The FINANCIAL — Lucas Caltrider, an American living in Georgia, established a company that offers assistance in attracting funds from abroad. The business is about getting loans with low interest rates, such as American or UK citizens benefit from.
Caltrider describes it as “providing business development advisory services to attain growth and profitability rapidly. This may involve consulting on raising funds, on other support services or even on business plan development”.
Lucas Caltrider is an advisor to the Georgian Minister of Finance. Prior to this job, Caltrider served as the CEO of TBC Broker, the investment banking and brokerage subsidiary of TBC Bank. He also advised SME and corporate clients on debt and equity offerings to facilitate access to alternative sources of capital. In 2006, he worked for Citigroup Global Wealth Management in the United States, providing investment and lending strategies for retail and institutional clients. Before Citigroup, he served as Managing Director of Caucasus Financial Services, one of the first full-services investment banks in Georgia.
Caltrider Advisors is a business development consulting firm with specialized expertise in the areas of project and infrastructure finance fundraising, starting its operations at the end of the year 2009. The firm provides general project consulting and support services, such as logistics, procurement, IT development, corporate training programmes, and much more.
“We consult for investors who would like to establish a joint venture or expand current operations into Georgia and investors who are interested in providing financing to Georgian firms. For example, this last week, I began conversations with an American investment fund that might provide long term (10-20 years) private loans at around 8-10% interest p.a.,” says Caltrider.
“We do advise our clients on how to approach investors and lenders. We first analyze our clients’ needs to develop the right combination of financing and then negotiate with investors and lenders to get our clients the best terms possible.
For example, an import company in Georgia may be interested in expanding their operations and business lines. In this situation, there are several combinations of financing strategies to implement, including private loans, commercial loans, standby credit facilities, equity partnerships, convertible debt, trade finance, bank guarantees, etc. We would help this company to determine the right financing instruments to pursue and then identify the appropriate investors or lenders,” he says.
Caltrider Advisors’ focus is different in that most of the well-known consulting companies look at general strategy management, whereas they focuses on tactical strategies for specific projects, privatization and capital expansion opportunities.
Another difference is that their consultants have extensive experience in Georgia and the CIS, so they already understand the challenges that firms in the region will face.
Caltrider says that investors are very active. Due to the global financial crisis there are a lot of undervalued investment opportunities to capitalize upon. The investors that the firm has contacts with are looking for high returns, which aren’t available in developed markets.
With US Treasuries around 3%, there is a lot of motivation to look outside the developed markets to find yield. Georgian yields present an attractive opportunity.
Q. What is the main strategy that is behind providing companies with low rate loans? How does it affect a company’s performance?
A. When funds invest in companies, they have a vested interest in making sure that their investment is safe and successful. If an American investor is happy investing in a Georgian firm at 10%, compared to investing in US Treasuries at 3%, then both parties will be happy. Plus, the Georgian firm has lower expenses and, therefore, higher profit.
Q. What might be the advantages of providing loans from foreign investors? Do they have lower interest rates, offer longer maturities for covering loans?
A. Indeed, some foreign investors offer debt financing with lower interest rates and longer maturities. Plus, foreign investors can compliment current banking services in Georgia by financing projects of various risk profiles and at different stages of development.
Q. For ordinary customers or businessmen, it sounds like you offer better conditions of crediting than the local banks in Georgia. But they should know that the process of getting financing from abroad is more complicated. What can you tell us about it?
A. The process isn’t extremely complicated; however, the standard practice is the same worldwide and requires much more due diligence and specific business plans and strategies. Additionally, investors may require the firms to be using international accounting standards, so it’s important for firms to prepare in advance for this process. It may seem complex, but we remove the complexity for our clients by navigating them through this process as part of our service.
Q. What is the threat for banks from the foreign organizations that provide loans to the companies?
A. Investors and banks might actually finance the same project or firm, but at different stages. Therefore, it’s important to see these capital sources as complementary and creating more financing for more companies and projects. If more companies have access to financing, there will be more growth and productivity, which will create more jobs and stimulate even more investment opportunities.
Q. How does risk factor define investment? On average, are projects that have lower risk taken more often?
A. Every investor has a different appetite for risk. Some investors may be more risky while others prefer lower-risk investments. With that said, anything a firm can do to lower the risk related to its operations or projects will be beneficial when attracting investors.
Q. Which is more risky to finance, start-ups or companies that have already created their profile in the region?
A. Generally, financing a company with a good profile, proven performance and positive credit history is less risky. However, certain start-up projects with guaranteed revenue streams can also be considered low risk. Only after studying a project very carefully can one say how risky any investment will be.
Q. What are the differences in procedures while borrowing money from Georgian and Foreign banks and investors?
A. Basically, the logic is the same. However, in the first case a company approaches a bank and then the Bank’s credit officer studies the company’s financials. It should be mentioned that currently there are 19 banks in Georgia, so every bank could be approached rather easily and without investing a great deal of time.
In the case of investors, the same scheme could work, but there are thousands of banks and investment funds to approach so it could take a lot of time for a company to approach every investor for financing. That’s why if a company wants to attract a foreign investor it’s much more efficient to use a consulting company which will prepare an investment memorandum to approach its network of investors.
Q. What type of loan is provided by foreign investors? What is the interest rate?
A. It really depends on the investor; some will look for lower-risk investments and offer longer maturities, while others look for short-term investments at slightly higher rates. Generally, the larger the company, the more interested investors there will be. However, we can and have identified interest for smaller investments also.
Some of our investor partners are interested in projects from 100,000 – 50 million USD, while others look at projects from 50 million USD and up. Generally, lower-risk projects can expect around 8-10% while higher-risk projects will be more, depending on their individual risks.
Q. What are the risks associated with providing loans?
A. the risks associated with any cross-border transaction entails several risks in addition to the standard market and economic risks associated with the investment, including currency, inflation, interest rate, commodity and political risk. However, with the use of hedging instruments, these risks can be mitigated dramatically.
Q. What are the threats that are associated from bad-debt expenses? And what measurements will be taken from its prevention? What are the guarantees the borrowers should bring for taking out loans?
A. It’s never good for companies to default on their loans. Not only is this a sign of their insolvency, but it also causes their creditors, suppliers and customers to look for alternative arrangements. Just as in commercial banking, collateral is required to secure most forms of debt financing. There are additional credit enhancement mechanisms available to reduce this requirement, including a pledge of shares, establishment of debt service reserve accounts, personal or corporate guarantees, “key man” life insurance and bank letters of credit.
Q. In your opinion, why do foreign companies prefer to lend money to Georgian companies rather than themselves make foreign direct investment?
A. I wouldn’t say that foreign investors prefer to lend rather than invest directly; however, I would say that there are some investors who are in the business of investing assets and therefore offer loans and take equity positions. However, the greatest amount of investment comes from private corporations that establish operations in Georgia, many of which are multinational firms in their core business activities.
Q. What are the documents that are usually required for being given a loan? Are the procedures too rigid?
A. Most investors require an investment memorandum and financial model of expense and revenue projections; however, there are a few organizations that have much more strict requirements, such as environmental impact studies and other feasibility analyses. With that said, we will always try to match our clients to the best financing partner possible.
Q. What requirements should the company meet to be given financial support? How to get prepared? Does company need to have above specially defined turnover? What is the formal side?
A. As I said, investors are unique and have widely different requirements. We recommend that the best way to prepare for any potential investment is to develop a relationship with a consulting company like ours in advance. If we can identify and fix any potential problems ahead of time, the fundraising process will be much smoother and faster.
The main requirement for investors for established companies is that it should already be generating significant revenues to repay the loan and have a good management team in place, and there is growth potential for those revenues. For capital expansions and infrastructure projects, guaranteed revenues and solid management are requirements as well. For agricultural projects, which have much longer payback periods, investors require a sound business plan for long-term investment, an experienced management team and strong revenue and market potential.
Our client portfolio and investor relationships are very confidential, but there are a number of countries and regions that are currently active in the Caucasus. These include the USA, EU, China, India and some of the Arabian Gulf countries.
Each investor or lender will decide which projects fit their investment or credit policy and will make a decision to finance a company or not. Investors are unique and have widely different requirements, including which industries and sectors they finance. They also have different capital requirements.
Q. What is the price of the service you provide for people? Could you describe what exactly it involves? And what is the average time period needed to evaluate if the project is financed?
A. We are flexible. Clients have an option of a commission-based structure or a daily fee for consultants. The fees greatly depend upon the client’s needs. If clients would like to undertake a large, complex project, then this will of course require more time and a higher level of expertise.
The due diligence stage is the longest process that firms must undergo, which can be completed in as little as 3 months, but usually takes 6-9 months.
Q. What is your capacity of crediting from abroad? How many loans can be raised from foreign counties/lenders?
A. There is no upward limit. Some investors have their own funding limits, but that may just require a firm or project to pursue 2-3 investors simultaneously.
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