THE INVESTMENT PROCESS

    IFU has a long-term investment horizon and is often engaged in the project companies for several years. An investment typically spans five phases

    Relationships between IFU and individual companies vary a great deal, and IFU cooperates with many different types of companies. There are, however, a number of common features that apply. These can be divided into five phases from the idea for the company is hatched until IFU exits the investment several years later. You can read more about the individual phases below.

    FIRST CONTACT

    During the first contact, the business idea will be presented, and a preliminary assessment of whether the proposed investment is commercially viable or not will be carried out

    Most companies contact IFU when they are well on their way in terms of the concept phase. Consequently, the companies have already had some strategic considerations at this point.

    During the first contact, the business idea will be presented, and a preliminary assessment of whether the proposed investment is commercially viable or not will be carried out. At this point, IFU can also advice the company on what the company should do to move forward in terms of the cooperation with IFU.

    During this initial period, IFU will conduct a principal approval of the partner, investment location and business idea/plan.

    DUE DILLIGENCE

    The original business idea has matured and is clearly stated. Focus is now on business strategies as well as the managerial and organisational challenges

    After the first contact between IFU and the Danish company, the actual collaboration begins.

    The original business idea has matured and is clearly stated. Focus is now on business strategies as well as the managerial and organisational challenges. The conditions in the proposed investment country are also discussed, and the practical and legal issues dealt with thoroughly.

    In this phase, focus is also on sustainability, including environmental, social, and corporate governance concerns.

    Parallel to this, funding models and draft investment agreements will be discussed. It is agreed which type of funding IFU will contribute with and how the distribution will be, for example between share capital and loans.

    At the same time, a visit to the partner company is typically conducted, usually combined with a visit to the proposed investment country.

    This phase typically lasts around 5-6 months, but it can be completed much faster if the Danish company has experience in establishing business abroad or has already completed investments with IFU.

    This phase could also take longer if for example political hurdles arise in the country of investment.

    APPROVAL OF INVESTMENT

    The funds can be released once IFU has approved the investment agreement, and the disbursement terms have been met

    The finished investment proposal is presented to IFU’s Board or Investment Committee, which has the final say on IFU’s participation.

    The funds can be released once IFU has approved the investment agreement and the disbursement terms have been met.

    The disbursement terms include a legal opinion by a lawyer based in the host country. The purpose of a legal opinion is to ensure that the company holds all the necessary licences and that it will, for instance, be able to obtain a licence to operate.

    Niebuhr, China
    Niebuhr, China

    Additionally, a sustainability action plan must be in place to ensure that IFU’s sustainability requirements are met.

    If not all licences are in place before the funds are required, IFU will make an individual assessment as to whether the funds can be released anyway, for instance if IFU has experience from other projects in the country in question.

    ACTIVE OWNERSHIP

    Once the company is established, focus will be on the daily management, board and execution of the business plan

    When the investment agreements have been signed, and the disbursement has been made, the cooperation enters a new phase in which focus is expanded to the many practical issues and details required in connection with establishing and operating the company in the particular developing country.

    IFU appoints an investment manager, who will be in charge of advising the established company. The investment manager will in many cases serve as a member of the board of the project company. In this way, IFU’s experience from the country in question, operating companies in developing countries, etc. will be part of the strategic work.

    During this phase, a need may arise for additional funding. Often, such need will relate to investment budget overruns or a need for general expansion because the company is more successful than anticipated.

    In such cases, IFU can help increase the capital base, for example by contributing additional risk capital.

    AGREED EXIT

    IFU typically exits the project after five to seven years, when the loan has been repaid in full and the shares are sold

    IFU typically exits the project after five to seven years. The most common reason is that the loan has been repaid in full and/or that there is a clear agreement between the parties on the timing of IFU’s exit and on the value of the shares.

    Most often it is the Danish partner who buys IFU’s shares, but it can also be international or local companies/investors.