Turkmenistan Financial Due Diligent and Restatement of Local Financial Reporting

Description

Country:

Turkmenistan

Business sector:

Other

Project number:

68337

Funding source:

Bank Funded

Contract type:

Consultancy Services

Notice type:

Invitation for expressions of interest (CSU)

Issue date:

04 Mar 2017

Closing date:

25 Mar 2017 at 23:59 London

Access eSelection

Programme Description

Directly and through its partner financial institutions, the European Bank for Reconstruction and Development (the “EBRD” of the “Bank”) is working across the EBRD countries of operations to improve access of Small and Medium Enterprises (SMEs) to external investments. Target SMEs consistently report higher financing constraints than large firms. Poor financial information at local enterprises in many of the EBRD countries of operations (the “CoOs”) is a systemic problem. Production of financial statements which can be used internally for managerial decision making and externally for raising financing is a seldom practice of SMEs. The lack of quality financial information can lead to poor credit decision making by local banks that tend to over-rely on collateral in decision-making. EBRD is often unable to provide direct financing to these enterprises since it cannot ascertain the appropriate financial picture. This situation too often leads to a sub-optimal allocation of credit with enterprises with eligible collateral receiving credit, and good enterprises with little collateral not receiving credit.

The highest priority of the EBRD in Turkmenistan is to be able to support such enterprises, particularly in the areas outside of Ashgabat which emphasizes the Bank’s increased focus on other regions of the country. Therefore, the EBRD intends to launch a programme (the “Programme”) whereby the EBRD would engage qualified financial consultancy firms (the “Framework Consultants”) to (i) review differences/similarities between NFRS and IFRS to identify whether there are any significant gaps; (ii) conduct financial due diligence of the management accounts of the EBRD’s prospective clients (the “Company/ies”) and their partner/parent companies (the “Sponsor(s)” and/or the “Guarantor(s)”), (iii) restate their historical financial statements for the last three financial years both individually and, if appropriate, on a combined basis under NFRS and IFRS; and (iv) produce financial projections for the term indicated in each individual TOR to be prepared by the relevant EBRD project team.

The expected outcome of the Programme is improved quality of the SME enterprises’ financial information for management and reporting purposes, established best practices with transparent financials and SMEs’ access to finance in Turkmenistan

Framework Agreements for the Programme

The Bank intends to enter into non-exclusive framework agreement(s) (the “Framework Agreements”) with up to 4 Framework Consultants to enable the Bank to engage the Framework Consultants to implement the Assignments (as defined below) under the Programme quickly and efficiently. Each Framework Agreement will set out the terms and conditions applicable to all the Assignments under the said Framework Agreement, including general procedures and expert fee rates.

Under these Framework Agreements, the Bank will have the option, but not the obligation, to place individual Assignments with the selected Framework Consultants. Each Assignment will be contracted under a call-off notice (the “Call-Off Notice”) which will set out the detailed terms and conditions applicable for the Assignment.

Framework Consultants will be selected for individual Assignments in accordance with EBRD’s Procurement Policies and Rules (PP&R). The Bank may send to the Framework Consultants specific Terms of Reference for the Assignment (the “Specific ToR”). The Specific ToR will include a description of the tasks to be performed, performance deadlines and reporting instructions. The Framework Consultants should respond by sending to the Bank a technical and financial proposal for the Assignment together with details of the Expert(s) proposed to carry out the work. The Bank will then assess the response(s) and – subject to successful negotiations - issue a Call-Off Notice for the individual Assignment to the selected Framework Consultant.

Description of individual Assignments

Among other, the consultancy services for individual Assignments are expected to include the following:

1. Review differences/similarities between NFRS and IFRS to identify whether there are any significant gaps;

2. Review company financial information for the purpose of producing reviewed, compiled and restated in accordance with NFRS and IFRS, and if specifically requested audited, financial statements which can be used internally for management decisions and externally for raising financing;

3. Conduct financial analysis and creditworthiness assessment of the selected Company and the Sponsor/Guarantor and other partner companies, as appropriate, including the following:

Ø Analysis of the Company Background, including:

§ Overview of the organisational structure and business model (including any relationship with affiliated parties/operational entrepreneurs) the Company and of the Sponsor/Guarantor and other partner companies, as appropriate.

§ Summary of the historical development of the Company and the Sponsor/Guarantor and other partner companies, as appropriate, as well as any associated businesses, including major acquisitions in order to identify any potential post-acquisition liability risks.

§ Overview of any significant contracts entered into by the Company and/or the Sponsor/Guarantor and other partner companies, as appropriate, during the reviewed period.

Ø Analysis of the Accounting Policies, in particular:

§ Overview of the accounting policies applied by the Company and the Sponsor/Guarantor and other partner companies, as appropriate, in the preparation of the financial information, including identification of unusual accounting policies and any changes in such policies.

§ A detailed overview of key areas that involve significant extent of judgement and estimation.

§ Verification if there is any evidence to suggest that the Company’s or the Sponsor’s/Guarantor’s accounting policies have been used to manipulate the reporting results.

Ø Analysis of the Quality of Financial Information:

§ Overview of the sources of financial information, description of the information systems, accounting procedures and management reporting framework.

Ø P&L Analysis (combined for the Company and the Sponsor/Guarantor and other partner companies, as appropriate), including:

§ Overview of the revenue, cost and profit recognition for the Company and the Sponsor/Guarantor and other partner companies, as appropriate,

§ Reconciliation between management accounts and statutory financial statements, with the extent of unrecorded and cash sales/expenses made by the Company and/or the Sponsor/Guarantor and other partner companies, as appropriate.

§ Analysis of revenues by key product category in volume and value terms, geographical location and customer and distribution channel (including identification of top 10 customers).

§ Analysis of key completed customer contracts (value over USD 100,000), current contracts, and future potential contracts, with the description of payment terms, deliverables and a detailed description of underlying services.

§ Overview of the main components of cost of sales, including main terms for key raw materials procurement and their recognition in the management accounts of the Company and the Sponsor/Guarantor and other partner companies, as appropriate.

§ Analysis of the main components of operating expenses (including administrative expenses, selling and distribution expenses, rental expenses (including comments on the lease terms, i.e. duration, obligations under the lease agreement, cancellation terms, any other specific arrangements), overview of staff costs (disaggregated into salaries and wages, bonus, profit sharing, leave entitlement, pension, medical and other staff benefits if any), other operating expenses).

§ Details of any significant sources of non-operating income, i.e. not related to principal activities of the Company/ the Sponsor/Guarantor and other partner companies, as appropriate and if applicable.

§ Analysis of financing costs.

§ Analysis of other gains and losses, including details of any exceptional items.

Ø Balance Sheet Analysis (combined for the Company and the Sponsor/Guarantor and other partner companies, as appropriate):

§ Schedule of cash on hand and bank balances/short-term deposits, indicating whether these deposits are pledged.

§ Analysis of accounts receivables and prepayments:

- Analysis of trade and other receivables, deposits and prepayments (including schedule of debtors by customer, product, geographical segmentation and currency profile where applicable).

- Payment terms for major customers and limits granted.

- Analysis of bad and doubtful debt accounts (including recording allowance for doubtful debts) and schedule of debts which have been written off.

§ Analysis of inventories, including:

- Schedule and ageing of inventories, including the schedule of slow-moving and obsolete stocks (if any).

- Overview of the basis of inventories valuation and the stock count cycle/control procedures.

- Overview of any encumbrances, liens, pledges.

- Overview of consignment inventories (if any), summarising the type of inventory, vendor/subcontractor, net book value, age and location.

§ Property, plant and equipment:

- Provide a breakdown of fixed assets by major category.

- Depreciation policies and rates.

- Overview of idle or damaged fixed assets (if any).

- Overview of any restrictions on the use of assets (encumbrances, state owned assets financial leases etc.).

- Overview of the major insurance policies, including type of policy, period covered, insurance company, sum insured and party insured).

- Overview of the latest independent valuation reports of major property, plant and equipment if available.

- Land use rights.

- Overview of any assets under construction/ major construction projects (when started, expected completion date, management assessments of required financing, any related commitments).

§ Overview of intangible assets (if any)

§ Analysis of accounts payables and customer prepayments:

- Analyse the nature and composition of trade supplier and other creditor balances, highlighting payment terms and credit limits.

- Enquire if any legal action has been taken by the creditors against the Company/Partner Company for recovery of debts or winding up of the Company/Partner Company.

- Obtain and analyse schedule of accruals and provisions (if any).

§ Bank borrowings /finance leases:

- Detailed analysis of bank borrowings/credit facilities/finance leases including counterparty, amount outstanding, facility limit, tenor, repayment terms, finance charges/interest rates, covenants and security pledged.

§ Related party transactions and balances (including shareholder loans):

- Detailed analysis of related party balances/ amount due to /from the shareholder (s)/director(s), including counterparty, amount outstanding, facility limit, tenor, repayment terms, finance charges/interest rates, covenants and security pledged (if applicable)

§ Share capital and reserves

- Analysis of the share capital and reserves breakdown.

- Comment on the nature of each reserve.

- Reconciliation of retained earnings.

Ø Analysis of Off Balance Sheet Items (including significant contingent liabilities and commitments).

Ø Cashflow Analysis (combined for the Company and the Sponsor/Guarantor and other partner companies, as appropriate); the Consultant is to assist the Company in preparation of NFRS and IFRS format Cash Flow Statements):

§ Analysis of non-cash items in the P&L to determine at a cash-based EBITDA.

§ Analysis of working capital changes, tax payments, capital expenditure and other cashflow items to determine Operating Cashflow and Investment Cashflow.

§ Analysis of dividends, share capital changes, shareholder loan payments and related party transactions (all “equity-out” transactions) versus bank and 3rd party financing payments so as to determine Financing Cashflow.

§ Analyse the annual working capital cycle (monthly balances) to identify peaks/troughs/seasonality and intra-year working capital requirements

Ø Limited Tax Due Diligence:

§ Discussions/interviews with the Company’s management / the Sponsor/Guarantor and other partner companies, as appropriate and analysis of the nature and the Company’s / the Sponsor/Guarantor and other partner companies, as appropriate compliance with the existing taxes.

§ Desktop review of the existing tax audit reports/tax returns for the Company/ the Sponsor/Guarantor and other partner companies, as appropriate covering the latest 3 years (if applicable).

§ Analysis of any potential material tax liabilities for the period under review.

§ Assess any potential tax liabilities that the Company/ the Sponsor/Guarantor and other partner companies, as appropriate could face due to low transparency of reported sales, and the Sponsor/Guarantor and other partner companies, as appropriate partnership (if applicable).

All reports should be published in English.

Status of Selection Process: Interested firms or groups of firms are hereby invited to submit expressions of interest.

Programme Start Date and Duration: The Programme is expected to start in 2017. The selected Framework Consultants will be engaged via non-exclusive Framework Agreements with a validity period of 3 years. Subject to availability of funding, performance of the selected Framework Consultants and specific needs of the Bank the Framework Agreements may be extended beyond the duration of 3 years.

Cost Estimate for the Framework Agreements and the Assignments: The overall total cost estimate for all the Framework Agreements is currently up to EUR 250,000.00 (exclusive of VAT). Subject to availability of funding, performance of the selected Framework Consultants and the specific needs of the Bank the said cost estimate could be extended. The cost estimate for each individual Assignment will vary depending on its specific scope, but is expected not to exceed EUR 20,000.00 (exclusive of VAT).

The Consultant must determine whether any VAT would be chargeable on the services and the basis for that determination, without taking into consideration the special status of the Bank as an IFI and state this to the Bank in their response to the Invitation for Expressions of Interest. To the extent that a Consultant incurs input VAT on goods and services purchased in connection with the provision of services (e.g. VAT on airline ticket) which is not otherwise recoverable by the consultant from the local tax authority, the gross cost to the consultant of such expenses shall be treated as a reimbursable expense.

Funding Source: This Programme is expected to be funded by the EU IFCA (Investment Facility for Central Asia). Selection and contracting will be subject to the availability of funding.

Eligibility: There are no eligibility restrictions.

Framework Consultant Profile: Corporate services are required. Each Framework Consultant will be a firm or a group of firms with previous project experience in the following:

a) design and delivery of projects on financial reporting, management and advisory services covering subjects related to the Programme for SME size companies in the EBRD countries of operations, preferably in Central Asia;

b) design and delivery of financial due diligence projects and restatement of financial statements consistent with IFRS projects.

The Consultant"s team of experts is expected to include the following Key Experts:

Key Expert 1 - Team Leader with significant international experience in leading financial management and due diligence assignments at management level, including assignments in the SME sector, preferably with the EBRD or an IFI in one of the EBRD countries of operations, preferably Central Asia;

Key Expert 2 - Financial Analyst with significant international expertise and experience in conducting financial due diligence of the management accounts of SMEs including restatement of accounts consistent with IFRS;

Key Expert 3 – Financial Expert specialising in accounting and financial reporting requirements in Turkmenistan, including experience of converting accounts from NFRS to IFRS.

The Consultant’s team may include other non-key experts with professional experience related to tasks 1-6 above.

Key Expert 1 Team Leader should be fluent in: a) English, and b) Russian or Turkmen, or both. All other Key Experts should be fluent in English, Russian and Turkmen.

Submission Requirements: In order to determine the capability and experience of Consultants seeking to be shortlisted for the Programme, the information submitted should include the following:

1. Company/group of firms’ profile, organisation and staffing (max. 2-4 pages).

2. Details of previous project experience or similar assignments particularly undertaken in the previous five years, including information on contract value, contracting entity/client, project location/country, duration (mm/yy to mm/yy), expert months provided (if different from duration) , main activities, objectives.

3. CVs of key experts who could carry out the Assignments under the Framework Agreement(s) detailing qualifications, experience in similar assignments, particularly assignments undertaken in the previous five years, including information on contracting entity/client, project location/country, duration (mm/yy to mm/yy), expert months provided, assignment budget, main activities, objectives.

4. Completed Consultant Declaration Form and Contact Sheet, the template for which is available from the following web-link:

http://www.ebrd.com/pages/workingwithus/procurement/notices/csu/contact_sheet.doc.

Failure to complete the Consultant Declaration Form and Contact Sheet may result in the applicant being disqualified from the selection process.

The above information should not exceed 20 pages excluding CVs and Consultant Declaration Form and Contact Sheet.

Expressions of Interest should be submitted in English electronically through e-Selection, to reach the Bank not later than the closing date. The complete expression of interest (including but not limited to cover letter, CVs, Consultant Declaration Form and Contact Sheet) shall be one file (pdf) to be uploaded to eSelection. The EBRD reserves the right to reject applications of experts submitting more than one file. Only if the permissible file size (4 MB) is exceeded, the Consultant may split the expression of interest into further files.

Bank Contact Person:

Marina Matushina

Technical Co-operation

European Bank for Reconstruction and Development

One Exchange Square

London EC2A 2JN

Tel: + 44 20 7338 6000

e-mail: matushim@ebrd.com (submissions should be sent through eSelection and NOT to this email address)

Notes:

1. Following this invitation for expressions of interest, a shortlist of qualified consultancy firms will be formally invited to submit proposals. Consultant selection and contracting will be subject to availability of funding.

2. The shortlist criteria are:

(a) Firm’s previous project experience in design and delivery of projects on financial reporting, management and advisory services covering subjects related to the Programme for SME size companies in the EBRD countries of operations, preferably in Central Asia – 35%

(b) Firm’s previous international project experience in design and delivery of financial due diligence projects and restatement of financial statements consistent with IFRS projects - 30%

(c) CVs of Key Experts – 35%