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 They do not accept responsibHftv fnr its ntrorvn r rnmnpltenes The report may not be published nor may it be quoted as representing their views.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.