IFS Capital (Thailand) Plc was incorporated on March 21, 1991 as Ayudhya International Factors Co Ltd (AIF) with initial paid-up capital of 50 million baht. It was a joint venture between Bank of Ayudhya Plc (BAY) and IFS Capital Ltd. BAY sold its shares in AIF to the IFS Group in January 2007, and in April that year the renamed IFS Capital (Thailand) became a public limited company. IFS, which listed on the Stock Exchange of Thailand on Aug 10, 2010, currently has paid-up capital of 470 million baht. Chief executive Tan Ley Yen discusses the company’s strategy and outlook.
What is IFS’s business model?
IFS Capital provides four main lines of business – factoring, leasing, hire-purchase and other financial services to small and medium-sized enterprises in Thailand. Factoring represents 98% of our business volume, as we only relaunched our leasing and hire-purchase services in August 2010 following our IPO. We have been operating in Thailand for 20 years and focus on providing services to SMEs that need working capital and financing to improve their liquidity or to expand their business.
How do clients apply for factoring and how does IFS deal with them?
With any new client, we require a certificate of incorporation, bank and financial statements for the past few years, and we check with the Credit Bureau. Our aim is to be speedy and flexible, but we’re a financing company and thus have to manage risks and rewards. We need to understand who the applicants’ clients are, what their needs are and how their business operates. We then negotiate which receivables we can purchase, preferring to buy receivables that belong to well-known names. Generally we advance 80-90% of the receivables’ value at MOR + 1-3% depending on agreements with our clients.
Who are IFS’s typical clients by industry and business size?
SMEs in Thailand are our target clients. Generally a company with annual revenue of up to 200 million baht is considered small, and those with 200-500 million are considered medium-sized. While we have clients with annual revenues ranging from 20 million to one billion baht, most are within that SME range.
How does IFS generate new business?
We have to reach out to clients and the market, and we do this via a two-pronged approach. First, with direct sales marketing and direct cold calls where we introduce our company and present what we can offer. Second, we create our own network of referrals with our contacts within the banking industry and try to get equipment dealers to refer business to us as well.
What is the market potential and penetration today?
The market here is relatively small, as over the past 10 years Thailand has gone through several crises, especially in the past few years with political and global issues and natural disasters. IFS has been in Thailand for 20 years, and we’re one of the few factoring firms that survived the Asian financial crisis. The market size here for factoring in 2011 was about 120 billion baht according to our estimates and only 1.23% of GDP, while the figures for Germany, Singapore and the UK are 5.6%, 3.74% and 14.25%, respectively. Given that 98% of businesses in Thailand are SMEs, there is a strong potential for growth, and we aim to capture this.
What differentiates IFS from its competitors?
The industry is becoming more intense as more commercial banks are offering factoring as a part of their services, so we compete on speed, flexibility and good client service. Because factoring is our core business, we invest in the necessary people and systems to ensure that our clients are well taken care of. For example, three years ago we invested in software that allows our clients to see their account status in real time, and we’re the only factoring firm in Thailand that offers e-factoring to our clients.
Why did IFS decide to become a public company?
There were three reasons. First, we wanted to raise our profile in the market because we are not a commercial bank with a brand name. Being a publicly listed company improves our ability to expand our client base. Second, our credit rating among banks improved, and we’ve been able to increase our funding sources from local commercial banks. Third, to access the capital markets, being listed offers us the ability to issue bonds, do a rights issue or issue warrants.
What are the biggest risks facing your business today?
Credit default is our biggest risk, and we must balance the risk-reward and be prudent for our shareholders. We could be very aggressive and grow by 30-40% a year, but then our non-performing loans may grow as well, so we take a considered approach when expanding our business.
Was your business affected by the floods?
Frankly we were quite lucky that we do not have many clients in the northern industrial estates, but some of the accounts receivable we purchased were in the affected areas. But because most companies in those estates are big Japanese companies, despite being affected by the floods, they still pay promptly. In November 2011, our factoring volume dropped by about 20% but rebounded again in December.
Where do you see IFS five years from now?
IFS is evolving from a factoring company to a fully fledged commercial finance company. We’ve begun offering leasing and hire-purchase services, which are a natural complement to our factoring business. Pending approval of licences, we also hope to offer several types of loans in the future. Our aim over the next five years is to double our assets and company size by offering a wide range of financial services to support our clients.
Originally published in the Bangkok Post, 20th Jan 2012