Supply-Chain Financing Through Peaks and TroughsFri, 09/01/2017 - 10:09
Q: How have your market expectations changed since you told us about your company’s unusual offering in 2016?
HG: Supply-chain financing becomes relevant in times of economic instability or market volatility. Our product is particularly useful during periods of rapid expansion as well as troughs in economic growth. If one sector of the economy drops and a company needs financial support, or unexpected growth demands sudden personnel recruitment and raw material acquisition, our product can play a starring role in caring for that company.
The US president’s election sparked instability and we saw this alter the Mexican currency. Similarly, exports took a hit. We do not expect this development to have a longterm effect on our economy but the impact on automotive is interesting. For foreign companies, whose spending on human resources is their second or third-biggest expense or who sell in dollars, a lower price for Mexican pesos is good news. For E factor Network, our business benefited from the uncertainty that Trump’s election generated. We signed six new automotive companies within the month following him taking office, ramping up financing much faster than the usual three or four years we would expect this growth to take.
Q: How has automotive participation in E factor’s portfolio changed since the company was created?
AG: Our presence in Mexican manufacturing clusters resulted in 16 of the 60 corporations we manage being automotive enterprises. The industry represents more than 35 percent of our portfolio in loan values. Automotive clients set demanding timeframes for their suppliers, which makes free cash flow and forward planning crucial to smooth industry functioning. Therefore, E factor provides one of the few financial services that can keep suppliers risk-free while companies have sufficient cash flow.
Q: To what extent does a one-sided repercussion on inflation affect financing due to rising cost of loans?
HG: Inflation always damages certain economic indicators but the central bank and the government’s policies will aim to minimize this impact. Automotive’s dependence on the dollar means prices and revenue can fluctuate accordingly. The value of finance solutions will grow in line with an increase in prices. The impact of inflation on the base rate (TIIE), which increased over 300 base points in 2016, will impact the price of goods and services provided to automotive industry. Companies taking out a loan will pay more for their loans, so the authorities need to reduce the impact of interest rates on the industry as much as possible.
Q: What kinds of companies do you hope to include in your client base?
AG: We are focused on Tier 1 companies but are also negotiating with OEMs like Volvo, to support Tier 2 and 3s in their supply chains. We also visited Volkswagen and Nissan to explain the benefits we can offer their suppliers, hoping to secure them in the future.
We see opportunities in the Mexican market, and it seems Navistar has identified the same possibility. This crossborder venture shares the risk with the Bank of Mexico and a foreign financial entity. Another example is Nemak, a Mexican company for which we helped obtain financing for an Italian supplier of theirs. This was obtained in euros via French bank Credit Agricole. One of the main benefits of using our cross-border platform is that it has led us to understand that international companies need flexibility. We aim to become market leaders ourselves in electronic financing by 2021.
HG: E factor aims to develop the whole marketplace every year, from banks to brand-new suppliers. We closed a deal with Nemak in February 2017, having negotiated technology and financing solutions for this influential company. But the main value of having such a large company on our books is the fact that it will attract all sorts of new players, strengthening the supply chain. The more we develop the full supply chain, the more each new player will attract further suppliers, international or national banks, all the way up to OEMs.