US Government assistance to the world is big business.
Through the Overseas Private Investment Corporation (OPIC) and other development finance institutions (DFIs), billions of dollars in loans are made to companies and projects in emerging markets. The purpose behind these loans is to strengthen the global economy and build more stable nations that will require less aid. It can be a win-win for everyone involved.
Implementation is key. How do the best projects navigate their way through complex rules and requirements of the DFIs? How do project sponsors, with less integrity, get weeded out? How is the default rate of loans minimized? The process begs for an advisory firm which deeply understands all the stakeholders and can facilitate the complex details of the transaction.
Linda Habgood, WG’98, graduated the Wharton Executive MBA program, (WEMBA), ready to accomplish just that. Linda is an owner and director of Delphos International, a specialized advisory firm that assists companies in achieving their emerging market strategies by using the financial resources of the US government, foreign governments, and multilateral organizations. Linda’s career illustrates how one can use a finance background to make a big impact in the social sector. She agreed to answer a few questions about her work.
What kind of companies or projects come across your desk at Delphos International?
Anyone in an emerging market who is expanding a business, starting a business or looking to perform a feasibility study for a project. We help these companies and project developers connect with long-term capital that is often unavailable locally. Our value add comes from knowing the relevant sources of capital that are resident in the export credit agencies, DFIs and trade promotion agencies around the globe and helping to match our clients with the best ones.
What problem would a client typically come to you with?
A client might say: “We want to expand our solar business into Latin America. We’re having difficulty getting long-term capital from our commercial banks, most of whom pared back after the economic crisis.” Or a client in Indonesia might tell us: “Our local banks don’t have the project finance products we need.” Or: Someone with a number of business opportunities will come to us, needing a project finance team. We can help in all of these scenarios, and in most cases, help a client to identify the most effective capital in the shortest amount of time.
What is the role of Delphos International?
In almost all cases, we are an extension of a client’s finance department. We bring in the emerging markets finance specialty. Being located in New York and Washington DC, close to the international finance organizations such as such as OPIC, World Bank, Export-Import Bank, and The Inter-American Development Bank means that Delphos also offers clients an office down the street from its lender.
What was your path to Wharton?
Wharton was the perfect solution. I came into my undergraduate studies knowing that I wanted to work in finance and public-private partnerships. I tailor-made a major for myself, and with perseverance landed a job at Chase.
In Chase’s international Credit Audit department, I learned to understand the components of performing vs. non-performing loans. For example, a borrower may be creditworthy, but problems can still occur if a loan isn’t documented properly, or perhaps the financial analysis underlying the loan is faulty. Every day in Credit Audit, we encountered a case study in Lending 101.
Later I began working at OPIC, which had long been a dream of mine. Right after starting, I received an offer for a full ride to a top business school, but I turned it down. I wanted to keep working, and asked OPIC if they would support me in applying to WEMBA. I was accepted and OPIC was very generous with its flexibility and its financial support.
How did WEMBA help you prepare for your work?
WEMBA was fascinating and terrific for me! I took my workplace experiences to the classroom and my classroom experience to work every single week. It reinforced my foundations in accounting and finance, building my critical thinking and group dynamics – and helping me to identify and craft successful business concepts and transactions. The WEMBA program allowed me to move from OPIC to Delphos International, where I have since moved from a VP to a partner.
WEMBA Program Director Howard “Howie” Kaufold, Cathy Maloney and Diane Sharp were all critical components in my experience at Wharton, and made the experience richer. Their support was invaluable.
What’s your ongoing connection to Wharton as an alumna?
I try to accept any request to support the School. For many years I have supported the career counseling program at WEMBA. Most WEMBAs stay with their companies, post-graduation. However they still need to prepare to advance in their careers, or just be better at what they do – and of course their skills are greatly enhanced through WEMBA. I do as much as I can because I received so much help from others along the way. I speak at Wharton Women conferences, and am always open to ways I can stay involved in the school or club.
To give alumni an idea of your profession, what are the steps to finance a large development project?
What makes it challenging is that it is never the same. You can draw on past experience, track record and professional skills, but there are always going to be surprises in emerging markets!
The preparation before approaching sources of capital is important. Once we determine that we are working with a group that we believe will be well received by the government agencies, then we put the story together—the business plan, the model, and the risk-mitigation analysis. So much of being able to find a suitable investor and/or creditor for a business or project is to make sure the story is understandable and comprehensive.
What we bring to the table is working knowledge of the programs and the process of the government agencies, so we can help find the best fit for a client. Then it is about anticipating, communicating and effective negotiating in order to bring, in many cases, a dozen project participants together to financial closing.
What proportion of the companies you look at do you take on as a client?
Not everyone is well-suited for government capital solution, so while we don’t track the stats, I probably move forward on one in seven opportunities that I see. Oftentimes, a government agency will recommend to a strong developer, that they come talk to us, which helps us in our screening.
Who hires you?
Our largest class of clients is the equity investors, business owners or developers of a project. They find themselves in an emerging market and the local banks are not able to provide them with the growth capital they need. We offer access to the world of international development finance and a finance team to support them in the process of obtaining the capital they need.
Second, we also work for the government agencies themselves. We are on the approved list of advisors for OPIC, the US Trade and Development Agency and the U.S. Export-Import Bank. Many of these agencies are not capital constrained, just human resource constrained, so we help expand their deal processing capacity.
What is different about doing finance in an emerging market?
One challenge is that the regulatory systems in many emerging countries are still evolving. Another vulnerability is the election cycles. For example, we were working with a group that was installing solar solutions for rural telecom towers. Their installation rate declined to almost zero in advance of the last presidential election because every vehicle in certain states were reserved to move election campaigners around the countryside.
There are also capacity issues. Even if you get the financing; a company may face challenges in reaching full operations in these typically less developed environments. For example we had a client with a large infrastructure project who could not obtain sufficient concrete on time.
What is the subtle part of due diligence?
Make sure you are dealing with honest people with full capacity for the process. We always try to get that right. We spend a lot of time making sure we are working with people of integrity.
Clients need to understand that they must have resources to cover their running costs and, keep the process moving ahead while we are obtaining the long-term finance. I will typically ask: “Are you planning to pursue your business investments while we seek financing for you?” Will you be able to keep putting money into the business even if the funding is delayed?” It is also important that developers or sponsors fully understand the undertakings required to borrow from a government agency. There is a minimum amount of “skin in the game” that any lender or investor will want to see.
Finally, we often help clients to break their large projects down into smaller, but still financeable tranches. This helps to manage the time and capital commitments of the developer and his promoters. If part of a project can become operational ahead of the whole, then Phase I can become a source of cash to fund the remaining portions of the large project.
What kind of careers are there available for alumni in your field?
There are a lot of opportunities in the development financing field. One can work for a law firm, developer, bank, NGO, for a private equity fund, or for a finance institution doing project finance. A good understanding of finance is important. Even the best lawyers in our field are the ones that understand finance and accounting.
There are also interesting opportunities to work for a government agency. Because there are a lot of moving parts in these transactions, obtaining experience by looking at deals from a variety of perspectives will add to your effectiveness. A lot of parties need to come together on common ground for these transactions to be successful. It’s a dynamic field, and there is always something interesting out there.