL. the proposzd loan is. that DBS will amend its Policy Statement accordingly. 52. DBS wil]. not normally extend loans exceeding 50% of the value of machinery or 65, of the value of land and building put up as security by an enterprise. For small standard-type factories, this may be increased to 85%. Guarante!es for equipment; credit will not normally exceed 60% of the FOB value of the equipment sec:ured or 50% of the installed value of such equipment. - 13 -
93 ThV401 Policyr t+.nmzrn+. noi nronT1P t.hat nl.S will not borrow sums which in the aggregate exceed three times the paid-up capital and reserves, but this w; r.ot apply to f",d obtained through normnl ermrrniI hanking operations. As interpreted by DBS, such operations include only depositc of leso t.an one-year term. Fied term; deposits exceeding one year are considered to be Iborrowed sums." DBS has agreed to a 3:1 debt/equity covenant in the Bar i1X sLoan Aer
.FrLocedure s
5. Project Appraisai. After preiiminary discuSsion with the Operations Manager or Ilis assi.stants, prospective borrowers are asked to submit a detailed application based on a comprehensive questionnaire prepared by DES. The application is referred to the section within the Operations DivisionI which deals with the industry to which the applicant belongs. After an appraisal has been made by the operations officer, in cooperation with the civil engireers of the Properties Division, a full appraisal report is pre- pared. WhiVLe in draft form, the report is discussed at a meeting of senior officers. 'The report is usually revised, in order to incorporate the coumments of the senior officers. Then, it is submitted to the Loans Committee, chaired by the President. The recommendation of the Loans Committee is referred to the Executive Committee for final decision. For individual loans below S$ 1 million and equity participations below S$ 500,000, the President has been given the authority to make the decision. In August 1969, the Executive Vice-Presideant was authorized by the President, with the concurrence of the Executive Committee, to approve individual long-term loans not exceeding S$ 500,000 and equity participations not exceeding S$ 250,000 and the Vice- President was authorized to approve the projects up to half of the amounts agreed for the Executive Vice-President.
55. More than 100 projects, including about 50 light industry projects, have been appraised bv DBS's staff during the 10-month period up to June 30, 1969. The number of appraisals completed by a relatively small appraisal staff. esnecially during the fir5t few monthR of 1t nnoperations; indicates the rapid pace of work done by the staff. Moreover, the average work involved in each appraisal has hben considerablv increased latelv because of the improvement in the quality of appraisals and the relatively large size of prolents uinder rpiaTw- Tn general, the appraisal work appears two h of' good quality and the quality has shown improvement in the course of the past 10 months. MNev0erthzeless, on..m.any projects, an independent judigmen.t on the engineering aspects appears to be lacking and the staff has relied ltoo heavily on the stCatemntS.s of the Ispon--sors. Te i- room for mpr r ithis4 respect and, while DBS does not contemplate developing a widely diversified
techni.-cal 'CZtVS . L1|tVJ| it V is, as noted cur9 rWen.tUly look1--ing for two.l additi.enal engineers to strengthen its technical effort.
56. Execution of Loan Agreements. Once a loan application is approved by DnBS, a letter of offer is enLt to tel applicant setting forth the termLs and conditions under which the loan is to be made. The applicant is asked to reply in Uoln uiuntlh; otherwise, the offer wiL- ue wi uLirawri. Act.uaLLY, DD ha, been lenient in requiring applicants to meet the deadline, and some applicants have neither accepted nor rejected DBS's offer after a lapse oI several morwxlLi. DBS would do well to tighten up. - 14 -
57. Upon acceptance by the applicant of the conditions, DBS p-2ceeds to draw up legal documents, in conjunction with outside solicitors. Two types of loan agreements are in use. When a chargre on the borrower's properties is involved, a debentuire is issued to, and countersigned by, the borrower. When a bank or personal guarantee is involved, a loan agreement is signed by both parties.
58. Follow-ul) Procedure. Realizing the importance of follow-up work, DBS has recently set un a senarate division called "Imnlementation and SuDervision Division", which is responsible for administration of loans and general follow- un work. T)iqhurqPnPen+ts are mnde only nftar thiq DMvi-oinn has ohec,kpd and -Ls satisfied tha-t all the pre-disbursement conditions have been met by the borroawersn Progress reports are obtained frm borr.owTers once a Tonth r1iirir-o the construction phase and audited financial reports are obtained every year
done in the past. Mainly because of lack of staff, the follow-up work in EDB - -1a I- - - - - .- a4-4-4,ion waswa given -s--pai4 ol after repayments of a loan had become overdue. DES has made an effort to remedy the
1st Uat i on .L T]^e st-96alff of t.e Div-v io are now- u4p.A-WJngth pro-cs l and a monthly report is rendered on each of the projects which are active. T1ese report9s are s-uwmitted to tvhe monthly staff m eeting for re-view and comrets. While it is premature to judge the overall performance of the end-use arm of the inst-itutionl significant, improvements have been made in this area.
VI. DBS'S OPERATIONS
Summary of Operations
59. From September 1, 1968 to June 30, 1969, DBS received 159 applications for loans totalling S$ 174.7 million, 13 applications for equity investments totalling S$ 41.9 million and 4 applications for guarantees totalling S$ 70.2 million. During the 10-month period, DBS's net approvals totalled S$ 89.6 million (US$ 29.5 million equivalent), including 41 industrial loans amount- ing to S$ 72.7 million, 45 light industries loans amounting to S$ 1.6 million and 15 equity participations amounting to S$ 15.3 million. In addition, D:BS has undertaken 2 guarantees amountingJ to S$ 16.4 million. Loan agreements signed amounted to S$ 47.5 million and equity commitments amounted to S$ 19.8 million. Disbursements of loans and paying-up of equity subscriptions totalled S$ 29.2 million. A summary of DBS's operations is given in Annex 9.
6o. Commitments and disbursements as shown in Annex 9 include loans and equity participations originally approved by EDB but undisbursed when DBS was established in September 1968. If the operations originated from EDB are excluded, the amount of DBS's commitments would constitute 26% of DBS approvals, and the disbursements would constitute 30% of DBS commitments. The lags between loan approvals and commitments and between commitments and disbursements are unusually long. This is partly attributable to the fact that during the initial period DBS was building up its staff and could not keep up with post-appraisal work. Also, some borrowers, especially certain large international sponsors, were inclined to look for alternative sources of financing after DBS approvals had been given and thus delayed signing :loan agreements with DRS. - 15 -
Long-Term Lencing Operations
61. The Ll long-term loans totalling S$ 72.669,000 approved by DBS during the 10-month period can be characterized as follows:
Industrial DiVersification. Lending is diversified among various manufactuiring industries- rpil estate, anci sueh enternrisss as shipping} financial institutions, hospitals and engineering services. A brnkdin,wr of th_se loans by industrial categories is givna1 in Annex 10I The electronics industry has received the largest amount of financing:, with 27Q r%f'of the tal ubb8r products man-r-actu-rs receil-d the second largest proportion, 23.3%. Wood and cork projects follow with
.6V as -e 'estate(munc-.l..- cotL.o pW VV.L1wi 10.3%. Othier industrial and service categories have each received less than- 4 ofP 1)S'Isficng
Duration. Annrex 10 also shows trle duration of industrial loans. The average final maturity of the loans is 7.1 years. The amortiza- tiUon period of each Long-term loan includes a grace period oI i/2 to 3-1/2 years. Three of the four loans with a term of less than a year -were made to rneet the urgent working capital requirements of DBS!s clients; these loans were made by putting up deposits with the cormmer.- cial banks which relent the money at their own risk. These exceptional loans were extended before DBS started its commercial banking operations. The fourth loan witn a term of less than a year resulted from conversion of loan repayments and interest overdue from a chemical company. The loan with the longest term (21 years) was made to the Singapore Factory Devel- opment, in which DBS has a 50% equity participaticn, for relending to various firms to finance the construction of plant bu-ldings in Singapore.
Size. 24 of the 41 industrial loans are below S$ o00,000. In amount, these loans constitute a little over 11% of the total amount of loans. Four large _pans, exceeding S$ 7 million each, represent 50% of the total. The largesti amounting to S$ 10,845,000, was extended to Uniroyal Inc. (Singapore Subsidiary) for procuring equipment for setting up a factory manufacturing rubber boots, water proof clothing and other rubber products. Another loan in the amount of S$ 5,571,000 to the same company for financing building construction has also been approved. The total investment in the single project, S$ 16,416,000, constitutes 16.4% of DBS's share capital and reserves, which is within the limit of 25/O as specified in the Policy Statement. The average size of all industrial loans is S$ 1,772,400 (US$ 579,000).
1/ Subsequent to the period covered by this report DBS made an equity investment of S$ 12 million in an AMOCO oil refinery project and also guaranteed a loan of S$ 47 million for the same project. This is DBS's largest commitment to date, DBS's Executive Committee felt that the nature of the risk was such that it could, on this operation, go beyond the policy guideline on maximum commitment to a single enterprise. - 16 -
Security. A prior charge on the borrower's factory building and/or machinery is the usual security obtained by DBS. This is sometimes suppLemented by personal guarantees by the sponsors of the projects. For about 20% of the loans extended, DBS has obtained a bank guarantee as the principal security for its loans. For loans extended to the subsidiaries of foreign firms, DBS prelers guarantees by their parent companies. DBS has not made any unsecured loans.
Foreign Participations. Most of the proiJets financed hv DBS havn foreign participations. Some of DBS's borrowers are wholly-owned subsidiaries of foreign firms. f the 41 industrial loans made byJ DBS 9 compan:ies are entirely sponsored by Singaporeans.
Rate of Interest and Other Charges. DBS's lending rate on loans fi nced out of Goverrment credi lines is 7%, as required by the Government, while it has charged 3-1/2% on loans financed from it: own resources. DBS has usedE Govern-ment funds to finance projects which, in its judgnent, could contribute more to the economy. For loans -Vhich have conversion feat-Ures, DBS also usually charged a lower rate, even when they were financed by funds from other sources. T_ general, gi-ven market rates in Singapore, DBS's rates have been somewhat low. Moreover, future borrowings at a higher cost than it now pays (W% on Government ioans) will make it impossible for DBS to maintain even a 2% spreaci unless the lending rates are raised. Accordingly, as from mid-August 1969, DES has decided to charge 9,% on non-convertible loans and 7-1/2% on convertible loans. Since the Government funds have been essentially fully committed, the new interest will apply to all new operations.
DBS has in the past levied commitment charge on its loans. However, from mid-August 1969, the borrower will be asked to submit a schedule of disbursement at the time of acceptance of offer made b3y DBS and a commitment charge of 3/4% p.a. is to be charged on that part of the loan not drawn according to the disbursement schedule. Light Industries Loans
62. Fromn September 1, 1968 to June 30, 1969, 45 light industries loans (com- prising 21 working capital loans, 21 equipment hire-purchase loans and 3 factory- mortgage loans) totalling S$ 1,574,000 had been approved. Applications for small industry financing are appraised by the Light Industries Division and, after approval, the funds are made available to commercial banks which relend the money to the approved project at their otlm risk. Four commercial banks participate in the program. They pay 7% interest on DBS deposits and charge the borrowers 8-1/2%. The collection record on these loans has been satisfactory. The period of working capital loans does not exceed 2 years; the hire-purchase loans vary between 2 to 4 years and the 3 factory-mortgage loans cover a term of 3, 5 and 6 years respectively. 'twentv-two percent of the light industries loans went to firms making metal products and 19% to firms making chemical products. Transport equipnment and paper projects account-ed for 10< each, and footwear plants 9%. The remaining 30%O of the loans was received by other plants producing fcodstuf-fs½ wood, leather, ruiibber, non-Metallic prodUcts and trans- port equipment. - 17 -
Equity Investments
63. Equity investments approved bY DBS within the first 10 months of its operations havebeen S$ 15.3 million in 15 companies. As of the end of June 1969, it had paid up S$ 14 million against EDE/DBS approvals of S$ 23.6 million. A complete list of equity investments approved and paid up is given in Anrnex 11. The market value of the shares held is about 13% higher than the book value. However, few of the companies are paying dividends yet.
Commercial banking Cperations
64. DBS started its commercial banking operations in mid-June 1969. Its policy is to accept deposits from its long-term loan clients only, and tc,tal time and current deposits of eaclh client must be maintained at a minimum level of S$ 50,000. DBS is prepared to extend over-drafts, to discount bills and to open letters of credit for its clients or for firms who are unable to obtain commercial bank facilities. Up to August 6, 1969. it had opened 11 current accounts amounting to approximately S$ 6 million, received term deposits (3 months to 1 year) from 5 clients totalling approximately S$ 7 million, ancd approved 2 over-drafts amounting to S$ 320,000. It pays interest at 5-3/4% per annum on 3-month term deposits and 6-3/h% ner annum on 12-month term deposits. Over-drafts are charged at 8% to 8-1/2%. Guarantees
65. Six outstanding guarantees totalling S$ lh,445,783 granted by EDB tC) 4 companies were assumed bv nR,q nn i+.zner1, 1968. Since then, DBS has approved 2 guarantees totalling S$ 16,354,000. As of June 30, 1969, guarantees outstanding totalled 3$ 1235),731, involving b compa' Underwritingr Activities 66. DBS has underwritten a public issue of 3$ 8 million by Eupoc Pulp and Paper Industries Ltd. The issue was over-subscribed. DDS charged an undser- writing fee of 2-1/2%. In view of the booming stock market, DBS doubts that it will do zmuch -der-witng because mard securities duealers are offering uluS subscription price to the issuing companies and sell at a premium after holding for a brief period of time. DES!s staff have underwriting experience and, if demand for underwriting facilities increases, DBS is prepared to enter activc'l-y. Real Estate 0perations 67. DBS is becoming active in somre aspects of the real estate business. It has established a wholly-owned subsidiary, DBS Realty Inc., whose main job at present is to construct a 50-storey commercial office building costing about U3S$ 15 million equivalent. The building is expected to be completed within 4 years. The Properties Division is supervising this project and at - 18 - the same time carrying on other real estate activities. DBS was asked by the Government to act as the Governmnnt's avent in converting flats formerly occupied by Government employees into commercial residential property. Some 200 flats were re-conditionpd and rented out by DRS under an arraqngement where DBS received a percentage of the rental income plus a letting fee. After nrrnis ePyrn'iance DBS fouind the profits on this activityi nsurfiei.ant and it has given up this job. The Properties Division is also running a 4 4 suppnrly ba for% roffshoe%in o41 dr,.lling a+ ,,- ir in4 -, h-st Asi a ' subsidiary company has been established and facilities built (fully equipped offices, ope. storage areas, transportation, co-uncations and material handling equipment) for rental to foreign companies involved in off-shore o;l drilling. The total, cost of the 0ff-shore Ol DrilliLg OSupply Base Project amounts to approximately S$ 8 million. All of DBS's real estate acti-vitieE are based on DBS'S analysis of their cormnercial viability. VII. FINANCIAL RESULTS AND POSITION Balance Sheets 68. DBS's balance sheets as of December 31, 1968, and June 30, 1969, are shown in Annex 12 and are summarized below (S$ '000): December 31 1968 June 30 1969 (audited) (u dited) Assets Cash, receivable and temporary investments 92,898 94.,019 Over-drafts to customers - 2,500 Subsidiaries - 734 Loans 50.84. 52.L29 Equity investments 6,603 14,106 Fixe3d assets 22 L.837 150,367 168_62q .U 4. dIJ .L.L.L U, .L 0 Current lLabilities u,396 2,661 Current and term deposits 10,997 long-term uebt a',)50 55,568 Paid-in capital 100,000 100,000 Reserves and profits 403 3,399 150,367 168,625 69. The balance sheet as of December 31, 1968, shows the position of DBS four months after DBS started onerations. Its loan pnrtfnlio re2Ghed - 19 - S$ 50.8 million, but about 90% of it was transferred from the EDB. The equity investment portfolio of S$ 6.6 million was entirely financed with its cash resources. During the first half of 1969, its loan portfolio increased only 3%. This slow growth is attributable to problems in finalizing projects for disbursement as approvals in the 10 months totalled S$ 74 million. The equity portfolio during the half-year period has more than doubled, reaching S$ l1 million as of June 30, 1969. DBS's assets as of June 30,consisted predominant-Lv of current and time deposits and Government securities. Its Government securities yield 5% and DBS's time deposits with other banks normally yield 7% although some amounts have been placed at somewhat higher rates. DBS has also been able to obtain a relatively high yield (4%) on its current accounts with other banks. Since DBS's own commercial banking operations (lid not get started until the second quarter of 1969, only the balanRe sheet of June 30. 1969 reflects such oDerations. The long-term debt/equity ratio as of June 30, stood at 0.5 to 1, against the maximum ratio of 3 to 1 specified in both its Articles of Association and Policy Statenent. Profit and Loss Accol.nts 70. Irore sta+vemeIls ~showing DBS s earnin g from July 16, 1968. when DBS was incorporated, up to December 31, 1968, and the first 6 months of 19693 are given in A.nnex 13. The 2 incom statemen.ts showv that the interest on temporary investments, including Government securities, and deposits with co,xmiercial banks, constituted e53 of DBSs total income for the nperiod from July 16, 196S8 to June 30, 1969. The rate of return on share capital for the first 6 months of 1969 was 3.6%on an arnnual basis. At this stage, DBS has a 3% spread on borrowed funds. Taxation 71. Under the Income Tax Ordinance (as amended), DBS is subject to a flat 40% company tax on taxable income. Dividends received from domestic companies are treated as ordinary income and any tax deducted at source is claimable for credit. Dividends received from Pioneer Status companies are not taxed at source and such dividends remain exempt from tax. There is no capital gain tax in Singapore. Reserves Policy 72. Following rules governing the banks operating in Singapore, DBS must set aside 50% of its annual net profits as reserves until the reserves total half the paid-up capital and thereafter 25% of the profits will be set aside as reserves until the reserves equal paid-up capital. 73. Provisions for possible bad debts are not tax deductible. Actual bad debt losses are charged against income in the year when such losses are realized. For the last 5-1/2 months of 1968, DBS made a provision for possible losses, amcunting to S$ 28,000, in addition to an actual write-off of S$ 17,690. The provision is shown in the balance sheet, as an offset to the^ gross amount of its loan portfolio. DBS does not intend to make annual - 20 - provisions on the basis of a fixed percentage of its portfolio but will review its portfolio at the end of' each year and make provisions whieh would be considered adequate to cover possible losses. Audit 7h. DBS has appointed Price Waterhouse & Co., as its Auditor. The accounts for the last 5-1/2 months of 1968 have been aud-ted by them. Their services are considered satisfactory by DBS. DBS has agreed to submit to the Bconk a long form -a:udit report writhin 120 days after the end of each year. VIIi. FuTuRE OPERATIONS General Investment Outlook 75. Statistical data on investment in manufacturing, shipbuilding and ship repairing, and commercial property development (hotels, etc.) is not available in any detail. For the manufacturing sector alone, very rough estimates put the 1968 investment level at about S$ 150 million. Investment in 1969 would be considerably greater. Given the current interest in Singapore as a manufacturing center by both local and foreign investors, investment in this sector should continue to grow rapidly. Given the diversity of DBS's operations, its scope for growth is good. However, it is difficult to fore- cast DBS's activity with accuracy because DBS's newness and the very recent upswing in investment in Singapore leave little historical experience to base forecasts on. Business Forecasts 76= DBS's management is verv oDtimistic about the level of business. Eased on DBS's short history and projects now under appraisal or discussion, EBS has forecast its business amprovals in the 1969-1973 period as follows (excluding finance for DBS's S$ 45 million commercial office building project in 1969): - 21 - (s$ million) 1969 1970 1971 1972 1973 Long-term Loans: Manmfacturing projects 85 95 105 115 125 Real estate & other nroiects 10 5 5 5 5 Ship export financing - 1 3 7 12 95 101 113 127 1L2 Equitr investments: Manufacturing projects 20 20 20 25 25 Real estate & other projec+s I I 7 I I 21 21 21 26 20 Tot-al 'lorg=6term filnAnciAng 't< '° ' ', ' 77. In 1968 EDB and DBS together approved about S$ 70 million. The 1969 PLrefoecsas of-A S$ui 11.L.LU M-L.LL.JLU,EUr,ilo ersns,iceseJL.E-U0±,1tj .UI VLi.U1faot6foU! L)UU L, UVfO. 1is ofVI June 30, 1969, approvals (excluding a S3 7.6 million commitment toward the office building) 'Uotalled a'bo-ut S$ 49 million, somewhat less than half of the projected total for the year. Projects under study at mid-year totalled S$ 101 miLLion and preliminary discussions on projects involving substantially more funds were in process. On balance, the forecast for the year appears justified. 78. For the followiing years DBS has projected an annual increase of 5% - lO-o per annum. One of the difficulties in evaluating these estin.ates is that they hinge to a large extent oni DBS involvement in lar-ge projects now being discussed in Singapore such as shipyards and oil refineries. This in turn will depend on DBS's success in mobilizing local resources, a question which DBSts manajnement is now beginning to consider. Tn view of the possibilities for DBS to participate in such ventures, the financial targets established by MBS are not unreasonable. 79. In addition to its long-tern lending and equity business, DBS has fore- cast working capital advances increasing (net) at about S$ 20 million per annum over the forecast period. This business Till be highly dependent on the growth of DBS's deposits as these deposits will be used for this pu:rpose. DBS does not intend to use its short-term resources for making medium- or long-term loans. 80. DBS has not broken down its f:uture business into local and foreign currency components as the Singapore dollar is readily convertible and thus DBS's need is essentially for capital, and not foreign exchange as such. - 22 - However, DBS estimates on the basis of projects financed in the past probably around 50% of the long-term funds it extends wil'L end up financing imported capital goods. 81 For financing the normal term lending and investing side of its businesS, DBS will rely on its share capitaL, earnings, repayment of loans and new borrowings. Resources lined up for financing new business, including its issued share capital (S$ 100 mill:Lon) and tihe third government loan (S$ 50 million) would be more than fully committed for the following operations '(on approval basis) by the end of 1969: (S$ million) Actual Approvals, September - December 1968 Long-term loans 26.8 Equity participations 5.5 Light industries loans 0.8 33.1 Projected Approvals, 1969 Long-term loans & light industries loans 95.0 Equity participations 21.0 Equity commitment to DBS building nroiect 15.0 131.0 16L.1 82. For the next 2 years, DBS will have to budget for resources of about S$ 250 million to cover its ..yprovals. Since commitments and disbursements lag behind the approval figure considerably, DBS will not actually need to acquire new resources of this m bt i d to nlan flhclPd to meet these requirements. DBS signed a loan for US$ 10 million from the Asian evelopment B.ar' in July 1060 and hope- to negot-ate a loan of about US$ 2.5 million with Kreditanstalt fur l,iederaufbau in the next 6 months or so. Mhese loans added to thie proposed US'` 5 mil'-ion Ba loan total a'bout S$ 54 million equivalent. Repayments and retained earnings in 1970 and 1971 total about 3$ 30 million leaving a balance to be raised in local currency of about S$ 164 million. The prospect for raising this magnitude of f-unds in Singapore is unclear. DES belleves that the Government will be a likely source for additional funds and is also considering going to t'he market with its own securities- or mobilizing capital of existing institutions by sli-ng notes received from its clients to these institutions. It'will not be easv to raise fund,s of this.magnlt-ude,but it is not i-m-possible given strong Goverrment support. 83. DBS plans to finance its commercial banking operations (overdraft, discounting of bills, etc.) out of deposits it will hold for its clients. According to DBSts forecast, current and fixed deposits are expected to reach S$ 32 million at the end of 1969, S$ 50 million at the end of 1970, and to accumulate to S$ 138 million at the end of 1973. She average outstanding overdrafts and discounted bills are expected to be about 20'1o of the average deposits to be held. (At the end of 1968, the largest commercial - 23 - bank in Singapore had deposits amounting to S$ 626 million and the smallest local bank had deposits amounting to S$ 6.3 million.) During the initial period, the deposits to be received by DBS are difficult to estimate because DBS is not prepared to actively solicit accounts from its clients. However, the assumption that its deposits will be adequate to cover its forecast limited short-term conmnrcial type lending is reasonable. Forign Exchange Risk 84. One major problem DBS faced in negotiating foreign loans was how to cover the foreign exchanee risk in view of the free convertibility of Singapore currency, which in turn made borrowers reluctant to borrow in foreign exchain-e. Because of tkhis t,he Government has agreed to nssume this risk on bcth the ADB loan and the proposed Bank loan for a fee of 1/4% p.a. payable or, the entire amoulnt of thc loan =lt-A1 it i+s fil-l- W-rawn down and thereafter on the outstanding balance. Projected Profitability 85. The projected profit and loss accounts (Annex lis) show profits developin >as fol'lws: 1797 ' tV70 19V71 ,C772 1CV7 rIul.LU Dl)JOr'5 tax (',$ million) 10.6 9.4 7.0 8.0 10.9 Net, profit after tax f'S$ million) 6.I 5.7 4.2 4.8 6.5 Earnings before interest & taxes/average total assets 8.4% 7.3% 6.7% 6.9% fj3tO Net profit after tax as percentage of share capital 6.h% 5.7% 4.2% 4.8% ej5< 1 Net; ncome after tax as percentage of average equity 6.2% 5.2% 3.7% 4.2% 86. The average cost to DBS of borrowed funds will be 5.1% and the avera,ze yield is 8%, thus giving DBS a gross spread of 2,9% on borrowed funds. TDurin the first 2 years, DBS will use the low cost funds obtained from the Government as well as its share capital. After these funds have been exhausted, DBS will use the funds from other sources which are more costly. Therefore, its financial expenses are expected to increase sharply relative to its gross revenue. In 1969, the estimated financial expenses will constitute 28% of the estimated gross revenue; the percentage will increase to [5% in 1970, 67% in 1971. 73% in 1972 and 74% in 1973. Administrat:ive expenses riji increase gradually in absolute amount but will decline relati.e to average total assets. If the assets derived from the commercial banking operations are excluded, the rate will be 0.43% which compares very favorably with the other develonment finance compnnies with .whichthe Bank Group is associated. 87. Net profit after tax as a percentage of share capital is low, onily 4 - 6% in the 1970-1973 period. It has been clear snrceDBS's format-on that it would not earn very attractive returns on its equity for the foreseeable fulture. Th.e de c 1nw in.ea-ngs 'ween IL nd 0 is explained by the fact that i n 1 9 7 0 signi.firant fumis are mos^:} out of the curren,t prfolio w.;ch yi.elds 7 into4 eqeaty -Tvostmrntsos whLcwih - 24 - no immediate yield is forecast. Earnings before interest, tax and provisions will be about 7% of average total assets annuallv during the forecast period. Debt Service Coverage 88. The projected cash flow statements for the years 1969 through 1973 (A,,x 16) an.d the projected income statements (Annx lh) show that the debt service coverage would be adequate. In 1969, the cover is almost 5 +-A"n aLnd in 1070 ab,ou1 2tm-c. StartingS07 fror. 19 the cn i be r. because more loans have to be repaid. In 1971, 1972 and 1973, tne coverage 4 4 Trwi -k be abou+ 1.93 t miS each, yualu a.nd Jf tP'sn pat+rnr of borrow.ng masnti- ned, the coverage will be about this same level throughout the life of the -proposed loan. Projected DB-lance Shfaets 89. According to the balance sheet projectiuns (Annex 15), DBS:s total loan and equity portfolio will increase almost 5 times in the 4 years from the end of 1969 to the end of 1973. On the liability side, long-term debt will increase rapidLy. By the end of 1971, the ratio of long-term debt (including all fixed term deposits) to total equity will reach 2.5 to 1 and by 1972 and 1973, it will further increase to 3.7 and 4.7 to 1 respectively. It is clear that,if DBS-s operations expand as fast as projected, the debt/equity ratio will exceed the maximum of 3:1 as specified both in the Articles of Association and in the Policy Statement. DBS thinks that the 3:1 is a conservative limit and given satisfactory performance it would consider increasing the ratio. 90. General reserves and retained earnings will increase gradualy, reaching S$ 29 million at the end of 1973, or about 5% of DBS's long-term portfolio. The level will have to be watchecd in the light of DBS's experience. 91. For commercial banking operations, DBS's Policy Statement has made it clear that, in making use of the deposits received, DBS will maintain a sound liquidity position in accordance with established banking practice. DBS, like other comnercial banks operating in Singapore, is required to maintain a liquidity ratio of 20% on its deposits accounts - 3-1/2% in the form of deposits Tith Accountant-Gerieral. 10% in the form of cash, treasury bills, or net balances with other banks in Singapore, and the remaining 6-1/2% could either be in the above forms or in other Government securities or discounted bills. The projected level of cash and short-term investm.ents during the period covered by the proJections will be sufficient for maintaining the required liquidity. As shown in DBS's projections DBS does not intend to use short-term funds for long-termn loans or eouitv investments. TX. CONCT.TNTONS 92= Dnring the span of less than a year, DnS has P+_'h1iqhAcd itself as an important institution in Singapore. The managermient is dynamic and experienced inindustrial promrotion and financing. It has succeeded i.n mhling a - 25 competent and hardwording staff, although with somewhat limited experienc;. Appraisal standards are reasonably good, although DBS;s technical profi.- ciency needs improvement. Internal procedures are adequate and end-use work is well organized. In general, DBS is a very well managed company asic its portfolio is generally sound. 93. DBS's capital structure and financial position are sound. Its retur~- on equity during the initial years will remain at a relatively low level becauise of the narrow spread with which it is carrying on its operations. It expects to pay a 3% dividend starting from 1971. Th.e overall return on capibal, before irAterest and taxes, will be about 7%. The cash flow over the life of the proposed Bank loan will be sufficient to service DBS's debts with a reasonable margin. 94. With the overall economic outlook favorable, investment in the private industrial and allied sectiors is expected to increase and the demand for finance is expected to rise. As the principal source of medium- and long-term financing, DBS is expected to play an increasingly important role in the future. DBS's level of onerations in 1969 is expected to reach S$ 116 million (excluding S$ 15 million commitment for the building project, of which St: 0N million will be for manufacturing nroiects. The total reso-r_e needs of DBS on the basis of business forecasts would total about S$ 250 million to nover 1970 and 1971 approvnls. In addition. to the proposed Bank loan of US$ 5 million, the ADB loan of US$ 10 million, a loan of about TIJS 2.5 million which DBRS exnpcts to obtain from KfWj. anc internal cash generation, DBS will have to raise additional local funds of about S$ 16l 7nVll On The.'lio Tm.tt11 trahlT supply i nort.i on of this hbut DBS will also need to raise funds in the market and is considering how best to do thim. In -w t - - r m T c; ; 1e on might welL the restraining factor in DBS reaching its business targets. 95. DBS is a suitable recipient for a Bank loan, to be used to finance iTportuedu goodus and serv'ices. 'vwteest±iMiate tLlatu itih Loan will be f uly Iv'a in less than the 1 months allowed in the loan contract. DBS is making a serious effort in LaLsing adUdiLonal resor-ces Ln the local m.arket and abroad. The companies to be financed with Bank funds will be privately controlled and in the man--acturing and service set ort . As this wo ul be the first Bank loan to DBS, the Bank should keep a close watch over DBS's appraisal work. Since DBS will be financing fairly large projects, a reasonable free limit would be US$ 150,000, with a limit of $ 1,250,000 on the aggregate amount which may be used for projects below that limit. Thne other terms of the loan would conform to those normally applied to developr,-nt finance company loans, including the payment of the standard commitment fee. IBRD/DFC December 29, 1969 A?\TtM'V I Page 1 DEVELOPMENT BANK OF SIN^JGAPORE LTD. Economic Development Board The Economic Development Board (EDB) was established in August 1961. by the Singapore Government to promote industrial development. It had a broad range of functions in support of private sector industries. Besides administeri-ng Singapore's industrial incentive legislation it provided loan and equity finance as an industrial banker, promoted the establishment cf industries, undertook the development of industrial estates including factory sites and buildings, industrial water, power, railroads, ports, and bulk handling facilities and provided technical consultant services and training to large and small industries alike. It has also had. a key role in formula- ting general policies on industrial and economic development. In order to provide a wide ranee of technical services to local industries, EDB's Technical Consultant Services Division set up the Industrial Research Unit. the Light Industries Services, the Export Promotion Centre, the National Productivity Centre, and the Prototype Production and Training Centre. As mentioned earlier in thin Rpnort some of these activities have been spun off into specialized organizations. Financial Operations EDB, iunded by Government grants,has been providing long-term (over 5 years) a mndA.edi.te rm (3 to 5 years) industrial 1oanq at 7T (before Plugust 1965, the rate was 6%). Loans were granted to finance up to 501% of the value fedIf a.;sets- 1for a n.ew, industry an'd up, to 80%- fofr an pYndnnina one. EDB's Light Industries Services provided medium-term (4 years) loans to small business for the purchase of machinery and shortLterm (2 years loans for Tork- ing capita:L. These loans bear a higher interest rate, usually 8-1/2% and have beer. exbe.de .-..una -s - -r - - -- ED dps- 1 fnds with4-,- Vtj~L1fAL~1 ut UI1UI.' a Z5JUUeL± U1_ilg0uV1LeiLU WL5LVLJJ .JJS- the commercial banks charging interest at 7% and the commercial banks relent the money at o-i/2 to the borrowers as thuir own risk. EDi ted indivi- dual equitr participations to 49% for a public limited company and to 26% for a private Linited cdmpany. During tne seven years (1 96`2-i96-80), EDB maude 308 loaris tota''ing S$94.3 mil:Lion and 30 equity investments totalling S$41.2 million. Its annual commitments are shown in Annex 1A. During 1963-19%65, the annuai commitments of loans and equity participations averaged S$17-S$19 million, with very little fluctuation from year to year. In 1966, the total commitments dropped to S$11-4 million. This sharp decline is in part explained by the fact that after Singapore's separation from Malaysia in August 195, entrepreneur, did not move forward with their projects due to the uncertain situation. In 196%7 investors' confidence increased; EDB committed S$23 million for loans and investments in that year doubling those in 1966. During the first eight months of L968, EDB's operations reached S$38 million, more than doubling those of 1967 on an annual basis. ANNEX L Paae 2 During the entire history of EDB, 21% of its industrial loans approved mere extended to the shipbuilding industry, 18% hotel industry, 12%G to metal and engineering plants, 12% to food factories, and 11% to textile mills. The other industrial classifications each received less than 10% of EDB's loans. With regard to EDB's equity participations, the distribution pattern is different. About 24% of its equity investments mere made in hotel industry, 15% in shipbuilding industry, 14% in textile mills, 13% in food Produrers. 11% in metal and engineering plants and 7% in chemical industry. Equity participations in other industries amounted to 16% of the totaL. The sectors .wilich received the largest share of EDB's aggregate financing (combined loans and equity) were shipbuilding and hotels, 19% each of the total. IBRD/DFC October 7, 1969 ANNEX l1A DLr,VlPI LIT BAMK OF SILMAPOMf LTD, Financial Assistance) Granted by the E coriomic: Devrelopmen_t_Boa-rF_ (S I C'00) Total Loans Equity US$ Equi- Development Shipbuilding Shipbreaking Light Industry (net of can- partici- Total valent Loans Loans Loans Loans ce]Llations) patioDns Amount (;000) No. Amournt No. Amount No. Amount No. Amount 1962 2 5,000 - _ 2 2,305 - - 71,305 2,650 9,955 3,253 196:3 9 9,020 1 60o - - 1 2 9,6i22 9,356 18,978 6,202 196h 11 10,1h5 3 1.,1808 - - 39 497 11, 822 5,528 17,350 5,670 1965 13 10,739 - 2 536 46 659 11,'31h 4,646 16,580 5,418 1966 9 4,905 3 67C) 3 987 41 639 7,201 4,230 11,431 3,736 1967 12 11,856 5 l, 005 6 2,445 48 1,199 19,505 3,842 23,347 7,630 1968 (8 months) 14 22,488 2 1,740 4 1,.939 32 _78 26,9h47 10,968 37)915 12,391 70 74,153 14 8,195 17 3,212 207 3 ,776 94,336 41,220 135,556 44,300 IBR D/Dr0C $,7ptemiTer 1.5, 1.969 ANITEX 2 Page 1 1VflEITOPPTZNT PA?LTKWF CT-kC-A0PCr T'?n. TAiqt r$ cfinrPhAr1H., hv qq oftorsaof Junp V0. 1969 Amnirnt (d$ '000) Percentage Goverrment of' Sigapore ,6588.7% Commercial Banks (Local) The Asia Commercial Banking Corp. Ltd. 250 The Bnnk A--- -r,rc,N.T'. R. S . A. 2,600 Oversea Chirese Banking Corp. Ltd. 2,000 41le 1 6rV kogC &L LJ,Lr L-.. B ngAJ1Co., 1JUI,0. United Overseas Bank Ltd. 1,800 Mt-rn- - - f -I-1 lA WlartLAw-eCL DaIK .L , .)UJ Overseas Union Bank Ltd. 3,000 Gh-=-eLtd.=lia= BanK ~~1,000O The Indian Bank Ltd. 200 Tne Indian Overseas Bank Ltd. 300 The United Ccommercial Bank Ltd. 300 Ban Hin Lee Bank Ltd. l00 Four Seas Communications Bank Ltd. 1,000 Tne Miercantile Bank Ltd. 500 Eastern Bank Ltd. 483 The Far Eastern Bank Ltd. 250 Algemene Bank Nederland N.V. 500 Kwong Lee Bark Berhad 100 Malayan Banking Berhad 1,000 The 1Yitsui Bank Ltd. 500 The Bank of l'okyo Ltd. 500 The First National City Bank Ltd. 500 The Bank of ]ndia Ltd. 300 The Industrial & Comrmercial Bank Ltd. 250 The Bangkok Bank Ltd. 500 The Bank of Canton Ltd. 100 The Bank of East Asia Ltd. 200 Banque De L'Indochine 300 Lee W4ah Bank (Singapore) Nominees Ltd. 484 O.C.B. Nominees Ltd. 1,667 The Bankers Trust Co. Ltd. 726 2h,010 _.__z ANNEX 2 Page 2 (s$ 0ooo) Perce!ntage Commercial Banks (Foreign) Dresdner Bankr Aktiengesellschaft 500 Noridentsche Kriditbank A.G. 190 Evenska Handelsbanker A.B. 150 Credit Lyonnais 150 Schtoler iVilnv'4m.nyer niast R&Co. 100 Brinckmann Wirtz & Co. 100 Comr bank A.G. 5-00 Vereinsbank Ln Hamburg 100 Brer,mer LardebaL-` inn100 1,890 1.9% Insurance Companies and Other Financial institutions Hong Leong Finance Ltd. 100 Commonwealth Development Finance Co. Ltd. 200 Commonwealth Development Corp. Overseas Union Insurance Ltd. 100 United National Finance Berhad 736 Commercial Union Assurance Co. Ltd. 200 The Peoplets Insurance Co. of iNalaya Ltd. 100 The Asia Life Assurance Society Ltd. 200 Chase International Investment Corp. 500 The Industrial & Commercial Insurance Co. Ltd. 100 The Asia Insurance Co. Ltd. 145 The Public Insurance Co. Ltd. 100 The Prudential Assurance Co. Ltd. 187 The Great Eastern Life Assurance Co., Ltd. 500 The Overseas Assurance Corp. Ltd. 250 Crown Agents for Overseas Governments and Administrations 2,000 The Shaw Foundation 93 Singapore Finance Ltd. 98 The New Zealand Insurance Co. Ltd. 97 United General Insurance Co. Sdn. Berhad 50 American Lnternational Assurance Co. Ltd. 93 Seacorp Nominees Sdn. Berhad 85 Prow.incial Insurance Co. Ltd. 50 Norwich Union Fire Insurance Society Ltd. 50 hia TU nderwritiers Life I Gr- ral insurance Co. Ltd. 2 South British Insurance Co. Ltd. 5 7,591 7.6% Other Companies & Individuals (about 7,000 in-no.) 17,851 17.870 IBRD/DFC TGTA * September 2, 1969 ANNEX 3 vLi1 uriUlLIli DI'Jla OFUrIDIA±x'aILnE IJIIJ. Board of Directors June 30, 1969 Representing the Government Mr. Hon Sui Sen (Chairman) Presicdent, Development Bank of Singapore Ltd. Mr. Tan Boon Teik Attorney-General Mr. Chua Kim Yeow AccourLtant-General Mr. J. Y. M. Pillay Ag. Permanent Secretary Ministry of Finance Mr. Sim Kee Boon Chairman and ManaginL Director International Trading Corp. Mr. Lee Keng Tuan Ministry of Finance ',<^wresen+-u-ir Shhldr in +1,t Pw4 'Ta+rw Pctor,+v Alterrate Mrll'. Tan Chlil ThaLLn Managing Director Overseas Chinese Banking owrp. Ltd. Iu-* Len Ying Chowl- .!LY. w-ice C Managing Director General Manager Overseas Union Bank Uverseas Union ILsuranuce *S...... ~~~~~1/ lvr. Louis j. lkAkern Mr. J. D. van uenen Senior Vice-President - Asia Vice-President Bank of America Bank of America Mr. John Wilson Mr. Terence M. Attwood General Manager Singapore Manager The Chartered Bank The Chartered Mr. WVAe!eCho Yaw MLr. Goh Seong Pak Managing Director Managing Director United Overseas Bank Ltd. National Iron & Steel Mill, Ltd. Tv-U. YostG.r1~±S4-- FF'r.ckwl rens£ 1AJI-c - L Chief Foreign 1Manger / M5r. van Oenen left Singapore in October, 1969. Since then, the vacancy he.s not been filled. UNIY I Page 2 June 30., 1969- Mr. Hon Sui Sen (Chairman) Development Bank of Singapore Ltd. Mr. J. Y. M. Pillay A'g. PermianenIt Secretary Ministry of Finance IIr. J. D. van Oenen vice-President Bank of America MIr. Goh Seong Pak Hanaging Director Nfational Iron & Steel Mill, Ltd. IBRD/DFC Sentember' 2. 1969 DE-VELOPMENT BANK OF SINGAPORE LIMITED ORGANIZATION CHART AS OF JULY 31,1969 K OE3ARO OF DIRECTORS (12 members ) EXECUTIVE COMMITTEE I mernbers I I4 CHAIRMAN AND PRESIDENT L Hon Sui Son r EXECUTIVE \/ICE-PRESIDE1IT L W.D.WAfabnltz I COUNSELLORS DEVELOPMENT FINANCIN(i __ _ _( V. iavlicek ) ______~~~COMMERClt AN,AIKING VICE-PRESIDENT _ (S. Dhanabalan) PROPERTIES FI~~~~NANCE AND CONTROL AND COMMERCIAL IMLEMENTATOIN OPRTOSECONTMIC LIMITED DIVISIONF (NonDoer, DIVISION DS RE DIVISION DIIS ION CDISA DIVISION DIV~~~~~ IaIaoe~ ~~~ISIONR, (MaIONeD-VIoAe ONR VIIIDIVISION R DEVELOPMENT [ _____j J_-______jj)EEEj _ 1 IACDOU NT S (PODPGREMOCU 3T) PESONNEL 1 I ] I SOORSE_ CIPENT P 7 C C L4;;2 TEOXTILEr 1 F :N GIN EJE CY~V 12 [SERVfICEj j INOUSTRIES [INDGSTR 1 ]E INDUSTRIES] 1IRDI-457S(R) Page 1 DEVELOPMENT BANK OF SINGAPORE LTD. Loans Assumed by DBS at August 31, 1968 Amount Industrial Loans (S$) Acma Electrical Industries Ltd. 400,000 Aluminium Pioneer Corpn. Ltd. 700,000 Asia Cement (Malaysia) Ltd. 750,000 Borneo Marine Products Co. Ltd. 258,330 Camel Industrial Corp. Ltd. 174,300 Camel Plviood Corpn. Ltd. 1,060,710 t " 457,656 Geramics(P\alTavsia) Ltd. 1,500,000 Chemical Industries (F.E.) Ltd. 1,750,000 I " 600,000 Chenta Rayon Ltd. 364,000 "t " 38,000 Decola Ltd. 150,000 Eupoc TPulp -Par Industrie-s Ltd, 1;250.000 Far Easte:rn Cables & Switchgear Ltd. 100,000 e deral± C,h,MiCal TnfqiioAwt.ie Ltd .n-nno n. "I "i 580,o0o Gen.eral L_ather TL-d 280+,00 It H 362,539 1 ,_ -1 4 I I f'* T t- A a). Efnn Ut:Uner-diJ Mwrlu. J. J. V:) V.A.Xo- 324,000 uhiarfL Serig 8_ Co. 2,2 Hodgson Co. Ltd. 129,000 ndustrial rPanti a EqLU-PFUU L4tde-U, I;.v Jurong Shipyard Ltd. 8,740,000 'L,VU, VVJ Jurong Tile Works Ltd. 160,000 Kall Teck Ltd. 17,500 Malaysia Associated Industries Ltd. 490,000 lialaysian Feedmilis Ltd. 800,000 Melati Ltd. 558,334 National Grain Elevator Ltd. 2,850,000 National Iron & Steel Mills Ltd. 1,538,461 , If I,, 490,000 it It 842,857 if if 1,000,000 Pan Electric Industries Ltd. 313,000 Pan Malaysia Industries Ltd. 1,000 Selco Ltd. 144,000 Sheng Huo Enterprises Ltd. 220,000 iANNEX 5 Page 2 Amount (S$) Sigma Cable Co. Ltd. 117,500 Simalpan Steel Industries Ltd. 962,857 it "1 129,500 Singapore Factory Development Ltd. 1,500)000 "t "i 1,420,000 Singapore Textiles Industries Ltd. 3,200,000 South Asia Parquet Ltd. 100,000 Sugar Industry of Singapore Ltd. 400,000 Times Trading & Shipyard Ltd. 36,000 37, 500 Thai Wah Co. Ltd. 415,716 Veneer Products Ltd. 62,500 828,000 Wing Tai Garment INfrs. Ltd. 525,000 Zuellig (Gold Coin) Mills Ltd. 600,000 Sub-Total 42,917,982 Working Ca:ital Loan Long-term Deposit with Industrial and Commercial Bank Ltd. on account of M/s. Gim Huat & Co. Ltd. h50 000 Small Loan Scheme2 TnT,',T I EA R TOTAl. 45,567 ,982 IBRD/DFC September 2, 1969 hMilrVV DELOPM1ENT BANK 0? SINGAPORE LTD. Loans in Arrears as of .June 30, 1969 Loan Amount Principal Interest Outstanding Amount Date Amount Date Nare of Borrower Industry at 6/30/69 Uverdue Overdue Overdue Overdue Asia Cement (Malaysia) Ltd. Cement 750,000 62,500 1/26/69 - Camel Industrial Corpn. Ltd. Plastics 59,000 - 2,065 6/30/69 Ceramicus (Malaysia) Ltd. C 1 388,560 6/L/66 - l// Ch,nts Rayon Co. Ltd. Gannents 364,000 12,000 L/L/69 - 21,845 10/1/68 - 5/l/69 )/ , '-c7 37,000 37,000 10/1/68 - 2,115 10/1,/68 - 6/1/69 6/1/69 Chemical Industries(F.E.) Ltd. Chemicals 1,750,000 - 29,281 1/1/69 "1 "1 "1 600,000 60,000 1/1/69 11,484 1/1./69 Decola Ltd. Plastics 100,000 - 4,410 L/l]/69 Dupoc Pulp & Paper Lnd. Ltd Paper 1,250,000 125,000 1/1/69 4, 303 1/]l/69 General Leather Ltd. Leather 280,000 L40,000 12/1/68 - 7,350 6/1/69 6/1/69 362,539 lh0,000 1/1/69 - 10,715 2/1/69 - 6/1/69) Far Eastern Publishers Ltd. Printing 1,200,000 - [2,000 6/1/69 1/ Federal Chemical Ind. Ltd. Chemicals 1,000,000 625,000 6/30/67 - 6/30/69 420,486 420,486 4/5/66 - 10/5/67 iodgson co. Ltd. Fish Meal 129,000 16,125 3/15/69 563 3/13/69 Malaysia Associated md. Ltd. Bicycles 490,000 7 L2j31j68223'31/68 19,224 TOTAI, 10.292,025 1,711.611 543,915 of Loan Portfolio (EDB) S$ 40,657,000 as of 6/30/69 25.3% 1.2l.3% % of aggregate Loan Portfolio (EDB-IsS) S$ 52,157,075 as of 6/30/69 19.6l I/ Paid in July 1969. Il3RD/DFC September 2, 1969 ANNEX DEVELOPMENT FIANK OF SINDAPORE LTD. IJndisbursed Loan Commitments Assumed by DBS as of' September 1,1968 Loan Period Name of' Company Industry Arnount(SO) Interest Rate (years) Undisbur$ed Portion of Loas Signed by EDB Camel Plywood Corporatiorn FPlywood 120,000 7% 6-1/2 Genera-L Leather Ltd. Leather 37,000 7% 1-1/2 Malaysia Associated Industries Bicycles 510,000 7% 4-l/2 National Grain Elevator Crain storage 150,000 7% 4-1/!2 Singapore Factory Development Financial Inst:itution 780,000 6-1/2% 21 South Asia Parque Ltd. Parquet l00OO 7% 5 Sub-total -L,697,000 Loans Approved but not disbursed _T ED]B American Marine Singaporel (Pte)Ltd. Boat building 90,000 7% 4 Camel 1ndustrial Corp. Plastics 1Li0,000 7% 3 Chang Jit Hao & Ko Rubber' Plantations Rubber 475,000 9% 3 Eupoc Pulp , Paper Ind. Ltd. Pulp , paper IL,500,000 7% 6 Far Eastern Publishers Ltd. Printing IL,200,000 7% 5 Far East Shipbuilding Ind.. Ltd. Shipbuilding 500,000 7% 6 Guan Thong Private Ltd. (Orange Grove) Hotel 7,000,000 8% 10 Hotel Merlin Singapore Ltd. Hotel 6,000,000 8% 10 Industrial Plant & DEuipmaent Ltd. Shi4building 240,000 7% -1/2 Jurong Shipyard Ltd. Ship repairing and buildling 3,,773,000 7% 13 Sijgma Metal Co. Ltd Metals IL,000,000 7% 10-1/2 Singapore Fishing Industries Ltd. Fishing 600,000 7% 7 Singapare Jute Mills Ltd. Jute 2,700,000 7% 10 South Grand Textiles (Singapore) ltd. Textiles 2,880,000 7% 9 United Beehon Manufacturers Ltd. Food 300,000 6e 5 Sub-total 28,398,000 TOTAL 30,095,000 IBRD/jDFC Septernber 2, 1969 ANDtEX o Page 1 DE^OT (PMMEP BANK OF SINGAPORE LTD. Policy Statement, (Adopte3d u.r-lir 26P 1969 The Development Bank of Singapore Ltd. was established primarily to carry on the business of a development bank and to provide finance by way of long and medium term loans, equity participation or guarantees to manufacturing and other industries in the Republic of Singapore. I. Development Financing Policy (i) Finance will be made available to projects which are in line with the development requirements of the economy; (ii) 'Finance will be made available only for projects with sound manaaement and which are economically and technically viab-le and financially profitable. In addition the Bank may adminis- ter snecial funds nrovicded to it for specific purposes; (iii) 'Financing will be diversified as far as possible as regards type of industries; (iv) The Bank will assist in broadening the base of industrial ownership in Sin.aqaflreW and nnrticinatinn o_f priv2ate canital in the development of Singapore; (v) The Bank will follow closely the performance of the project :inanced by the Bank and assist wherever possible during the period of the Bankrs financial engagement; (vi) 'In accordance with normal business practice, adequate security will be obtaUned to cover any financial assids±ataLce, otuiier Utlar- equity participationa, extended; (vii) 'In its equity operations, the Bank will generally take a minority position and will not' see'k a controlling interest in an enter-, prise. In special circumstances, such as an operation providing public utility or infrastructural services, the Bank rnay take a rajority interest or wholly own such operations. II. Activities Qualifying for Development Financing The Batik will extend financial assistance mainly to the following activities: (i) ManufactuLring and processing industries; (ii) Primary industries such as fisheries, forestry, plantations and mining which supply raw materials and semi-finished products to industries in Singapore; (iii) lTourist industries (hotels, resorts, etc.); ANNEX 8 Page 2 (iv) Construction of comnercial buildings mainly related to the Urban Renewal Programme (office buildings, shooping arcades, car parks, etc.); (v) Shipping, transportation and other service industries. III. Type of Development Financing The Bank will provide different types of assistance according to the merits of each nroject such as: (i) medium and long-term loans for acquisition of fixed assets with or without option to convert into stock; (ii) guarantees for industrial equipment loans extended by machinery suppliers or financial institutions to Singanore enterprises; (iii) participation in the ordinary shares of an enterprise; (iv) participation in the preference shares of an enterprise ()ndrwsi+-;ng of puli'lc issues by Singlapore er.terprises; \ L1~J/ V± LjA- industrial'. buidi~ *SI.ys A . (vi) short-term, workiLng capital advances; (vii) leasing of industrial buildings, machinery and equipment; (viii) hire-purchase financing of machinery and equipment, and (ix) credit for export of local products. IV. Limits of Development Financing In its financing policies, the Bank will generally be guided by the following limitations apart from any that may be placed by prevailing laws governing the operations of banks as a whole: (i) The Bank will not as a rule commit to any single enterprise long- term financing in an aggregate amount greater than 25% of the Bank's paid-up share capital and reserves; (ii) The Bank's participation in the ordinary shares of any single enterprise will not exceed 10% of the Bank's paid-up share capital and reserves; (iii) The total equity holdings of the Bank will not exceed its paid-up share capital and reserves; (iv) The Bank will not as a rule extend loans to any enterprise for and secured by machinery and equipment exceeding 50% of the value of such machinery and equipment; A2EX 8 Page _3 (v) The Bank will not as a rule extend loans for and secured by factory building and land in excess of 65% of the value of such land and building. For small standard type factories, this may be increased to 85%; (vi) Guarantees for equipment credit extended by suppliers or other institutions will not as a rule exceed 60% of the f.o.b. value of the equipment secured or 50% of the installed value of such equipment (vii) The total loan and guarantee commitments of the Bank will not as a rule exceed the interest (or total investment) of the entre- preneurs in the nroiAet. V. LTmi tE* o f TBorreowing ann Rleerv (i1he -irc-or of the Bank shall not, withou_t aPpproval at asae holders' meeting, borrow sums which in the aggregate exceed three t;_ s +tepald up capU'al and reserves of the Bak This s.Jhall not apply to funds obtained through normal commercial banking operatiun si (ii ThJLle BankL shall setL a sidUe a-t lveast 50p1o.)/ iUs anniual- profiStsa reserves until the reserves total half the paid-up capital and thereafter at least 25p of the profits shall be set aside as reserves until the reserves equal paid-up capital. VI. Commercial Banking Policy In its commercial banking operations, the Bank will complement the services provided by commercial banlks operating in Singapore. Tne BanK will be guided by the following broad limits: (i) The Bank will as a rule accept funds only from clients of its development financing operations. The total of time and curr,ant deposits of any client should be maintained at a minimum level of $50,000; (ii) In the application of such funds the Bank shall maintain a sound liquidity position in accordance with established banking practice; (iii) The Bank will normally extend working capital advances, discount Bills, open Letters of Credit and perform other commercial banking services only for clients of its development financing operations or for firms who have sought but are not able to obtain the facilities from commercial banks. The Bank will extend working capital financing only for activities which will qualify for assistance in its development financing operations. Such working capital facilities will generall;y be advanced in cases where these facilities are not available from commercial banks on the terms and in the amomnt necessary for the nroiect's viable operation. Such working capital advances may be made either directly to the applicant or through commercial banks. Where such assistance is advanced ANNEX 8 Page 4 through commercial banks, the commercial banks may be asked to carry part or the whole of the risk in the operation, with the Development, if necessary, providing the liquidity. Working capital advances extended by the Bank may be either in relation to a specific sales order, (in which case, the facilities extended will have to be liquidated over a said period of time), or such advances may be on a revolving basis. tBRe/DF9 September :L5, 1969 ANIE X 9 DEMTlOPMUT aA-r OF SITGUPOAp. TM.M Operationy, Septertqb 1. 1968 - June 30, 1949i Applications m Agreemients Signed Disbnisexjant3 Long-tenT Industrial Loans September 1 - December 31, 1968 28 28 9 13 26.780 20 31,557 1 15 10,72 January 1 - June 30, 1969 37 141,204j 28 45,889 7 lh,405 5 999 65 170,184 41. 72,669 27 45,962 20 11,728 Light Industries Loans September 1 - December 31, 1968 43 1,848 21 798 21 798 21 798 January 1 - Jlnn 10- 1969 51 2 711 214 776 29x 776 2x, 776 94 4,559 45 1,574 45 1,5714 - 45 1,574 Working Capital Loans September 1 - December 31, 1968 9 269 9 269 9 269 January 1 - Jun e 30, 1969 12 406 12 406 12 ao6 21 675 21 675 21 675 Equipmnent Hire-Purchase Loans September 1 - Dec,ember 31, 1968 10 399 10 399 10 399 January 1 - June 30, 1969 1 305 11 305 11 305 21 704 21 704 21 704 Factory-Mortgage Loans September 1 - December 31. 1968 2 130 2 13 2 1C0 January 1 - June3 30, 1969 1 65 1 65 1 65 3 195 195 Equity Participations September 1 - December 31, 1968 5 9,233 5 5,504 M 9 13 660 6/ 7 9,2557/ January 1 - June 30, 1969 8 32,683 9,846 7 6,132 5 4,832 13 41,916 15 15,350 16 19,792 12 Guarantees September 1 - December n, 1968 - - - 8/ - January 1 - Junf! 30, 1969 4 70,231 2 16,354 2 16,354 4 70.231 2 16,354 2 165IC), 1/ Net of cancellaticns. 2/ Including 15 agreements covering loans totalling S$ 28,398,000 originally approved by EDB. 3'/ IT- u-e CS It C,n i1,46 asedagainst loarta origirnally approved by EDB. 4/ Loan agreements were executed between the participating commercial banks and borrowers. 5/ Disbuxrsements were made in the form of deposits with the participating commercial banks. 6/ including 5 equity participations totalling S$ 8,216,100 originally approved by EDB. 7/ Including 4 equity participations ori-.ap.2y-approved by EDB, 8/ Including a guarantee of S$ 16.2 million to a shipping company which was approved in principle, subject to specific approval in respect of each vessel. IBRD/DFC September 2, 1969 ANYZ X 10 Page I DEVELOPPIENT BANK OF SINGAPORE LTD. Loans Approved by Industry September 1, 1968 - June 30, 1969 Percentage Amount Percentage Number of Number (S$ '000) of Amournt Fishing 1 2.4 1,100 1.5 Food '' 4.9 1,100 15 Textiles 2 4.9 2,097 2.9 Foovwscfi''SJ i'~V~d12.3 2,125 2.9 Wood and cork 4 9.9 8,430 11.62 Printing 1 . 2.h 1_600 2 .2 Rubber products 3 7.3 16,916 23.3 Chemica.Ls 3 7.3 1,548 2.1 Non-metallic mineral products 1 2.4 1,500 2.1 Basic metal industries 1 2.4 1,1400 1.9 Machinery 2 4.9 912 1.3 Electronics 3 7.3 20.300 27.9 Transport equipment 12.3 1,l9 1.7 Miscella.neous maanufacturiing industries 3 7.3 1,465 2.0 Financial institutions 1 2.4 2,572 3.5 Shipping 1 2.4 750 1.0 Real estate 1 2.4 7,500 10.3 Hospital 1 2.14 75 0.1 Engineering Services 1 2.4 120 0.2 41 100.0 72,669 100.0 ANNEX 10 Page 2 Duration of Industrial Loans Approved Septeember 1l 1968 to June 30, 1969 Percentate Amount Percentage Duration of Loans Nuimber of Number (S$ '000) of Amount Up to 5 years ILO 24.4 5,252 7.,2 5 - 10 years 24 58.6 61,378 8h.5 10 - 15 years 4 9.7 3,100 4.3 15 - 21 years 3 7.3 2,939 4.0 41 100.0 72,669 100.10 ~~~== Distribution of Industrial Loans by Size September 1, 1960 to June 30, 1969 Percentage Amount Percentage Size cf Loan (s$) Number of Number (3$ '000) of Amount, Below 200,000 10 24.5 1,222 1.7 200,OC01 - 2,000,000 23 56.3 20,259 27.9 2,000,00). - 6,000,000 4 9.6 1h,343 19.7 6,000,001 -10,000,000 3 7.2 26,oco 35.8 Over 1.0,000,000 .1 2.4 10,865 1h.9 41 100.0 72,669 100.0 ._= IBRD/DFC Septerber 2, 1969 ANNEX 1L DLVRlPMENT RAlIK OF SINGAPORE LTD. F4uity Investzmnts as of June 30. 1969 Aoylt ApnrovAd Amoulnt idj of Company Industrv Name (S$'00oY DBS's Approvals 900 Tizfber 9oo Starlight Timber Products Co. 725 Toppan Printing Co. (Pte) Ltd. Printing 1,900 House 3,800 Intraco Ltd. Agency 19 19 Veneer Products Ltd. Veneer Appliances 60 Universal Electronics Corp. Ltd. Electronic 420 420 Fishing Straits Fishers (Pte.) Ltd. Institution 24212 Singapore Factory Development Ltd. Pinancial 112 Marine Products (Pte.) Ltd. Fishing Industry 100 DBS Realty (Pte.) Ltd. Service 1,200 Camel Industrial Corp. Ltd. Plastics 1,800 800 Plywood International Wood Products Ltd. Appliances 3,500 Airco Singapore (Pte.) Ltd. Electronic 70 1/ mix 70 Malaysian Feedmills Ltd. Feed parts 101 Naigai (Pte.) Ltd. Umbrella 300 300 Fair Lady Fashions Ltd. Hair wigs 7,652 Sub-total 15,350 EDB's Approvals 1,000 Paper 1,000 Eupoc Pulp & Paper Industries Pulp & 1L,000 Li.000 Hotel Merlin Singapore Ltd. Hotel 2,816 1,d16 Hotel Shangri-La Ltd. Hotel 30 30 Singapore Laces & Labels Ltd. Textiles 370 Singapore Fishing Industries Ltd. Fishing 6,446 Sub=to+tl 8,216 11, 098 TOTAL 23,566 1/ Loan conversion exercised. IBRD/OFC September 2, 1969 ANNEY; 12; Page 1 DEaVKOPRETATBfL(K OF STDGAPOIWE LTD. 9^lc Sheets,4 Dw,4.,n- 31 1 968R .dvA JTrvne r) 1 OO ASSE1o . ~~~~~~Deemllber 31, 1968 Junle 30,*L6 (audited) (unaudited) Current Assets Cash 8,377 Accounts receivable 1,038 1,869 Temporary investments Treasury bills 43,359 37,822 Fixed deposi-ts 40,124 52,843 Advances to customners - 92,898 2,500 96,519 Subsi diarv Cornmanies Shares at cost Amount due - 734 73)4 T-oans Outstandirng Long-term loans and light industry loans 50,872 52,457 Less: Provision :For losses (28) 50,844 (28) 52,429 Equity Investmcnts Quoted shares 1,019 6,819 Unquoted shares 5,584 6,603 7,287 14,106 Fixed Assets Bank preniises, vehicles, furniture eq ..;_--+ t-T4TA AE 150,36799 t, -867 TOTAL ASSETS 150,367 L-68.625 Page 2 LIABILITIES & SH&REHOLDERS EQUITY 3 1968 (audited) (unauditeci) Current Liabilitios Accounts payable 4,396 2,661 Current and fixed term deposits - 4,396 10,997 13,658 Long-Temorowinrgs B Credit lines from Government 45,568 51,568 Shareholders Equity Issued capital 100,000 100,000 General reserve 300 300 Unappropriated reserve 103 103 Profit & Ioss A/C - current period - 100,403 2,996 103,399 TOTAL LIABILITIES & SHARFhOLDERS EQUITY 150,367 158,62< IBRD/DFC September 2, 1969 ~it.jTV7 1 n iN rr"7 nn,Pf' o TTr OfFtni^" T flflflfl MT%f UP iJTvfdU-r 'LI flhiPI\AULD LYJj'HUfruLr iL). ro-riT ana Loss AccounMs, July 16-December 31,1968 ana January i-June 30,19c.9 (S$ 1000) July 16 - January 1 - Dec. 31, June 30, 1968 1969 INCOME Int,erest on long-term loans 10,05 1,673 Intserest on temporary investments 666 2,780 Dilridend income 14 3 Other income 76 86 l'otal income 1,747 4,682 EXPELISES Administrat,ive expenses 117 667 Amortization of organization expenses 64 Financial exnenses Interest. on government loans 625 993 Interest, on deposits - 26 Total expenses 806 1,686 PROF]:T BEFORE TAX 941 2,996 AMOUMIT SET ASIDE FOR TAXATION 510 NET PROFIT 431 A =Dort)-oTA MLn rTfj. Gereral reserve 300 nei,ained earnings 103_) 431 IBRD/'DF C September 2, 1969 ANNEX 14 DEVELOP1ENT BANK 2 'SINGAPbRE LTD. Pro.jected Statements of Income. 1969 - 1973 (Ss million) Sept1. 1- Dec. 31 1968 1969 1970 1971 1972 1973 INCOtE (Actual) ( ------Forecast ------) Interest on lon,g-ter.. 1.s0a. 1.0 9.0 13.0 20.2 29.1 38-7 Interest on temporary investments 0.7 5.3 3.5 1.4 1.7 2.2 IntereSt & commission on working capital 'a-v ---e - 2.3 3.5 5qo 6.9 8.8 Dividend income - _ - - 0.L4 1.6 Total income 1.7 16.6 20.0 26.6 38.1 51.3 EXPENSES Adrnini;strative etpenses 0.2 1.14 1.5 i8 2M2 2 5 Financial expenses Interest on gc,vernment loans o.6 2.' 3.3 L,.6 6.Lu. Interest on other loans - 0.1 2.9 9.0 16.2 214.0 Interest on denosits _ 2.0 2.9 4.2 5.9 7.5 Total expenses o.8 6.0 10.6 19.6 30.1 L40o.L Profit before tax 0.9 10.6 9.4 7.0 8.o 10.9 Income tax 0.5 4.2 3.7 2.8 3.2 L.Li Net profit after tax o.14 6.Lj 5.77 .2 1.8 6.5 To hb annronriated: Cleneral reserve 0.3 2.3 2.6 3.1 3.2 3.14 Dividends - - - 3.0 3.0 3.0 Retained earnings 0.1 14.1. 3.l (1.9) (1.4) 0.1 o.4 6.14 5.7 4.2 14.8 6.5 RLAT1O: 3ross earnings before interest, tax and provisions as % of averape total assets O.L,7 7.0%(. 6.7; 9.9 7-.3 Profit before tax and provisions as % cf average total assets 0.6/-' 5.9% 3.7% 1.97 1.5% 1,6o ~ruf`,t b,efore tax ar,d provisions as % cf average net worth 0.9% 10.2% 8.6% 6.22 7.0% 9.,3% Pro it after tax and provisions s of average net worth 0.L,% 6.2% 5.2% 3.7% 1.2% 5.6% Profit after tax and provisions as % of year-end share capital 0.14% 6.L4% 5.7% 1.2% L4.8% 6.5% IT3RD/DFC September 2, 1969 DEVELOPMENT BANK OF SINGAFORFRE LTD. Proiectepd Balanep Sheets. Decnmber 31tl969-1973 1968 1969 1970 1971 1972 1973 (Aetinl) T----Forecast --- 7 A_SS E T S CURRENT ASSETS Cash & Accounts Receivable 9.4 20.5 28.6 32.3 39.9 46.6 Temr-porary irLves-nts 83.5 I43.5 2.5 5.0 8.5 12.0 Working capital advances - 27.3 41.3 60.2 83.8 107.5 LOANS OUTSTANDI:NG Long-term loans & light industry loans 50.8 96.2 178.0 274.1 375.0 472Lc r.QuiITf LNvESilvlhEj1i kincluding subsidiaries) 6.7 23.6 44.6 68.6 88.6 109.6 FIXED ASSETS (net) - 0.1 0.1 1.0 1.2 0.9 TOTAL ASSETS 150.4 211.2 295.1 441.2 597.0 749.2 L I k B I L I T I E S CURRENT LIABILITIES Accounts payable 4.4 4.2 3.7 2.8 3.2 4.4 Current & fi)Lcd term deposits - 32.0 50.0 75.0 107.0 138.0 I;OsIIGU- 'IZU.BOnZUt.rlv'1 .I JUC Loans assigned by ED:B 45.6 46.2a 4.9 37.6 33.3 29.0 Governni2nt loans - 20.0 45.0 83.3 103.9 114.7 Other loans - 2.0 42.0 128.8 234.1 3,)4.1 SHhREHOLDERS EQTJITY Issued capital 100.0 100.0 100.0 100.0 100.0 100-0 General ressrve 0.3 2.6 5.2 8.3 11.5 14.9 Unappropriated reserve 0.1 4.2 7.3 5.4 4.0 4.1 TOTAL LIABILITIES 150.4 211.2 295.1 41.2 597.0 7149,2 TBRD/DFC Sei,tem7ber 2, 1969 DEVELOPMENT BANK OF SINGAPORE LTD.' Cash F-low Forecast 1'968 - 1973 (ST million) 9/1-12/31 1968 1969 1970 1971 1972 L973 SOURCES Share Capita'L 100.0 - - - - - Interest on :Long-& medium term loans 1.0 9.0 13.0 20.2 29.1 :38.7 Dividends from equity holdings - - - 0.4 1,6 Loan repaymenlts 2.6 6.6 8.2 9.9 19.1 32,4 Government lines of credit 20.0 25.0 40.0 25.0 20.0 Other lines of credit 2.0 40.0 87.0 110.0 125.0 Increase in deposits (current and fixed) 32.0 18.0 25.0 32.0 :32.0 Commission and working capital advances - 2.3 3.5 5.0 6 9 8.8 Interst on short-terrm investments and securities 0.7 5.1 2.7 0.3 0A 0.6 Interest on rnoney at call - 0.2 0.8 1.1 1.3 1.6 Realization of shor+,--term- investments and securities - 41.0 h2.5 - - - Tota'L 104.3 118.2 153.7 188,5 224.2 260.7 A,°PLICATIONS Disbursement of loans 7.2 52.0 90.0 106.0 120.0 13,00 ,,44-,.E+., rn+; mrbe. 4 17 91 n 9) n sn n O1 n L.,J I FMo.- v-.n JJ * An_+;_,A; *_* .L- - -a. -- Interest on Government loans cuid lrLnes ofL creCdi1t, 0C7 2.5 3.3_ 4.6 5. -.} Interest on other lines of credit - 0.1 2.9 9.0 16.2 2h4 0 Repaymaent of Goverrnm-ent lUan anU lines of credit - - 413 6.0 8.7 1.3.5 D_____ ***5***'*:- ** - _ _ _O)7 1 0n 1Azpail±et-l* on oItVrJ.V L U±V LI=. . -* -. - I. Interest on i'ixed deposits - 2.0 2.9 4.2 5.9 7.5 Increase in wiorklng capital advances - 27.3 14.0 18.9 23.6 23.7 Short-term investment and securities 83.5 1.0 1.5 2.5 3.5 3.5 Operating expenses 0.1 1.2 L.4 1.7 1.9 2.1 Other non-recurrent expenditures 0.1 0.2 0.1 1.0 0.5 0.1 Income Tax - 0.5 L.2 3.'7 2.8 3.2 Dividends _ 3.0 -3 3 Total 98.2 103.8 L45.6 184.8 216.6 253.0 Aet, cash inflow (or outrMow) 6.1 14.4 8.1 3.7 7.6 7.T Cash or near cEash beginning of period - 6.1 20.5 28.6 32.3 39.9 Cash or near CELsh end of period 6.1 20.5 28.6 32.3 39.9 07.6 IBRD/DFC Septeniber 2, 15'69 R. r- 1 Page ' DIEVELOPIMV1T BANK' OF SLNG'.PO0E LTD. Notes on Cash Flow Projection '. Interest from long-term loans.- Loans made by drawing on the 2nd (S$ 30 million) and 3rd (S$ 50 milion) Government lines of credit are assumed to be at 7%0 p.a. and other loans, including those made from further Governxnent, lines of credit, are assumed to be at 9% p.a. Breakdown of 7% and 9% loarlS is as follows (S$ million): 1969 1970 1971 1972 1973 Loans © 7% 20.0 2h.0 30.0 - - Loans @ 9% 32.0 66.0 76.0 120.0 130.0 Total disbursement 52.0 90.0 106.0 120.0 130.0 2. A commitment charge of 3/h% p.a will be levied on that part of the loans not drawn according to the disbursement schedules. 3. Dividends from equity.. Assumed that projects are completed 2 years after equity is paid up and that dividends at the rate of 5% (inclusive of tax © 40h0) are declared in the 2nd year of production and at 10% p.a. ther,e- after i. Loan repajents.- Ass.med that loans are for 9 years and that repayments are over 7 years after 2 years' grace. 5. Government lines of credit.- In addition to the present lines of credit m t4$p.a. from th'e Government, it is assumned that a further line of cr-d-r-t of S$ 50 million at 5% p.a. from the Government is available. The first loan of S$ X5 rlMllion will be repayable over a period of 8 years as from September 1, 1970. The 2nd line of S$ 30 million will be repayable, as agreed over 12 years starting from September 1, 1971. The 3rd and further lines, however, are assumed to be repayable in 8 years after a 3-year grace period for repayment. of principal. 6 Other lInes of credt. Furth.er lin es of credit from other sources totalling S$ 364 million at 7% p.a. repayable in 8 years after a grace period of 2 years are assumed. (z. increase in Current and Fixed Deposits. The total curre.t ad fi_xed deposits received are assumed to be (S$million): 1969 1970 1971 1972 1973 Current account 2 5 10 17 24 Fixed deposits LO 45 65 90 115 Total 32 50 75 107 13j9 ANNEX 17 Page 2 8. Comraission and interest from working capital advances0 It is assmmned that 1/3 of t-he current account monies is maintained as cash on which no initerest is earned. and that 1/2 of the current account is kept in. fairly liquid short-tern investments yielding 5% p.a. and the baLance is used for more permanent working capital advances at 8% p.a. Similarly, it is assumed that 1/10 of fixed deposits monies is kept in cash And mone,y at call and the balance is used for working capital advances at 8% p.a. Letters of Credit business is assumed to be as follows (S$ million): 1969 1970 1971 1972 1973 41.0 67.0 78.0 84.0 91.0 Commission at J/h% is assumed. 9.(a) Interest from short-term investments and securities. It is assumed and investments yielding 6% p.a. T'his item includes investments made to prieserve a. liq-uid position for the coMnLercial barking operation. tb) bash aria money at cali. Tinis is mainly cash requireu fVI- UU11WI,.ercL.L banking operations. Interest earned on this item is assumed at 45c p.C. 10. Realization of short-term investments. This is necessary to provide the f'unds for the long-term loan operations. Payments 1. Loans disbursed. It is assumed that 1/6 of the loan is disbursed in the year of commitment, 1/2 in the next year and 1/3 in the third year. 2. Participation in equity. It is assumed that 3/8 of the equity comm:itted is paid up in the year of commitment, 1/2 in the next year and the balance 1/8 in the third year. 3. Interest on Government loan and lines of credit. Interest of 4% p.a. is assumed, except for the 4th line of S$ 50 million on which interest is assumed at 5%. 4. Interest on other lines of credit. Interest at 7% p.a. is assumed. 5. Repayment of Government loan and lines of credit. This is in accordance with the agreement with the Government and on the basis o7" the assumptions made in the note on item 5 of Receipts. 6. ReDavment of other lines of credit. See note on item 6 of Receipts. AI'.ZN.AEX. Page 3 7. _Iterest on deposits.*- Fixed deposit interest payable is assuir-ie at, 6-1/2%. 8. Increase in working capital advances. This refers to working capital loans made to industries. 9. Short-term investments and securities. See note on item 9 of R;ecei.pts, 10. Operating expenses.- This covers rent, salaries and other adminz- istrative charges except capital expenditures. 11. Other rcn-rec:.1'W'rant expenditures.- This covers furniture, fixtures, offlce Xr_' '.vs etc. S$ I million is provided in 1971 for fur.-ishing office and decoration of DBS offices in new building. 12_ Inlome Tax is at prevailing rate of hO% of profits. 13_ DidrTh ds.. Assuymed that dividends after providing for reserves and income tax are paid at the rate of 3% in 1971-1973. IBRD/DFC September 2, 1969