RESTRICTED Report No. DB-81a This report Ls for official use only by the Bank Group and specificaUly authorized organizations or personL It nmy not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsbility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF SOCIETE NATIONALE D'INVESTISSEMENT TUNISIA December 28, 1971 Development Finance Companies CURRENCY EQUIVALENTS Currency = Dinar (D) Exchange Rate at Par Value - before December 23, 1971 D t.525 = US$ 1 D I = US$ 1.905 - since December 23, 1971 D 0.o4o = US$ 1 D 1 = US$ 2.066 APPRAISAL OF SOCIETE NATIONALE D'I INVTISEMENT Table of Contents BASIC DATA SARY ~~~~~~~~~~i--ii. I. INTRODUCTION 1 1.01 II. SNI'S ROLE IN THE EONOMY 1 - 7 2.01 - 2.22 Background 1 - 2 2.01 - 2.03 Recent Economic Developments 2 - 3 2.04 - 2.07 SNI as a Source of Financing 3 - 4 2.08 - 2.12 SNI as a Mobilizer of Resources 4 - 5 2.13 - 2.16 Characteristics of SNI's Investments 5 - 7 2.17 - 2.22 III. INSTITUTIONAL ASPECTS OF SNI 7 - 10 3.01 - 3.17 Shareholders 7 3.01 Bbard and Executive Comrittee 7 - 8 3.02 - 3.03 Management and Organization 8 - 9 3.04 - 3.12 Policies 9 - 10 3.13 - 3.15 Relations with the Governments Commercial Banks and Other Institutions 10 3.16 - 3.17 IV. OPERATIONS. PORTFOLIO AND FINANCIAL POSITION 11 - 13 4.01 - 4.10 Operations 11 4.01 Evaluation of Loan and Equity Portfolio 11 - 13 4.02 - 4.08 Profitability and Financial Position 13 4.09 - 4.10 V. OUTLOOK 14 - 17 5.01 - 5.14 Business Proupects 14 5.01 - 5.03 Forecast of Operations 15 5.04 - 5.05 Resources Needed 1q - 16 5.06 - 5.10 Financial Projections 16 - 17 5.11 - 5.14 VI. CONCLUSIONS AND RECOMMENDATIONS 18 - 19 6.01 - 6.o6 This report is based on the findings of two missions to Tunisia in February and August 1971, staffed by Messrs. Coudol and Hidalgo from the Development Finance Companies Department and Mr. Gray from the Controllers' Department. LIST OF ANNEXES TUNISIA 1. Developments and Prospects in Tourism, 1963-1972 2. Gross Fixed Capital Formation in Manufacturing, 1968-1970, and Projections for 1971 SOCIETE NATIONALE DrINVESTISSEMENT 3. Long-Term Resources as of October 31, 1971 4. Ownership Structure Before and After Share Capital Increase Completed January 29, 1971 5. Analysis of Investments Approved, 1966-1970 6. Comparison of Projects Authorized under Loans 449, 512 and 648 7. Board of Directors and Executive Committee 8. Proposed Organization Chart (to be effective January 1972) 9. Statement of General Policies and Operations Adopted by the Board of Directors on July 4, 1966 and Amended on June 7, 1969 10. Equity Portfolio as of December 31, 1970 11. Income Statements, 1967-1970 12. Balance Sheets, 1967-1970 13. Forecast of Operations, 1971-1976 14. Projected Sources and Application of Funds, 1971-1976 15. Projected Income Statements, 1971-76, Actual 1970 16. Projected Balance Sheets, December 31, 1971-76, Actual December 31, 1970 17. Estimated Disbursement Schedule for the Proposed Bank Loan DFCD December 7, 1971 SOCIETE NATIONALE DINVESTISSEMENT BASIC DATA Year of Establishment: 1959 Year of Reorganization: 1965 % of Ownership (as of December 1, 1971) No. of Shares Total (D 5/share) Government, direct and indirect 145,787 24.2 Tunisian private institutions 50,365 o.5 Tunisian individuals 203,876 34.0 Total Tunisian 400,030 66.7 Foreign financial institutions 79,970 13.3 IFC 120,000 20.0 Total Foreign 199,970 33.3 Total Capital 60o,o0o 100.0 Bank Group Financing I. IFC INVESTMENTS IN SNI's SHARE CAPITAL Date Number of Cost Per Total Investment Investment No. approved Shares Share at Cost T-TUS$) (US $) 106 May 10, 1966 60,000 9.60 575,926 177 June 2, 1970 60000 1054632305 Total 120,000 10.07 1,208,231 II. IBRD Loans Status of Loans as of November 30, 1971 (in US$ '000) Authorized for Date Rate of Net withdrawal or Loan No. Signed Interest Amount credited Disbursed 449-TUN May 16, 1966 Variable 4,722 4,722 4,722 512-TITN Sept. 14, 1967 Variable 10,000 9,b46 8,810 648-TUN Dec. 24, 1969 7h 10,000 8,676 4,739 ii OPERATIONS (D million) Loans 1967 1960 1969 1970 1971 - - ~~~~~~~~(fiimonths) Approvals 3.7 3.3 4 4 6.6 5.9 Commitments 2.6 2.d 3.0 4.2 5.0 Disbursements 2.1 2.5 2.9 4.2 j.5 Equity Investments Subscriptions 0.2 0.4 1.0 0.3 0.2 Sales 0.4 0.2 0.1 0.4 0.1 FINANCIAL PERFORMANCE 1967 1968 1969 1970 1971 (as of October 31) Financial Position (D million) 1. Total Assets 6.4 7.6 10.8 14.9 17.8 of which Loan Portfolio (1-4) (3.7) (6.1) (9.0) (11.3) Equity Portfolio (1.6) (1.6) (2.2) (1.9) ( 2.1) 2. Total Equity 2.4 2.6 2.6 2.8 4.4 3. Long Term Debt 1.9 3.5 6.o 5.5 10.2 of which Bank Loans (0.7) (2.3) (4.1) (6.5) ( 8.2) 4. Long Term Debt/Equity 0.8 1.5 2.3 3.0 2.3 5. Long Term Debt/Equity as defined in Bank Loan Agreement 0.4 1.0 1.9 2.6 2.0 Financial Results (in %) (10 months) 1. Earnings before interest, tax and provisions as % of average total assets 3.4 3.9 5 J4 5.2 5.2 2. Profit before tax as X of average equity 6.7 7.2 7.6 6.7 6.6 3. Profit after tax as A of year-end share capital 10.6 12.0 13.2 8.9 4.4 4. Administrative costs as X of average total assets 1.9 1.o 1.4 1.3 1.3 5. Reserves and provisions as % of total portfolio 29.6 20.8 13.7 11.1 10.9 6. Book value as X of par 160 173 175 18 6 140 7. Dividend as A of par 4 4 5 6 _ SUMMARY i. This report brings up-to-date the situation and prospects of SNI which were described in detail two years ago in Report DB-53a, November 10, 1969. ii. SNI's operations, which are mainly in the private sector, have grolwn considerably since 1968; loan approvals in 1970 were about twice 1968 approvals. This trend is likely to continue. SNI's share of total investment in the economy has increased from less than 1% in 1966 to nearly 3% in 1970; SNI is contributing at present about 12% of total industrial and hotel investment in Tunisia. iii. Although there has been some deterioration in SNI's project work in the past two years, as a result of loss of senior staff, and a consequent increase in arrears, SNI's financial position continues to be sound. The increase in arrears caused SNI's auditors to qualify their opinion on SNI's 1970 accounts. However, SNI has ample provisions, and the risk of losses is not such as to imperil SNI's financial position; SNI is creditworthy. iv. In March 1974 Mr. Habib Bourguiba Jr. became President of SNI, replacing Mr. Moncef Belkhodja. Mr. Bourguiba has started to play a useful role in SNI. He has shoiwn great understanding of SNI's problems and set in motion steps to improve SNI's capabilities. Mr. Bourguiba appointed a new Deputy Director General, who has experience in commercial banking and hotel development, to carry out day-to-day management tasks. In addition, SNI has adopted a plan to carry out organizational improve- ments and to strengthen SNI's technical expertise in appraisal techniques. It is working, in consultation with the Bank, on developing suitable methods for improving economic analysis of projects. v. SNI has good business prospects. Its business forecast, based on these prospects, implies an increase of annual commitments from D 4.4 million in 1970 to D 8.5 million in 1976. The most recent Bank loan is expected to be fully committed in January 1972, and SNI needs additional funds to maintain its operations. SNI is attempting to diversify its resources. The proposed fourth Bank loan of $10 million, together with the resources which SNI expects to obtain from other sources, should enable SNI to carry its estimated financing program through the end of 1972. In mid-1972, the Bank will review progress made in improving SNI's organization, prior to considering further lending. vi. The proposed loan should be made on the same terms and con- ditions as recent Bank loans to development finance companies, including the standard commitment charge. The free limit above which Bank approval of a project is required, should be maintained at $200,000. The aggre- gate free limit should be $2.5 million. The debt limit as defined in the previous loan agreement should be retained. The financing of public sector enterprises should not exceed 25% of the amount of the proposed loan. APPRAISAL OF SOCIETE NATIONALE D'INVESTISSEMENT I. INTRODUCTION 1.01 The Societe Nationale d'Investissement (SNI), established in 1959 and reorganized in 1965 with the assistance of the Bank Group, has so far received three loans from the Bank totaling $25 million. The most recent loan, signed on December 24, 1969, amounted to $10 million; of this amount, $9.4 million have already been authorized for withdrawal. It is expected that the balance of the loan will be fully committed in the next few weeks. SNI therefore needs fresh capital soon. This report appraises SNI for a new loan of $10 million. II. SNI'S ROLE IN THE ECONOMY Background 2.01 Industrial Development. Tunisian industrial policies during the 1960's favored the development of large state-owned enterprises, primarily for capital intensive projects in import substitution products such as steel, refined oil, vehicles, tools and appliances, and secondarily, in upgrading natural resources like phosphate rock and other mineral ores. Since 1960, there has been little foreign investment, the Government' s participation has been dominant and the private sector has accounted for less than one sixth of total investment in manufacturing and mining. The results of these policies have been disappointing: (i) cumulative gross fixed investment in mining and manufacturing totaling D 192 million from 1960 to 1970, contrib- uted only D 39 million in increased value added during the period 1/, (ii) the contribution of manufacturing to GNP increased only from 11.4% in 1960 to 13% in 1970, and (iii) several public enterprises were not well conceived and, despite heavy tariff protection, very unprofitable, posing a burden for the Government's budget. 2.02 The private sector's industrial activities are generally small- scale and concentrated in mechanical industries, wood, paper and printing, food processing and more recently textiles. While the agreement of associa- tion with the EEC, effective since September 1, 1969, provides for free entry of 90% of Tunisia's industrial products into the EEC, there are now very few private sector projects which are export oriented. There has been little incentive for Tunisian entrepreneurs to invest in industrial projects catering to exports. 1/ An unusually high capital/output ratio in comparison with most other countries. - 2 - 2.03 Development of Tourism. Over the past ten years, Tunisia has fostered a rapidly growing tourist industry with substantial and rising benefit to the economy. In the early years of tourism development, the Government participated directly in hotel construction through a public corporation, Societe Hoteliere Tunisienne de Tourisme (SHTT), which erected a chain of luxury and first-class hotels. During the past six years, how- ever, the Government has stepped aside and encouraged domestic and foreign private investments in hotel construction through tax incentives, interest rebates, subsidization of infrastructure work related to hotels, and pro- vision of promotional and planning services. Annex 1 shows the impressive achievements by the Tunisian tourism sector from 1963 to 1970. During this period, the number of available beds increased from 5,743 to 37,185, the number of visitor bed nights by over 33% annually, and gross foreign ex- change receipts from D 3.7 million to D 29 million; tourism became the leading foreign exchange earning sector for Tunisia. Preliminary statistics indicate that 1971 should be a record year with an increase in tourist arrivals of over 30% and of bed nights of about 50%. Recent Economic Developments 2.04 An analysis of the present economic situation in Tunisia appeared in the report "Current Economic Position and Prospects of Tunisia", which was distributed to the Executive Directors under R71-210, dated August 25, 1971. 2.05 Tunisia's economy has recovered slowly from the floods in the Fall of 1969. The increase in GDP in 1970 was only 3.6%, much lower than forecast. Agricultural output was about the same as in 1969 and industrial production was marginally higher; food processing industries were affected by low agricultural production and construction materials by a sudden discontinuation of exports to Libya. Tourism was severely affected by the floods, by several cases of typhus (1969) and cholera (1970) in the country and by the bankruptcy of two Swedish travel agencies, on which a number of Tunisian hotels were depending for a large share of their occupan- cy. While in 1970 the number of hotel beds available increased by 15% (see Annex 1), tourist bed-nights increased by only 11% (against 25% forecast). Although some well established hotels were able to operate profitably, most hotels which opened in 1969 and 1970 experienced difficulties. 2.06 Overal4 gross fixed capital formation remained at high levels, amounting to D 145 million, or 23% of GNP. Tourism and manufacturing accounted for D 30 million of investments. In fact, in 1970 investment in manufacturing decreased by 10%: the main subsectors affected were con- struction materials, food processing and textiles, while investment in chem- icals doubled as a result of the construction of a large phosphoric acid plant. Annex 2 shows the subsectoral distribution of investment in manufac- turing for 1968-1970 and an estimate for 1971. 2.07 Eonomic growth accelerated substantially in 1971 and GDP is likely to increase by about 8 percent. Due to good weather conditions, agricultural crops were excellent and this allowed a recovery in industrial food processing. Tourism expanded by about 33 percent. The Tunisian Govern- ment anticipates a continuation of the rapid growth in 1972. SNI as a Source of Financing 2.08 SNI has been active in the financing of two sectors, manufactur- ing and tourism. It is the main source of medium and long-term financing for private industry in Tunisia. It has played a major role in the devel- opment of the tourism sector, where it has also been the main source of long-term funds in the country. SNI's role in financing tourism is now shared with Compagnie Financiere et Touristique (COFITOUR), a tourir±--de--' velopment finance company established in 1969 and sponsored by'IFC and S4 - which subscribed respectively 20% and 16.5% of COFITOUR's share capital. 2.09 The important contribution of SNI to overall and to private in- vestment in Tunisia in the manufacturing and tourism sectors is summarized in the table below (in D millions) 1/: 1966 1967 1968 1969 1970 1971 Est. Manufacturing Total Fixed Investment 12.7 12.9 11.5 17.1 15.9 15.9 (of which private) (1.6) (3.6) (3.6) (5.1) (4.1) (4.1) SNI's Disbursements 0.6 0.8 1.1 1.5 1.8 2.2 SNI's Contribution to Total Investment 5% 6% 9% 9% 12% 14% (to Private Investment) (37%) (22%) (30%) (29%) (39%) (48%) Tourism Total Fixed Investment 10.6 13.0 13.8 14.5 15.2 15.0 (of which private) (7.0) (10.5) (10.3) (11.4) (14.0) (14.3) SNI's Disbursements 0.2 0.4 1.6 1.9 2.2 2.4 SNI's Contribution to Total Investment 2% 3% 12% 13% 14% 16% (to Private Investment) (3%) (4%) (16%) (17%) (15%) (15%) 2.10 While total manufacturing investment has increased on the average at less than 5% annually since 1966, SNI's disbursements for manufacturing projects have increased by about 30% every year; thus SNI's share of total industrial investment in the country has increased from 5% in 1966 to 12% 1/ Source: Ministry of Planning. Economic Budget for 1971. in 1970, reflecting the growing role SNI was able to assume since its reor- ganization in 1965. SNI's growing share of business also reflects the government controls on suppliers' credits as part of balance of payments stabilization measures recommenced by the IMF in 1968. SNI's contribution to total private investment in industry has averaged 31% in the period 1966 - 1970. This is very high, particularly considering the competition until 1969 from suppliers' credits and commercial banks at interest rates lower than SNI's. For tourism, since 1968 SNI has financed about 13% of total investment. This contribution could have been even higher if SNI had not decided, in order to spread its risk, to keep its commitments for tourism projects to less than 50% of its total commitments. 2.11 SNI's financial assistance has been mainly in the form of loans with terms between five and twelve years, and through equity investments. SNI's long-term loans have contributed to improve the capital structure of its borrowers, many of which without them would have had to obtain short- term financing or unsuitable medium-term suppliers' credits; other projects could not have moved forward without SNI's financial assistance. However, the experience acquired in the past two or three years has shown that the terms of SNI's loans, particularly for hotels, have not always been ade- quate and have put an excessive burden on some borrowers. SNI has now started, in appropriate cases, to increase the terms of its hotel loans from 12 to 15 years, and grace periods from 2 to 3 years. 2.12 Since 1966, SNI's equity investments have been small compared to SNI's role in lending, although equity investments have been up to the maximum allowed under its Policy Statement which prudently limits the size of SNI's equity portfolio to its net worth. The share capital increase completed in January 1971 will allow a growth in SNI's equity invest- ments. SNI has made, since 1966, 36 equity investments totaling D 2.3 mil- lion, of which about D 1.3 million has been in the tourism sector where the ministerial Investment Commission requires that at least 30% of the cost of each project be financed with equity funds, and where the scarcity of equity investors had constituted an important bottleneck for new investment. It is estimated that at least seven hotels with an aggregate of over 2,000 beds would not have been built if SNI had not taken equity in them. SNI as a Mobilizer of Resources 2.13 SNI's Resources. Annex 3 gives a breakdown of SNI's long-term resources (net of repayments) on October 31, 1971. For the bu:lk of its re- sources, SNI has been relying on the Swedish International Development Authority (SIDA) and the Bank, which have lent US$9 and US$25 million respec- tively since 1966; SNI has also obtained loans from Tunisian public sector institutions and the Government. For its share capital SNI has reached a large number of Tunisian private investors. When SNI increased its share capital from D 1.5 million to D 3 million during the second part of 1970 (see Annex 4), SNI made a considerable effort to promote the sale of its shares among about 80,000 Tunisian individuals whose original subscription to SNI's share capital had been stimulated strongly by a savings scheme for Government employees; SNI succeeded in 1970 in mobilizing D 242,000 from many of these investors even with a 10% premium on the new shares. In this - 5 - process the number of Tunisian individual shareholders decreased to about 60,000. SNI has also been accepting short- and medium-term deposits which, at the end of 1972, amounted to only D 2 million. This resource has not been very significant to SNI because the interest it was able to pay (about 3.5%) is not sufficiently attractive to raise substantial amounts. A deci- sion of the Government at the end of 1971 now enables SNI to pay about 4.5%, which is 1% more than rates paid on similar deposits at commercial banks. SNI therefore hopes in future to raise more significant amounts from deposits. The average maturity of its time deposits will be about one year. Deposits will be used to increase SNI's liquidity or to cover the early maturities of its medium-term loans. 2.14 Catalytic Role. Since 1966 SNI's aggregate approvals of loans and equity investments totalling D 21.6 million have been associated with projects with an estimated total cost of about D 58 million. Although not all these projects would have failed to go forward without SNI, SNI's catalytic role in their formation and in assuring the soundness of their financial structure was important. Reflecting the low level of foreign investments in industry and tourism in Tunisia, SNI's projects (except COFITOUR and a few hotel projects) have involved little foreign investment. 2.15 Capital Market. SNI has not contributed significantly to the development of Tunisia's capital market. It has bought and sold securi- ties to private investors but its efforts in this have been constrained by the lack of an organized trading market. Moreover SNI was somewhat re- luctant to push its equity transactions until the end of 1970, because of an important Convention with the Government which then expired. This Conven- tion guaranteed SNI for five years the book value of its investments in its portfolio as of December 31, 1965. It also specified that any premiums obtained by SNI in its share sales before the end of 1970 would be surrendered to the Government. 2.16 The Stock Exchange of Tunis started operating in June 1970. Although the volume of transactions is still thin, 23 issues of Government and other public sectors bonds and 17 stocks of private and public sector companies are now quoted in the Stock Exchange. The existence of an organ- ized market and the expiration of the 1965 Convention should enable SNI to increase moderately the turnover of its equity portfolio and thus contribute more effectively to the development of the capital market in Tunisia. Characteristics of SNI's Investments 2.17 SNI's important share in financing most of Tunisia's private manufacturing projects of medium and large size permits some general con- clusions about the development of Tunisian private industry in the last five years to be drawn from SNI's operations. Annex 5 gives the principal characteristics of SNI's operations since the beginning and Annex 6 compares -6- the salient features of projects financed by SNI from the proceeds of the Bank's three loans. The main conclusions, which are based on SNI's opera- tions through the end of 1970, are the following: 2.18 Sectoral and Geographic Distribution. Tourism has accounted for the main share (41%) of SNI's activity. Construction materials account for 9% of total approvals; textiles for 7%; transport, food processing, mechani- cal industries and wood, for 5% each; and other sectors, for the remaining 22%. Given the fact that SNI is involved in most private industrial ventures in Tunisia these percentages are in line with the sectoral distribution of in- vestment in Tunisian private industry, except for the textile sector where SNI's role has been small because of sizeable existing public sector capacity, and competition from suppliers' credits. In view of Government's consideration of export incentives to encourage private investment in the textile, leather and shoe sector (for which the association agreement with the EEC improves export possibilities for Tunisia), there should be increasing opportunities for SNI in these labor intensive industries. Most of the industry supported by SNI is in Tunis and Sfax, while hotel projects are primarily in the Ham- mamet-Nabeul area and in DJerba. 2.19 Size. The average size of SNI's loans has grown from D 96,000 in 1966 to D 112,000 in 1970 (for private industrial projects the average was D 56,000 in 1970). Despite its increase in operations in the past four years and despite scarcity of staff, SNI has tried to assist small industrial enter- prises and has recently increased its processing of applications for loans to such enterprises. Indeed, the importance of small-to-medium projects in the Tunisian economy justifies SNI support. Five loans approved in 1970 were below SNI's normal lower Policy Statement limit of D 15,000 and ten others were for less than D 30,000. 2.20 Public and Private Ownership. Until 1969 SNI would not finance public sector enterprises. It then changed its policy by allowing assist- ance to government-controlled enterprises up to 25% of its outstanding com- mitments. This was desirable not only because of their need for capital but also because SNI could then have a role in ensuring that they would be soundly appraised and supervised. Since then, SNI has approved eight loans for D 3.5 million for such enterprises; about 18% of its total business in 1969 and 1970. Most of these loans have been made for projects in the trans- port (buses) and construction materials sectors. 2.21 Foreign Exchange Earnings and Savings. A large part (41%) of SNI's overall financing has been granted to the tourism sector, Tunisia's leading foreign exchange earner in the past two years. In addition, nearly 20% (by amount) of SNI's loans to the manufacturing sector approved since 1965 have been for projects that are predominantly export-oriented, i.e. projects that export over half of their production. Altogether, SNI's operations in both tourism and manufacturing sectors show a favorable foreign exchange earnings effect for Tunisia. 2.22 Employment. A pressing issue facing the Government is unemploy- ment. Although statistical evidence is insufficient, tentative estimates indicate that total employment has risen little over the last three years, while the percentage of male unemployment has remained close to 14% of the labor force. Even after taking account of some 13,000 Tunisian workers going abroad every year, Tunisia has to create nearly 50,000 new jobs annually. Some will be found in tourism and in small industry, but a sizable gap will remain. The Government is therefore giving more attention to labor intensive activities. SNI estimates that its industrial projects approved between 1966 and 1970 should have added about 4,000 new jobs at a cost of about $ 12,000 per new job. As to hotels, the generally observed ratio in the Mediterranean of one job per two beds also applies in Tunisia. In light of SNI's association with the creation of over 10,000 beds, it would follow that 5,000 new jobs have been added by SNI's hotel projects at a cost of about $ 10,000 per new job. Given the magnitude of Tunisia's unemployment problem, however, jobs created by SNI's projects play only a minor part in dealing with the problem. It is important that SNI place more emphasis on the employment effect of its projects. III. INSTITUTIONAL ASPECTS OF SNI Shareholders 3.01 Annex 4 shows the ownership distribution of SNI's share capital before and after the completion of the share capital increase on January 29, 1971. (Ownership has remained practically unchanged since that date.) The shareholdings of Tunisian private institutions and individual investors, which amounted to over 80,000 persons, have decreased from 56% to 42.5%; this decrease has been partially offset by an increase in holdings by public sector institutions from 16 to 24% of SNI's share capital. However, 2% of SNI's shares held by Government-owned banks have been set aside in a syndi- cate to offer potential foreign investors the possibility to join eventually SNI's shareholders. Foreign institutions, excluding IFC, own now 13.3% of the total as compared with 8% before, due to the increase in ownership in SNI by Caisse Centrale de Cooperation Economique from 1% to 6%. IFC has maintained its 20% share in SNI. Board and Executive Committee 3.02 Annex 7 lists the members of SNI's Board and Executive Committee as of June 12, 1971, the date of SNI's last General Assembly. Mr. Habib Bourguiba, Jr., formerly Ambassador and Minister of Foreign Affairs, was elected President Director General on March 8, 1971, replacing Mr. Moncef Belkhodja, who continues with SNI as Director with special executive powers ("Administrateur delegu&"). IFC is represented on SNI's Board. SNI's Board meets three or four times a year and reviews general policy matters. All loans or investments of more than D 200,000 must be approved by the Board. Discussions at Board Meetings appear frank and effective, but in the -8- past year or so, preparation for these meetings has not been adequate and often Board members did not receive documents for the meetings early enough to permit adequate study. 3.03 SNI's Executive Committee has been meeting five or six times a year. It considers applications for loans and equity investments not exceed- ing D 200,000 to any single enterprise. Management and Organization 3.04 Mr. Moncef Belkhodja was SNI's President Director General from Jan- uary 24, 1969 until March 8, 1971. When Mr. Belkhodja took charge of SNI, he was assisted by a capable cadre of senior staff. 3.05 The management, organization and the staff strength of SNI began to weaken in mid-1969, with the departure of several senior officers. Simul- taneously, SNI's operations and portfolio were growing considerably. These developments affected adversely the quality of project appraisal and follow- up work, as well as SNI's loan portfolio. 3.06 Mr. Habib Bourguiba, Jr., has shown quick understanding of SNI's problems and has set in motion steps to improve SNI's capabilities. Mr. Bourguiba appointed Mr. Mokhtar Fakhfakh, formerly President of a state- owned hotel company and more recently of a commercial bank as SNI's Deputy General Manager. In addition, Mr. Belkhodja has decided to remain, for the time being on SNI's staff; and Mr. Bourguiba has retained SNI's French tech- nical advisor who has been with the company since 1964. In recent months, when there were losses among SNI's experienced staff, the technical advisor performed a substantial service in assuring a minimum degree of coordination in the institution. SNI's professional staff has increased from 18 at the end of 1969 to 27 at present, quite a number of them still needing experience. 3.07 Annex 8 is SNI's organization chart to become effective in January 1972 and designed to remedy earlier short-comings. It will be introduced, together with other organizational improvements which are discussed below. 3.08 Project Appraisal. Due to the loss of key staff noted above, the quality of SNI's appraisals deteriorated in 1970-71. Technical and marketing evaluations in particular were weak and not backed by adequate examination. The economic merits of projects were often not well discussed and the Bank had to pose supplemental questions to SNI on such matters when reviewing sub- projects. 3.09 SNI engaged early in 1971 and an International Executive Service Corps consultant to advise it on remedies. With respect to project appraisal, and based on the comments by the consultant and Bank staff, SNI has started to carry out a reorganization (to become effective in January 1972) to improve its project appraisal work as well as to develop its promotional capability. The Appraisal Department will - 9 - be reorganized to include two divisions: one for financial and economic appraisal and the other for technical evaluation. This Department will be headed by the experienced man who previously was an advisor to the manage- ment of SNI on technical matters. In addition, three engineers have recently been recruited to form the basis for the engineering group. With respect to the finance division a new man has been appointed to head the unit and three new financial analysts have been recruited to strengthen the work of this unit. SNI has also adopted more refined methods for establishing rates of return for project selection purposes. It will subject projects to a mini- mum financial rate of return test of 10%. Moreover, it is consulting with the Bank on the development of methodology to calculate the effective rate of protection on its industrial projects; and, in cases where taxes and sub- sidies are significant, SNI will compute internal economic rates of return. The Bank will continue to advise SNI on the implementation of more refined financial and economic analysis in its project appraisal work. 3.10 Investment and Project Supervision. Steps to improve follow-up were discussed during negotiations and as a result SNI will create a sepa- rate division to focus exclusively on follow-up activities. Four new staff have been assigned exclusively to follow-up in order to bring this aspect of SNI's operations under control. SNI's follow-up of hotel projects should, in particular, improve as SNI has agreed with COFITOUR to undertake joint supervision of hotel projects under construction that are cofinanced by SNI and COFITOUR. 3.11 These are the main elements of a more detailed reorganization pro- gram which, on the whole, should provide SNI with the organization it needs to carry out an expanded financing program effectively. It is clear that SNI's President is fully behind the reorganization plan and is committed to improve the quality of SNI's operations. Ile has been open to advice from the Bank on all aspects of the reorganization. The Bank will closely watch the progress made. 3.12 Accounting, Disbursement and Procurement. SNI's accounting and disbursement systems are adequate. As regards procurement, SNI urges its borrowers to procure equipment from the most competitive sources and, at least for large projects, SNI insists that its clients present quotations from several firms of international reputation. This aspect of SNI's operation is satisfactory. Policies 3.13 SNI's Policy Statement is shown in Annex 9. SNI's operations have been generally conducted within the framework of these policies. In two instances, investments have exceeded the Policy Statement's normal limit on single commitments (15% of SNI's net worth, or D 0.7 million at present); these were SNI's equity investment in COFITOUR (D 825,000) and a loan to SNT, a public sector transport company (D 1.2 million). Both were considered as exceptions, based on special justification. SNI has also made several exceptions to its normal lower lending limit of D 15,000. - 10 - 3.14 SNI's policy limits its lending to tourism to a maximum of 50% of all outstanding commitments, and lending to public enterprises to a maximum of 25%. As of December 31, 1970, SNI's outstanding commitments in tourism represented 47%, and to public enterprises 15%, of total com- mitments. According to SNI's projections, exposure in tourism will decline to less than 40% when all investments already approved by SNI are committed. 3.15 Interest rates charged by Tunisia's commercial banks range from 7 to 8% per annum for short and medium term credits. SNI's lending rate is 9%. However, loans financed with SIDA credit, half of which must be used for public sector enterprises, are priced at 8.5% per annum under the terms of the SIDA credit agreement. In its interest rate policy, SNI is influenced by competing rates of commercial banks, suppliers' credits and Societe Tunisienne de Banque (STB). The latter has access to small lines of credit from KfW and USAID, which it relends at 8% p.a. SNI has been able to maintain a slightly higher interest rate for its loans without harm to its volume of business because STB's loans are mainly for construction and for public sector companies and because SNI's foreign exchange resources are untied. Relations with the Government, Commercial Banks and Other Institutions 3.16 SNI's relations with the Government are good, and the Government has left SNI independent in its investment decisions. The Government has honored its guarantee of SNI's portfolio under the Convention signed at the end of 1965 (paragraph 2.15) and has bought from SNI its bad equity invest- ments at their book value of D 430,000. Repayment was made by the Govern- ment in 1971. The Government has expressed its satisfaction with SNI's performance in the private sector and has welcomed SNI's occasional financ- ing of public sector projects. 3.17 SNI has good relations with Tunisian commercial banks, most of which participated in SNI's share capital increase. Relations with COFITOUR are good, and coordination on appraisals of projects financed jointly is beginning. SNI is building up its contact with the National Center of Industrial Studies 1/. SNI plans to draw more on the Center, particularly in sectoral studies, technical appraisal of complex and large industrial projects, and for specialized training of SNI's staff. SNI's reputation with the business community appears good, judging from the large share of SNI in the financing of private industrial projects, the considerable amount of repeat clients, and the sizable subscriptions of Tunisian private business investors in SNI's share capital increase. 1/ Centre National d'Etudes Industrielles, a Government agency, UNDP - sponsored, which has 50 engineers and economists to pursue an exten- sive program of promotional activities and appraisal of large indus- trial projects. - 11 - IV. OPERATIONS, PORTFOLIO AND FINANCIAL POSITION Operations 4.01 SNI's annual loan approvals have increased from D 1.8 million (19 loans) in 1966, and an annual average of D 3.8 million (34 loans) in 1967- 69, to a record D 6.5 million (58 loans in 1970. Approvals at the end of November 1971 were D 5.9 million and the project pipeline suggests that overall 1971 approvals should reach the level of 1970. Commitments have followed approvals with an average lag of eight months a relatively normal lag in the difficult circumstances prevailing in 1969-1970. SNI's finan- cial assistance has been mainly in the form of loans with terms between 5 and 12 years. The foreign exchange risk is with the Government. About 80% of SNI's loans have financed imports. Since its reorganization in 1965, SNI's has approved 32 equity investments totaling D 2 million, in- cluding D 0.3 million in 1970. The most important single equity investment was for D 830,000, SNI's subscription to COFITOUR, of which D 415,000 was disbursed in 1969. Evaluation of Loan and Equity Portfolio 4.02 Auditors' Views. SNI's auditors, Peat, Marwick, Mitchell and Co., qualified SNI's 1969 accounts, questioning the adequacy of SNI's provisions for doubtful loans. In 1970, SNI's delinquent accounts increased, and a total of D 0.7 million in interest and principal was overdue as of December 31, 1970, nearly twice the amount reached a year before. In view of this large amount, the auditors declined at first to express an opinion on SNI's 1970 accounts until, in September 1971, they could undertake a detailed re- view of selected clients of SNI in arrears. The auditors subsequently ar- rived at the opinion that SNI should write off D 16,000 of old accounts receivable and SNI has agreed to do so out of 1971 income. Otherwise the auditors concluded that SNI's accounts presented fairly SNI's financial position, subject to the ultimate collectibility of two hotel loans, which SNI on good evidence considers sound. 4.03 The problems experienced by SNI with its auditors during the last two years result from a difficulty in Tunisia in obtaining annual statements of borrowers in time for SNI's audit 1/. By law, companies are not required to issue such statements before June 30. During negotiations, however, an understanding was reached with SNI to correct progressively the situation. For that purpose, SNI has agreed to formulate immediately its new loan con- tracts to require borrowers to provide SNI with provisional financial state- ments within three months after the end of their fiscal year. For existing customers, SNI will endeavor to obtain from them financial accounts within the same three months period. SNI also plans to consult with its auditors, before the next audit, on how best to proceed so as to minimize the diffi- culties experienced in 1971. 1/ Loan Agreement between SNI and the Bank requires that SNI's audit should be completed each year before May 31. - 12 - 4.04 Loan Portfolio. On December 31, 1970, SNI's loan portfolio includ- ed 101 loans for D 9.2 million of which 14 loans, 7 of which were hotel loans, for D 1.5 million (or 16.3% of total loan portfolio) were in arrears of in- terest and principal for more than three months. This is high. The actual amounts in arrears amounted to D 750,000, about 8.3% of the loan portfolio. In addition, due to unforeseen delays in project construction, loans for D 1.64 million were rescheduled by SNI. The majority of loans resched- uled are to hotel projects which are starting or about to start operations. In 1971, there has been a change in the picture. About D 800,000 were over- due in mid-August -- a figure which does not include about D 100,000 overdue on December 13, 1970 and since rescheduled. Since August, however, SNI has been very active in collecting overdues and the amounts in arrears were sub- stantially reduced. At the end of October, while the total loan portfolio had increased to D 11.3 million since the beginning of 1971, total overdues amounted to D 571,000 (as compared with D 750,000 at the beginning of 1971). 4.05 In consequence of questions raised by the auditors and because of the arrears situation, a case-by-case examination has been made of SNI's portfolio. This shows that SNI's real risk is small. Only two loans are likely to be partially lost, in an amount totalling D 40,000; and there is a third where SNI's loss could amount to D 30,000. The rest of the portfolio is likely to improve and no other losses are expected. Indeed, most of the delinquent hotel loans are now doing well, and the value of the underlying assets exceeds substantially the amount SNI has at risk. Security on SNI's loan portfolio is also satisfactory. However, a peculiar situation has arlsen which nominally affects the security on loans which SNI has made to 35 hotels. The problem is a general one in Tunisia: some land on coastal areas is not now registered as required and some hotels have been built on land which has been expropriated. As a result, the mortgages SNI holds in 35 cases are not valid. However, SNI's loans rank pari passu with all other debts of those borrowers. Nevertheless, SNI is anxious to regularise the situation of the mortgages affected by this peculiar situation and to get them validated as rapidly as possible, despite the legal complexities involved. During nego- tiations SNI worked out with the Government a satisfactory program for assuring that most, if not all, of the affected loans would be secured by valid mortgages by the end of 1972. 4.06 Equity Portfolio. Annex 10 gives details of SNI's equity port- folio as of December 31, 1970. The sale of unprofitable investments to the Government under the 1965 Guarantee Convention (see paragraph 2.15) has im- proved considerably the quality of SNI's equity portfolio, which now in- cludes 28 investments for D 1.92 million at cost. Seven companies)account- ing for 16% of SNI's equity portfolio,were unprofitable in 1970. Of these, only two are experiencing serious difficulties; SNI's investments in them amount only to D 26,100. The average dividend yield for SNI in 1970 has been low (about 3%), as most of SNI's investments, including the one in COFITOUR, have started operations only recently, and will take time to generate an appreciable return. - 13 - 4.07 SNI's equity portfolio includes quite a few investments on which important capital gains could be expected if SNI were to sell them. Al- though an evaluation of the potential for such gains is difficult given Tunisia's thin market for securities, under present circumstances such poten- tial gains should exceed the estimated losses on SNI's bad investments. There- fore SNI has decided not to make provisions on its equity portfolio. 4.08 Summary Evaluation. The provision of D 102,000 made by SNI seems to be sufficient. SNI has reserves of D 1.2 million. SNI has now formulated a provision policy according to which it plans to make provision on a case by case basis in the light of recent financial information on its clients. More emphasis on, and better, follow-up should also help. Profitability and Financial Position 4.09 Annex 11 shows audited income statements from 1967 to 1970. Ac- cording to SNI's income statement for 1970, SNI's net profits for the year were one third less than in 1969. While 1969 net profits were D 198,600 (13.2% on share capital and 7.6% on average equity), 1970 profits were only D 135,400 (8.9% on share capital and 5.1% on equity) mainly because: (a) Administrative expenses increased by 33% (from D 125,000 to D 168,200). Three factors were responsible: the cost of last year's share capital increase, the hiring of several staff members at the end of 1969, and the fact that the President's salary, paid in 1969 by the Central Bank, was paid in 1970 by SNI. (b) SNI which was tax exempt in 1969 1/, will have to pay D 46,000 as income taxes on 1970 results. Net profits over the first 10 months of 1971 reached D 131,000. SNI's pro- jection for net profits of D 142,000 for the whole year 1971 is therefore well supported. 4.10 Annex 12 shows SNI's balance sheets from 1967 to 1970. SNI's financial position at the end of 1970 is sound. At the end of October 1971, SNI's long-term debt/equity ratio was about 2.4 and the debt/equity ratio as defined in contracts with the Bank was 2 against a limit of 4 SNI's liquidity position is strong, with a net working capital of over D 1.0 mil- lion. Reserves and provisions computed at October 31, 1971 covered about 11% of total portfolio and were considerably higher than hardcore risks in the portfolio. SNI's Board, on the basis of SNI's unaudited accounts, de- cided in June 1971 to declare a 6% dividend on 1970 results (5% in 1969). 1/ SNI's tax exemption ended in 1968. However, by law of December 31, 1962, 50% of SNI's equity investments approved and paid-in during the year can be deducted from the taxable profits. SNI's investment in COFITOUR in 1968 (D 414,500) was sufficient to exonerate SNI from a tax liability in 1969. - 14 - V. OUTLOOK Business Prospects 5.01 During the past five years, annual real economic growth has aver- aged only about 3-1/2%. After the political and economic difficulties which culminated in the change of Government in 1969 and the adoption of a new and more liberal economic policy, Tunisia is now placing more emphasis on the need to encourage private investment, including foreign investment, and to foster exports. Near the end of 1970, the Prime Minister presented a re- vised economic strategy emphasizing higher growth in output and exports to be achieved mainly through a relaxation of government intervention, greater reliance on private entrepreneurship and a rise in public savings. To reach these goals, some trade liberalization and improved incentives have been introduced and further measures are being contemplated by the Government. Apart from mining and utilities, the Government does not wish to increase the share of the public sector in industry and, in some cases, it plans to disinvest in favor of the private sector. 5.02 Unless economic growth can be accelerated, particularly in agri- culture, industrial projects for import substitution in Tunisia will face a saturation in the local market. The size of the Tunisian market (5 mil- lion) and per capita GDP of $210, indicate that new projects, to be viable, will have to be increasingly export-oriented. The Government is now taking steps for promoting industrial exports, taking advantage of Tunisia's favor- able location, low-cost labor, some mineral resources, and Tunisia's agree- ment with the EEC. The main possibilities lie in subcontracting in electri- cal and mechanical industries, and labor intensive sectors such as textiles, leather goods and shoe making. In October 1971, the Consultative Group for Tunisia discussed the promotion of export oriented foreign investments and the Tunisian authorities are now establishing contact with business organi- zations abroad. The present flow of business to SNI indicates the possi- bility of a steady growth of investments in the industrial sector of perhaps 5-6% per annum. It is reasonable for SNI to expect that it will maintain its present share of the market if it continues to make progress in solving the staff and organizational problems that developed over the last 2 years. 5.03 In tourism, the Government has undertaken a comprehensive study of the needs and prospects for growth over the next 15 years (1971-85). It adopted a relatively modest target of 1.5 million visitors in 1985 (as against 410,000 in 1970), implying the annual construction of about 6,000 new beds so that by 1985 the number of available hotel beds in Tunisia will be 125,000, a reasonable objective. This implies annual investment of D 14 million. The bulk of the program would be financed by the private sector. With a planned average stay of 12 days per tourist, the average occupancy rate (40%) of hotels under this target seems low; but the actual number of visitors may well exceed 1.5 million in 1985, given Tunisia's strong attrac- tion to European mass traffic. - 15 - Forescast of Operations 5.04 SNI has based its forecast of operations (1971-76) on a modest growth of approvals in industry at about 4% per annum, and of hotel financ- ing along the lines of the Government's plans. This would mean a higher share for SNI's tourism investment than in the past - but given tourism prospects, this is probable. This forecast growth appears attainable. 5.03 Annex 13 contains SNI's forecasts of operation through 1976. To- tal commitments in the 1971-1976 period are forecast at D 40 million. Con- tractual commitmtents are projected at totals of D 5.2 and D 7.9 million in 1971 and 1972, respectively. This compares with D 4.4 million in 1970. The relatively large increase in 1972 reflects SNI's large pipeline of pro- jects already approved in 1970 and 1971 for which commitments were not made due to administrative and legal delays. Resources Needed 5.06 To meet forecast commitments of about D 40 million through 1976, SNI had on November 31, 1971 only about D 2.5 million of uncommitted re- sources as follows: (D million) Funds from increase in share capital and self generated funds 1.0 Uncommitted balance of - second SIDA credit 0.8 - third Bank loan 0.7 2.5 5.07 SNI thus needs about D 37 million to finance commitments for the next five years. Some of it will come from its internal cash generation but the bulk will have to be borrowed. SNI intends to make efforts to diversify its resources and hopes to obtain more dinar funds from deposits. SNI is also discussing with the Government the possibility of obtaining bilateral foreign credits in addition to those that it expects to receive from SIDA and the Bank. Such efforts may yield some amounts, but they are not likely to allow SNI to go forward without substantial support from SIDA and the Bank. 5.08 The third Bank loan will probably be entirely committed in the next few weeks. By that time, SNI should still have D 0.8 million available from the second SIDA credit which SNI has already to a large extent earmarked for projects. (About half of the SIDA loans will as in the past be used for import financing, and the other half for local currency financing.) - 16 - 5.09 Normally, the Bank would base its lending on a two-year time hori- zon. Total commitments over the period from January 1971 through December 1973 will total about D 15.3 million. Of this total, as shown in Annex 13, D 11.4 million represent the import element. Funds available for commitments at the beginning of the period are expected to be D 1.5 and 0.7 million in local currency and foreign exchange respectively. The gap thus amounts to D 2.4 for local expenditure and D 10.7 for imports. SNI hopes to cover this gap by a third SIDA credit of D 4 million equivalent in 1972 (1/2 of which would finance local expenditures), by cash generation (projected at D 0.6 million over the two-year period) and a fourth Bank loan. In the past, about four-fifth of the resources needed to finance imports were financed with Bank funds and one-fifth with SIDA funds. On that basis, and unless SNI succeeds within the next two years to raise funds from new foreign sources, SNI would need a Bank loan of about D 8.6 million ($16.3 million); this would represent about 50% of SNI's overall commitments. 5.10 However, in view of the improvements in organization and procedure now under way in SNI, a fourth Bank loan should cover SNI's commitments to finance imports for only a year until December 1972. There will be a fresh appraisal of SNI in the middle of 1972, when SNI's progress in reorganization and performance can be assessed. A $10 million loan (D 5 million) would approximately cover SNI's needs through 1972. Financial Projections 5.11 Annexes 14 through 16 are SNI's 1971-75 projections of cash flow, income statements and balance sheets, based on SNI's forecast of operations. 5.12 Two factors will have an important bearing on SNI's profits and reserves. Starting in 1970, SNI has been subject to a tax of 46.5% on its operating income. Secondly, the recent 100% share increase of SNI has led SNI's management to project only a 5% dividend for the financial year 1971, though SNI expects to be able to revert to a 6% dividend during the 5-year period starting with the results of 1972. SNI results are thus expected to evolve as follows: - 17 - Gross Earnings Net Profit After Tax as % of Average as % of Total Assets Share Capital Average Equity Actual: 1970 /1 6.05 8.9 4.8 Est.: 1971 /2 7.23 6.3 4.1 1972 7.67 8.9 6.2 1973 8.06 12.8 8.7 1974 8.20 16.9 11.0 1975 8.21 18.5 11.4 1976 8.18 22.2 12.6 /1 Before share capital increase. /2 After share capital increase. If these results are realized, there is no reason why SNI should not pay a dividend substantially higher than 6% in a few years. 5.13 Projected balance sheets through 1976 (Annex 16) show that total assets are expected to more than double over the five-year period, from D 17.6 million in 1971 to D 40.7 million in 1976. SNI's debt limit as defined in the Bank's Loan Agreements will remain below the 4:1 agreed limit until 1974. The coverage of SNI's portfolio by reserves over the five-year period would remain at about 9%. This cushion should be suffi- cient to meet normal risks in its portfolio. 5.14 Debt service coverage will be sufficient during the period 1971- 1976, particularly taking account of the revolving of SIDA loans whose amortization schedule is fixed. Annual interest payments on SNI's borrowings would remain at about 50% of SNI's annual income; the ratio of collections to principal repayments by SNI will be growing from 1.2 in 1971 to 1.4 in 1975. If SNI continues keeping in balance the maturities on its present debt and the repayments on its lendings, this ratio, through the life of another Bank loan, should not drop below 1 .2. - 18 - VI. CONCLUSIONS AND RECOMMENDATIONS 6.01 Over the past two years, SNI has continued its important role in the Tunisian economy as the leading source of term financing for private sector industry and tourism. This has been so, even with the establishment of COFITOUR, which is taking a growing share of local currency financing of hotel investment. 6.02 While SNI has, in this period, been able to maintain an increasing pace of business, its organization and management suffered as a result of the departure of several experienced senior officers. Project appraisal and supervision work were affected, and SNI's management became increasingly con- scious that it had to reverse this trend and introduce needed improvements expeditiously. SNI therefore sought advice and has worked out a program to bring about important changes in organization and to attract the staff needed to give support to these reforms. SNI has consulted the Bank on the measures which, by their nature and the importance that SNI attaches to them, should bring about soon a noticeable improvement in SNI's operational performance. 6.03 Agreement, in principle, has been reached with the Bank on improv- ing SNI's economic analysis of projects. Discussion will continue between the Bank and SNI to refine methods. SNI is also working out arrangements to obtain more readily information on its borrowers' financial position. Furthermore, SNI is working, together with the Government, on validating the mortgages which it has obtained on some of its loans; this matter is expected to be resolved by the end of 1972. 6.04 After a period of difficulties, Tunisia's economic outlook has re- cently improved. There is a reasonably favorable prospect for further growth of industrial investment, in part stimulated by prospects of exporting to the EEC. Prospects are better still for further tourism investments. Given these prospects, and the place SNI has already carved out for itself in these two important sectors, SNI should look to a growing business in the next few years. To carry out the business it has forecast in the next five years, SNI needs to raise about D 40 million. SNI is trying to diversify its resources, but this effort will take some time to bear fruit in signi- ficant amounts. Over the next two years, SNI will have to look principally to SIDA and the Bank to help cover its resource gap in meeting SNI's esti- mated import financing. 6.05 SNI business forecast is reasonable and SNI requires fresh re- sources. SNI is creditworthy. It is about to embark on important actions to improve its organization and the quality of its project work. The Bank should examine the progress of SNI's reforms in mid-1972. In these circum- stances, it would be prudent to lend to SNI $10 million, enough, together with the resources expected from SIDA, to enable SNI to carry its estimated import financing commitments until the end of 1972. - 19 - 6.06 The proposed loan to SNI should be made on the same terms and conditions as recent Bank loans to development finance companies, including the standard commitment charge. The free limit above which Bank approval of a project is required, should be maintained at $200,000 for private sec- tor projects. However, there should be an aggregate free limit of $2.5 mil- lion. The same debt limit as defined in the previous loan agreement should also be retained. The financing of public sector enterprises should not exceed 25% of the amount of the proposed loan. ANNEX 1 TUNISIA Developments and Prospects in Tourism n1963-1972 Year Investments Beds Visitors Bed Gross Available NiRhts Receipts (D million) (OOO) (000) (157z=1Mon)' Actual 1963 4.0 5,743 104.7 540.8 3.7 1964 5.1 7,543 138.2 694.4 5.3 1965 6.5 9,616 165.8 1,129.4 9.2 1966 10.6 17,061 218.8 1,636.9 13.6 1967 12.8 18,786 231.1 2,030.1 16.4 1968 13.8 24,709 330.3 3,082.3 22.2 1969 14.5 31,691 373.3 3,406.4 26.1 1970 15.2 37,185 410.7 3,819.6 29.0 Projected 1971 15.0 +10,000 451.8 4,201.6 32.0 1972 15.5 + 6,000 497.0 4,621.8 36.0 Source: Office Nationale de Tourisme DFCD March 1, 1971 ANNEX 2 TUNISIA Gross Fixed Capital Formation in Manufacturing,1968-70, and Projections for 1 971 (Dinars millions) (Projected)- 1968 1969 1970 1971 PUBLIC ENTERPRISES Food Processing 2.0 1.5 0.8 1.1 Construction Materials 2.8 2.1 0.1 2.0 Metallurgical 0.7 o.6 2.0 o.6 Mechanical and Electrical 0.5 0.2 0.5 0.7 Chemicals o.6 2.0 4.7 6.3 Textiles 0.9 2.0 0.3 0.2 Wood and .Furniture - - - 0.1 Oil Refining 0.2 0.1 0.3 0.4 Paper and Printing 0.3 3.5 3.0 0.4 Other Sectors - - - Total Public Sector 8.0 12.0 11.7 11.8 PRIVATE ENTERPRISES Food Processing o.8 0.8 0.7 0.3 Construction Materials 0.1 0.3 0.2 0.3 Mechanical and Electrical 0.5 1.3 1.0 0.3 Chemicals o.6 0.3 0.4 o.4 Textiles 0.3 1.6 0.6 2.0 Wood and Furniture 0.4 0.2 0.4 0.1 Paper and Printing 0.3 0.4 0.7 o.5 Other Sectors 0.5 0.2 0.2 0.2 Total Private Sector 3.5 5.1 4.2 4.1 TOTAL MANUFACTURING ,1.5 17.1 15.9 15.9 Public Sector (%) 70 70 74 74 Private Sector (%) 30 30 26 26 Source: Mlnistry of Planning DFCD March 1, 1971 ANNEX 3 SOCIETE NATIONALJ D'INVESTISSEMENT Long-Term Resources as of October 31, 1971 (Dinar thousands) 1/ Year Repanment Source Net Amount Interest Contracted Period Equity Share Capital 3,000 - 1966-1970 Reserves and Surplus 2 1,01&8 Government Grant 50G - 1964 - Government Subordinated Loan 615 Free 1966 19b1-96 Borrowings Central Bank 155 5 1965 1969-6o CNSS (Caisse Nationale de Securite Sociale) 337 4 1964 1966-76 SIDA First Loan 1,5060 4 1567 1972-67 Second Loan 3,000 5 1970 1975-90 IBRD - 449-Tui 1,96o Variable 1966 1966-84 512-TUN 5,025 Variable 1967 1969-b5 646-TUN 5,25o 7 1969 1971-o7 17,235 Total Resources 22,36b j Net of repayment. L/ Includes estimated net profits for the first 10 months of 1971 of D 131 thousands. DFCD December 22, 1971 ANNEX 4 SOCIETE NATIONAIE D'INVESTISSEMENT Ownership Structure Before and After Share Capital Increase eompleted January 29, 1971 Ownership Ownership Before Increase After Increase Par Value Sascriptions Par Value of Shares at Par value of Shares (Dinars) % (Dinars) (Drnars7 TUNISIAN GOVERNMENT 50,000 3.3 - 5o,000 1.7 CENTRAL BANK 70,000 4.7 llo,ooo 180,000 6.o GOVERMENT-OWNED BANKS Societe Tunisienne de Banque 36,915 2.4 86,225 123,140 h.1 Banque Nationale de Tunise 15,000 l.o 93,550 108,550 3.6 Union Internationale de Banque 1,000 1.0 39,990 54,990 1.8 GOVERNMENT COMPANIES S. T. A. R. 10,000 0.7 73,o55 83,o55 2.8 Societe Tunisienne du Sucre - - 45,5o0 45,50o 1.5 Societe Financiere et de Gestion 11,500 0.7 16,680 28,180 0.9 Societe Nationale du Liege - - 18,420 18,1420 0.6 S. T. E. G. 10,000 0.7 - 10,000 0.3 Societe Batiment 10,000 0.7 - 10,000 0.3 Societe Tunisienne du Souffre - - 9,100 9,100 0.3 Lloyd Tunisien 8 oOO o.6 - 8 000 0.3 TOTAL PUBLIC SECTOR 2TT515.8 h92,9520 TUNISIAN PRIVATE BANKS Banque de Tunisie 15,000 1.0 l09,805 124,805 4.2 Union Bancaire pour le Commerce et l'Industrie 15,000 1.0 97,020 112,020 3.8 Compagnie Financiere et de Credit a la Tunisie 15,000 1.0 - 15,000 0.5 TUNISIAN SMALL PRIVATE SHAREHOLDERS 7A4585 53.2 220,805 1 019 390 34.0 TOTAL PRIVATE TUNISIAN -43,50 2 r427,630 1,271,215 :72T FOREIGN SHAREHOLDERS Caisse Centrale de Coopetation Economique 15,000 1.0 i65,000 180,000 6.o Banca Commerciale Italiana Holding 30,000 2.0 30,000 60,000 2.0 Banque Nationale de Paris - - 36,360 36,360 1.2 Caisse de Depots et Consignations 15,000 1.0 15,000 30,000 1.0 Stockholms Enskilda Bank 30,000 2.0 - 30,000 1.0 Bank for Gemeinwirtschaft 30,000 2.0 _ 30,000 1.0 Other private foreign shareholders - - 33, 490 33 190 1.1 TOTAL FOREIGN 120,000 75 279,850 399,850 13.3 INTERNATIONAL FINANCE CORPORATION 300,000 20.0 300,000 600,ooo 20.0 GRAND TOTAL 1.5oo,ooo 100.0 1,500,000 3,000,000 100.0 DFCD April 5, 1971 SOCIETE NATIONALE DIINVESTIS6EIEI'T Analysis of Investments Approved, 1966-l970 (Dinars thousands) 1966 1967 1968 1969 1970 TOTAL TYPE OF OPERATION No Amount No kmount No Amount No Amount No Amount No Amount Loans 19 1,812 41 3,709 33 3,252 28 4,423 58 6,455 179 19,651 Squity Investments 3 46 6 243 9 427 6 1 010 8 255 32 1,981 Total 22 1,858 47 3,952 42 3,679 34 5,433 66 6,710 211 21,632 SECT OR Tourism 4 577 14 1,994 12 2,370 12 1,879 18 2,127 60 8,947 Construction Yaterials 3 76 6 773 3 78 2 73 6 972 20 1,972 Textiles - - - - 3 329 5 617 12 596 20 1,542 Salt Extraction - - 1 150 - - - - 2 161 3 311 WJood 2 320 - - - - 1 500 1 80 4 900 Food Processing 4 644 3 76 2 85 3 247 3 68 15 1,120 iechanical 1 50 11 510 6 335 2 36 3 143 23 1,074 Plastics - - 3 128 2 45 1 68 3 360 9 601 Other Industries o 191 9 321 14 437 8 2,013 17 1,053 56 4,015 Transport 1 1 _ - _ - _ _ 1 l,150 1 l,150 Total 22 1,858 47 3,952 42 3,679 34 5,433 66 6,710 211 21,632 SIZE OF LOANS Below D50,000 13 372 22 597 22 723 8 251 25 570 90 2,513 150,000 to D150,000 1 60 8 582 2 269 11 722 22 1,920 412 3,553 Above 0150,000 5 1,380 11 2,530 9 2,260 9 3,450 11 3,965 45 13,585 Total 19 1,812 41 3,709 33 3,252 28 4,423 58 6,455 179 19,651 Average Size 96 91 98 158 112 110 OWNMERSHIP OF BOPROWER Majority Public - - - - - 2 1,200 6 2,350 8 3,550 a%ajority Private 19 1 , 81 41 3,709 33 3,252 26 3,223 52 4,105 171 16,101 DFCD 19 1,812 41 3,709 33 3,252 28 4,223 58 6,455 171 l9,651 March 1, 1971 ANNEX 6 SOCIETE NATIONIALE D'INVESTISSE!ENT Comparison of Projects Authorized Under Loans 449, 512 and &48 LOAN 449 LOAN 512 LOAN 648 No. % of No. % of No. % of of Amount of Amount of Amount Proj- Author- Proj- Author- Proj- Author- jects ized jects ized jects ized I. SECTORAL DISTRIBUTION Manufacturing Food Processing 6 16 5 5 4 3 Textiles 2 2 7 17 5 19 Chemicals 1 2 3 3 3 3 Construction Materials 4 11 2 6 - - Mechanical 6 7 6 11 3 11 Paper and Printing 3 5 5 5 2 2 Wood and Furniture 1 11 1 1 1 2 Other sectors 10 12 7 3 1 6 Total Manufacturing 33 66 36 51 19 46 Tourism 6 32 17 48 7 27 Transport 1 2 1 1 1 27 40 lOO 54 lO 27 100 II. EXPORT ORENTATION OF MANUFACTURING PROJECTS Projected Exports Over 50% of produ.-tizn 2 25 2 13 2 22 Between 10 and 5%., 1 3 2 7 1 18 Less than 10% 30 72 32 8C 16 60 33 100 36 100 19 100 III. AVERAGE LOAN SIZE (US$ 000) Transport and Tourism Projects 193. 265 378 Manufacturing Projects 80 138 135 All Projects 100 180 207 DFdD March 1, 1971 ANNEX 7 SOCIETE NATIONALE D'INVESTISSEMENT Board of Directors and Executive Committee (as of June 12, 1971) * Habib Bourguiba, Jr. President Director General and Representative of the Government * Moncef Belkhodja Administrateur Dele6gue * Hassan Belkhodja President of Socifte Tunisienne de Banque * Hassan Riahi Deputy Director General of Union Bancaire pour le Commerce et l'Industrie * Azzedine Ben Achour Secretary General of Union Tunisienne de l'Industrie et du Commerce * Hassan Zghal Director of the Central Bank Mohamed Ghenima President Director General of Banque Nationale de Tunisie Yves-Rolland Billecart Representative of Caisse de Cooper- ation Economique Ali Akbar Khosropur Representative of IFC Fritz Oppenheimer Bank fur Gemeinwirtschaft * Rachid Ben Yedder Representative of private Tunisian shareholders Ali M'Heni Private shareholder Mahmoud Doghri Private shareholder Renato Braghenti Banca Commerciale Italiana Holding * Members of the Executive Committee DPCD August 17, 1971 SOCIETE NATIONALE D'INVESTISSEMENT PROPOSED ORGANIZATION CHART (To be effective January 1972) PRESIDENT BOURGUIBA JR. ADMINISTRATEUR ADVISOR DELEGUE I CRIFO M. BELKHODJA GENERL FINANCE SECRETARIATSONNAUDAT GENERAL MANAGER C NSUPPLYA FAKHFAKH DEVELOPMENTE_ AND APPRAISALS SECURITIES TREASURY CONTROL Crifo El-Goulli S. Belkhodja Ferhat PRtOMOTI On F INANCE S ECRETARI AT CONADTROLR FOLLOW-UP' ENGINEERING EQUITY INVESTMENTS DISBURSEMENTS BUSINESS INFORMATION|SEUIYALSS |LGL |CENTER SEURT ANLYI LEA 1To become separate departments in 1973. z TOTAL STAFF: BOOKKEEPING Z Management 7 Professionals 30 m Non-Professionals 60 World Bank-6362 ANNEX 9 Page 1 SOCIETE NATIONALE D'INVESTISSEMENT Statement of General Policies and Operations Adopted by the Board of Directors on July 4, 1966 and Amended on June 7, 1969 I. Purpose of this Statement These provisions define the general policies and the guiding principles governing the operations of the Societe Nationale d'Investisse- ment. It is evident that the management may propose to the Board of Directors of the SNI any necessary amendment which may be justified, in the light of experience, in order that the SNI may perform its services to the Tunisian economy with greater efficiency. In view of the impor- tance of the subject matter to be discussed, the Board shall be given ample time to study such proposals. II. Purpose of the SNI (1) The SNI, through the various forms of operation as specified in III below, shall endeavor to stimulate the industrializa- tion of the country and the development of tourism through productive, economic and financially sound projects. (2) The SNI shall also seek methods which may reactivate and develop the capital market and, in particular, broaden the securities market. III. Investment Policy (1) The SNI will assist the Tunisian economy by one of the following methods, or a combination of several of them: (a) medium- and long-term loans for the foreign currency needs of a borrowing company; (b) medium- and long-term loans for its local currency needs; (c) equity investments; (d) underwriting syndicates for issue to the public of shares of a borrowing company. (2) The SNI shall concentrate its assistance in the industrial and tourism sectors. ANNEX 9 Page 2 (3) It will provide financial assistance mainly to private enterprises or enterprises with a majority of private shareholders. The following may be considered as pri- vate enterprises or enterprises with a majority of pri- vate shareholders: (a) companies where the capital is held solely by private natural or juridical persons; (b) companies where more than half of the capital is held by private natural or juridical persons, through the remainder is held by the Government or public agencies, or institutions where the Government is a majority shareholder. SNI will also be able to finance companies where more than half of the capital is held by the Gov- ernment, by public agencies, or by institutions where the Government is a majority shareholder provided that: - The decision to finance these companies receives the unanimous approval of the Board of Directors of the SNI. - The total amount of financial assistance which the SNI will grant to these enterprises shall not exceed at any time 25% of total outstanding commitments (total amount of equity investments, medium and long term loans and guarantees). (4) The total amount of financial assistance which the SNI shall grant to any single company, in the form of loans or equity investments, shall not normally exceed 15% of the SNI's owAm resources (share capital plus free reserves plus grant plus Government loan ranking pari passu with the share capital). In exceptional cases, where the finan- cial assistance of the SNI exceeds such limit, the Board of Directors shall examine the project particularly care- fully after a detailed and thorough study conducted by the Management. The SNI shall not engage in operations, whether loan or equity investment, by subscription, requiring less than D 15,000 from SNI. No equity investment in an industrial or tourist enterprise shall exceed 10% of the SNI's own resources as defined above. In the exceptional cases in which the equity participation ANNEX 9 Page 3 of SNI will exceed this limit, the Board of Directors will have the opportunity to study the project in especially great depth. The total amount of SNI's equity investments shall in no case or at any time exceed the total of the capital, free reserves, grant, and the Government loan rank- ing pari passu with the share capital. (5) The SNI's equity investments in industrial and tourist enterprises shall be as diversified as possible between the industrial and tourist sectors and within a specific sector. (a) With regard to industry, among various groups such as: mining, chemicals, mechanical industry, tex- tile industry, food industry, etc. (b) With regard to tourism: both among various types of hotels (de luxe and intermediate categories), vacation centers, etc; and between hotels located in the southern, central and northern regions of the country. (6) The SNI shall not, as a matter or principle, hold a majority of shares in a company, except: (a) where SNI acts as promoter of an enterprise and expects to place shares among private subscribers which will bring its holding down to a minority position (below 50%); (b) where the company under consideration is in a difficult financial situation reqniring the direct intervention of the STI in the best interests of SI. As a general rule, the SNI shall not allorT itself to assume the managerial responsibility of enterprises in which it shall have an equity investment. (7) A loan which the SRI is requested to grant to a company directed by a memiber of SNI's Board of Directors, and in which this director holds a large equity participation, shall be: orn Fte one hand, granted only after due con- sideration and approval by the Board of Direc- tors as a whole; - on the other hand, subject to a special report of the auditors to the next Ordinary General Meeting, in accordance with the provisions of the Code of Commerce. ANNEX 9 Page 4 (8) The SNI will support all initiatives for the development of the capital and securities markets. In particular, it will take the following measures: - it will endeavor to ensure the maximum turnover of its portfolio by giving preference to the resale of all or part of the good securities held; - it will subscribe to share issues, whether the companies are borrowers or not from the SNI; - it will take part in the pr,motion of "variable capital" investment companies (mutual funds) or any other type of portfolio investment companies. - it will take part in securities markets operations to buy shares and any other securities (bonds for example). IV. Financial Policy (1) The SNI shall ensure that the total of medium- and long-term debts outstanding (i.e. maturing beyond one year) does not exceed at any time four times the total of its share capital plus free reserves, plus grant, plus Government loan ranking pari passu with the share capital. (2) For each foreign borrowing, the SNI shall protect itself against any exchange risk arising from loans in foreign currencies. It shall consider with the proper Tunisian authorities the measure to be taken in this respect. (3) The SNI shall obtain from its lending, guarantee and other operations a rate of interest and commission sufficiently high for it to be reasonably profitable, build adequate reserves and distribute a small dividend. (4) From the profits of each year of operations, the SNI shall, in addition to the legal reserve, establish a provision for contingencies and extraordinary reserves reasonably commen- surate with its commitments and the nature of the risks involved. It shall also pay reasonable dividends in accor- dance with its annual profits. A41NEX 9 Page 5 V. Organization (1) The SNI shall recruit a highly qualified personnel for the financial and technical analysis of the projects to be financed. (2) The SNI shall also set up an organization adequate to give technical assistance to its clients and to enable them to adopt modern management techniques. DFCD December 28, 1971 SOCIPE HATIONAITE T' IMVESTISS_EKIT Ebrut,y trtfelio as of. Ierber 31 1970 (flnars) Earnings in 1969 Dividends on Year of SNI Shareholding % of Share % of SNI's attributable to 1969 results Company and Sector Establishment Book Value Met Asset Value Capital held equity portfolio SNI holdinrs Amount % of Par Comments PROFITABLE COMPANIES DISTRIBUTING DIVILENDS STS Pood Processing 1961 261,100 654,212 15.3 13.6 27,895 14,713 6 Profitable sugar mill and refinery enjoying a mono- polistic position. Will pay only a 5% dividend on 1970 results because the Government has decided to lower sugar prices. SICOAC Construction Materials 1961 120,290 135,807 30.1 6.2 14,476 5,849 6 Has faced liquidity problems because of the inability of the Government, its main client, to pay its bills. SKI is pushing the company to diversify its clients and sell to private sector. STUFIT Textiles 1940 86,857 104,551 29.0 2.5 13,287 4,894 6 Profitable company producing jute bags. Good prospeots. Sll. Wood and Cork 1962 116,300 358,809 46.5 6.1 38,153 9,362 8 Medium term prospects are not bright beoause cork prices are falling but SNI expects a 10% dividend in 1971. BIG Mechanical 1964 13,000 19,874 25.8 o.6 2,894 1,448 11 Very profitable company. Good prospects. SKANES Furniture 1962 33,687 127,775 29.7 1.7 7,332 4,040 12 Very good prospects. MARHA3A Tourism 1964 9,000 32,198 5.4 0.5 5,228 1,920 22 Very profitable hotel company in Sousse. STIB Wood 1960 8,560 14,147 2.8 0.4 5,526 1,027 12 Wood paznels producer. Good prospects. STIA Mechanical 1961 73,332 454,156 44.4 3.8 120,819 6,091 9 Automobile aasembler, very profitable. TAT Tourism 1967 25,000 52,525 25.0 1.3 14,789 2,012 8 Car rental company. Very good proepects. CHAlR4 Mechanical 1963 33,750 38,922 15.0 1.8 4,728 1,932 6 Profitable manufacturer of eleotric cables. BECTIF Mechanical 1967 28.341 564064 32.1 15 4.018 155 0.5 Company in tight liquidity position 809,217 2.o47.040 40.0 259,145 5.44S FRDFITABLE COMPANIES NOT DISTRIBUTING DTIVIDEND UNION GENERALE Construction 1947 100,000 84,966 14.3 5.2 5,456 _ - Brick factory. Brick ex- ports to Libya have ended in 1970 and the company faces an excess capacity situation for a few years unless exports are resumed.Al STUMrTAL Metal Canning 1965 20,000 26.530 7.4 1.0 2,692 - _ The Company recovered from a bad year in 1968. Good 120.000 111.496 6.2 8.148 prospeots. SOCI0TE NATIONALE D'INVESTISSEMENT Equity Portfolio as of December 31. 1970 (Dinars) Earnings in 1969 Dividends on Year of SNI Shareholding % of Share 56 of SNI's attributable to 1969 results Compapy and Sector Establishment Book Value Net Asset Value Capital held equity portfolio SNI holdings Amount %6 of Par Comments COMPANIES STARTING UP OR UNDER CONSTRUCTION °0 FRAB BANK Banking 1970 16,542 16,542 7.0 0.9 - - - Franco-Arab Investment Bank sponsored by Societe Generale SOCI01BE LEVURE Fnod Processing 1968 25,000 25,000 10.0 1.3 - - - Project is still not ready to move forward. COFITOUR Tourism Financing 1969 414,525 414,525 16.5 21.7 - - - No imnediate dividend prospects. HILL DIAR Tourism 1966 100,000 100,000 25.0 5.2 - - - Hotel in House opened in 1970. Good prospects. RUSPINA Tourism 1967 50,000 50,000 12.5 2.6 - - - Hotel in Monastir; tigBht liquidity situation. SOHOTO Tourism 1968 75,000 75,000 27-3 3.9 - - - Hotel open in 1970. Also tight cash position. SIOC Rubber 1970 25,000 25,000 12.5 Company established in January 1971 706.067 706.067 36.9 UNPROFITABLE COMPANIES COTUSAi Salt Extraction 1949 187,470 254,559 25-0 9.7 - - - Losses in 1969 were caused by the Floods. The company was profitable in 1970. STTiA Aviation 1965 1,200 - 7.1 0.1 - - The Company is being liquid- ated and SNI will probably lose its investment. SOTIUVER Glass 1963 43,440 38,236 9.6 2.3 - _ The Company starts now to overcome technical problems. SFTID Tourism 1967 25,000 19,000 36.0 1-3 - -otel In Djerba in serious difficulties. SOMATRAL Furniture 1967 17,000 17,200 13-7 0.9 - - Mattress factory on which there has been no follow-up since 1968. SACSM Mechanical 1966 10,000 10,000 6.1 0-5 - - - No follow-up since 1968. LE MARABOUT Tourism 1968 40.000 36,000 26.7 2.1 - Hotel in Sousse affecte TOTAl -~~~~~~~~~~~~~~~~~'~~~~~ 16.9 ~~~~~~~~~~~by the floods 324,11c, 374,995 16.9 _ TOTAL 1,5.30 ,2959 o.0 26,9 $,4 ANNEX 1 1 SOCIETE NATIONALE D'INVESTISSEKENT Income Statements, 1967 - 1970 Dinar thousands) 1967 1968 1969 1970 INCOME Interest on loans and advances 126.7 254.1 468.5 700.3 Interest on deposits 107.7 37.2 39.9 49.3 Dividend income 55.3 45.5 63.0 54.3 Other income 21.4 61.3 61.1 56.0 311.1 398.1 632.5 859.9 EXPENSES Interest on deposits 14.3 12.6 16.2 27.0 Interest on borrowings 45.3 130.0 241.4 395.2 Administrative expenses 116.8 128.9 126.1 16o.2 Depreciation 9.5 10.2 9.1 o.6 185.9 261.7 392.6 599.0 Net operational income 125.2 116.4 239.7 260.9 Plus: Government subsidy 50.0 50.0 - - Less: Provisions for doubtful portfolio - - (40.0) (62.0) Extraordinary income (expenses) (16x7) 13.1 ( 1.1) (16.9) Profit before tax 158.5 179.5 190.6 lo.0 Tax - - - 46.4 Net profit 158.5 179.5 19b.6 133.6 Allocation of Profits Dividend 60.0 60.0 7;5.0 90.0 Reserves 92.1 110.7 115.5 30.7 Social fund 5.0 7.5 7.5 12.5 Board member fees 0.5 - - - Carried forward 0.9 1.3 o.6 0.4 158.5 179.5 196.6 133.6 Financial Results (in %) 1. Earnings before interest, tax and provisions as % of average total assets 3.4 3.9 5.4 5.2 2. Profit before tax as % of average equity 6.7 7.2 7.6 6.7 3. Profit after tax as % of year-end share capital 10.6 12.0 13.2 8.9 4. Administrative costs as % of average total assets 1.9 1.8 1.4 1.3 DFCD December 16, 1971 ANNEX 12 SOCIETE NATIONAILF D'INVESTISSEMENT Balance Sheets, 1967 - 1970 (Dinar thousands) 1967 1968 1969 1970 ASSETS Cash and bank deposits 1,901.4 1,115.2 1,691.2 2,445.4 Accounts receivable 449.1 245.2 368.7 923.6 Accrued income from loans 86.6 142.6 306.3 444.8 Short-term advances 834.9 768.4 40.0 30.0 Current assets 3,272.0 2,271.4 2,406.2 3,843.8 Medium- and long-term loans 1,439.7 3,686.5 6,077.0 9,028.0 Equity investments 1,611.1 1,557.0 2,178.9 1,907.4 Total portfolio 3,050.8 5,243.5 8,255.9 10,935.4 Less: provisions for losses on portfolio - (40.0) (102.0) Portfolio net of provisions 3,050.8 5,243.5 8,215.9 10,833.4 Government securities 26.2 26.2 24.5 24.5 Fixed assets (net) 83.3 78.5 72.7 65.6 Establishment costs (net) 14.3 13.2 12.1 11.0 Total assets 6,446.6 7,632.8 10,731.4 14,778.3 LIABILITIES Deposits 1,841.8 991.1 1,720.0 1,983.2 Accounts payable 294.1 256.1 443.7 1,577.9 Current liabilities 2,135.9 1,247.2 2,163.7 3,561.1 LT borrowings: 667.0 2,283.1 4,066.5 6,481.9 IBR.D 670 218. ,6. ,8 CNSS 438.7 438.7 372.2 337.1 BCT 185.0 185.0 172.7 155.0 SIA 273.6 751.7 942.7 Subordinated Government loan 615.0 615.0 615.0 615.0 Long-term liabilities 1,905.7 3,795.4 5,978.1 8,531.7 Share capital 1,500.0 1,500.0 1,500.0 1,500.0 Government grant 500.0 500.0 500.0 500.0 Reserves and surplus 405.0 590.2 589.6 685.5 Ecuity 2,405.0 2,590.2 2,589.6 2,685.5 Total liabilities 6,1446.6 7,632.8 10,731.4 14,778.3 DFMD December 23, 1971 ANNEX 13 Page 1 SOCIETE NATIONALE D'ILVESTISSEMENT Forecast of Operations, 1971 - 1976 (Dinar Thousands) I. APPROVALS INDUSTRY 1970 1971 1972 1973 1974 1975 1976 (actual) Private Sector Equity investment in dinars 165 200 150 200 200 250 300 Loans in dinars 423 346 350 450 500 550 580 Loans in foreign exchange 2 120 2,033 2,779 2,000 2,200 2,400 2,600 2,7TO 3 ,299 T, 2,050 3,200 3,4 0 Public Sector Loans in dinars 440 381 365 350 400 450 500 Loans in foreign exchange 1 435 930 1,000 1,050 1,100 1,100 1,100 vL7f IT731 1,400 1,500 1,550 1,60 TOTAL 4,583 3,890 4,694 4,050 4,400 4,750 5,080 TOURISM Private Sector Equity investments in dinars 90 90 350 400 400 450 450 Loans in dinars 423 547 500 550 650 650 700 Loans in foreign exchange 1,139 1,692 1 224 1,750 1 800 1,800 1,850 I7,657 2,329 2,074 2,700 i 2,900 3,000 Public Sector Loans in dinars 25 - - 250 250 250 250 Loans in foreign exchange 450 250 300 500 400 400 400 7 '0- -3-0 m0- wo Z m30 TOTAL 2,127 2,579 2,374 3,450 3,500 3,550 3,650 TOTAL APPROVED Equity investments 255 290 500 600 600 700 750 Loans in dinars 1,311 1,274 1,215 1,600 1,800 1,900 2,030 Loans in foreign exchange 5,144 4,905 5,303 5,300 5,500 5,700 5,950 TOTAL 6,710 6,469 7,018 7,500 7,900 8,300 8,730 ANNEX 13 Page 2 II. C0MMITMENTS 1" Calendar Year 1971 1972 3/ 1973 1974 1975 1976 Local Currency Loans 996 1,254 1,567 1,670 1,835 1,945 Equity investments 185 451 580 600 680 740 Foreign Currency Loans 4,089 6,222 5,202 5,370 5,620 5,787 Total Commitment& 5,270 7,927 7,349 7,640 8,135 8,472 III. DISBURSEMENTS -4/ Local Currency Loans 1,140 1,011 1,356 1,623 1,779 1,929 Equity Investment 209 345 528 592 648 753 Foreign Currency Loans 2,700 4,372 5,254 5,542 5,685 5,906 Total Disbursements 4,049 5,728 7,138 7,757 8,112 8,588 1/ Commitments in a given year include about 35% and 65% of loan approved during the current and previous year respectively. The corresponding percentage for equity investments are 80 and 20%. 2/ Based on actual figures to October 30. 3/ Based on actual projects in the pipeline as of November 30, 1971. 4/ Disbursements in a given year include about 25%, 60% and 15% of loanscommitted during the current and previous two years respectively. The percentages for equity investments are 60 and 40% of commitment in the current and previous year respectively. DFCD December 4, 1971 ANNEX 14 SOCIETE NATIONALE D'INVESTISSEMENT Projected Sources and Application of Funds, 1271-l176 (Dinar Thousands) 1971 1972 1973 1974 1975 1976 SOURCES Net Profit before taxes 210.0 397.0 552.0 744.0 0o8.0 963.0 Depreciation 19.0 20.0 20.0 22.0 22.0 24.0 Cash Flow 229.0 417.0 572.0 766.0 830.0 967.0 Paid in share capital increase 666.0 - - - - State debt 476.0 31.0 36.o - - - Borrowings IBRD 2200.0 3104.0 3904.0 4166.0 4264.0 4430.0 SIDA 550.0 1960.0 2314.0 2556.0 2721.0 2076.0 Loan collection 1243.0 1920.0 2333.0 2660.0 3574.0 4362.0 Sales of equity portfolio 100.0 200.0 250.0 300.0 300.0 350.0 Total sources 5464.0 7640.0 9409.0 10688.0 11689.0 13005.0 APPLICATIONS Loans: in dinars 1140.0 1011.0 1356.0 1623.0 1779.0 1929.0 in foreign exchange 2700.0 4372.0 5254.0 5542.0 5685.0 5906.0 Purchase of equity 209.0 345.0 52640 592.o 646.0 753.0 Repayment of borrowings local resources 526.0 112.5 53.0 54.5 56.o 57.0 IBRD 655.0 1314.0 1543.0 1922.0 2390.0 2773.0 SIDA - - 75.0 75.0 150.0 150.0 Income Tax 36.0 91.0 119.0 168.0 202.0 247.0 Dividends paid 90.0 150.0 160.0 160.0 10.0 100.0 Increase in fixed assets 5. - 20.0 - _ 20.0 Total application 5610.0 7395.5 9126.0 10176.5 11090.0 12015.0 Increase in cash-flow (146.0) 244.5 261.0 511.5 599.0 990.0 5464.0 7640.0 2j09.0 10606.0 11669.0 13005.0 DFCD December 17, 1971 ANNEX 15 SOCIETE NATIONALE D'INVESTISSEMENT Promected Income Statements, 1971-76. Actual 1970 (Dinar Thousands) 2L70 1971 1792 112 1974 122 1976 (actual) INCCOE Interest on loans and advances 700 979 1250 1649 2039 2411 2746 Interest on deposits 49 98 111 122 133 154 178 Dividend income 54 57 70 75 97 109 123 Other income 38* 40 60 70 80 80 90 84l 1174L 1491 1916 2349 27g 31 EXPENSES Interest on deposits 27 32 32 32 32 32 32 Interest on borrowings 395 665 771 1015 1228 1530 1728 Administrative expenses 168 248 271 297 323 362 390 DeDreciation 9 19 20 20 22 22 24 -5-9 1964 3L 13605 9194 2174 Net operational income 242 210 379 552 7U4 808 963 less: Provisions for doubtful portfolio 62 9 - 1-1 188 202 207 Profit before tax 180 172 306 __ LLD 606 716 Tax _46) j30) (40) (50) l(o) (50) (Lol Net profit j3-j j-2 266 383 D06 556 666 Allocation of ?rofits Dividend 90 150 180 180 130 130 18C 7eservc3 and carried forward 4 (8) 86 203 326 6 L86 134 142 266 383 5o6 556 o66 Earnings befcre interest, tax and Drovision as % of average total assets 5.2 5.6 6.2 6.8 7.2 7.1 7.2 Profit before tax as 5O of averagp equity 6.7 5.o 7.1 9.9 12.1 12.4 13.6 Profit after tax as % of year-end sharp canital 8.9 4.7 8.9 12.8 16.9 13.5 22.2 Adninistrative costs as M of average total assets 1.3 1.5 1.4 1.3 1.1 1.1 1.0 Yield of average equity portfolio 2.8 2.9 3.4 3.3 3.8 3.8 ,.8 Dividend as d of Dar valus 6.o 5.0 6.o 6.o 6.o 6.o 6.o Dividend as % of net profit 67.2 105.6 67.7 47.0 35.6 32.4 27.0 *) Net of extraordinary expenses DFCD December 4, 19711 ANNEX 16 SOCIETE NATIONALE D'INVESTISSEMENT Projected Balance Sheets, December 31, 1971-76, Actual December 31, 1970 (Dinar Thousands) 1970 1971 1972 1973 1974 1975 1976 (actual) ASSETS Cash and Bank deposits 2445 2796 3032 3263 3715 4273 5212 Acceunts receivable and accrued income 1399 795 764 764 764 764 764 Current accounts 3844 3591 3796 4027 4479 5037 5976 Medium and long-term loans 9028 11839 15302 19579 23864 27754 31227 Equity investments 1907 2005 2150 2428 2720 3068 3471 Total portfolio 10935 13844 17452 22007 26584 30822 34698 Less: provisions for losses on portfolio (102) (132) (172) (222) (272) (322) (372) Portfolio net of provisions 10833 13712 17280 21785 26312 30500 34326 Fixed assets (net) and Estab- lishment costs (net) 101 135 115 115 93 71 67 Total assets 14778 17438 21191 25927 30884 35608 40369 LIABILITIES Deposits 1983 2579 2579 2579 2579 2579 2579 Accounts payable 1578 213 213 213 213 213 213 Current liabilities 3561 2792 2792 2792 2792 2792 2792 Long-term borrowings: TBRD 6482 7827 9617 12014 14278 16152 17809 CNS3 337 301 265 227 187 146 104 BCT 155 155 140 125 110 95 80 SIDA 943 1493 3461 5700 8181 10752 13477 Subordinated Government Loan 615 615 615 615 615 615 615 Long-term liabilities 8532 10391 14098 18681 23371 27760 32085 Share capital 1500 3000 3000 3000 3000 3000 3000 Government grant 500 500 500 500 500 500 500 Reserves and surplus 685 755 801 954 1221 1556 1992 Equity _7_ 4255 4301 44 5 721 055 __92 Total liabilities and equity 177 17 2711 2 25927 3 3 40369 Long-term debt/equity 3.1 2.4 3.2 4.0 4.7 5.2 5.6 Debt/equity as defined in Bank's Loan Agreement 2.6 2.0 2.7 3.5 4.1 4.6 4.9 Reserves and provisions as % of portfolio 11.7 11.0 9.4 8.6 8.5 8.7 9.3 Book value as % of par 186 146 149 156 166 179 195 DFCD December 23, 1971 ANNEX 17 SOCIETE NATIONALE D'INVESTISSE2ENT Estimated Disbursement Schedule for the Proposed Bank Loan (in Thousands of US$) 1972 Third quarter 200 Fourth quarter 400 1973 First quarter 800 Second quarter 1,000 Third quarter 1,200 Fourth quarter 1,200 1974 First quarter 1,200 Second quarter 1,200 Third quarter 900 Fourth quarter 700 1 975 First quarter 500 Second quarter , 300 Third quarter 200 Fourth quarter 100 1976 First quarter 100 10,000 DFCD December 16, 1971