Providing Industrial Finance to Strengthen Investment in Productive Sectors · 2014-08-20 · Venture Capital Fund of the NEF established in 2007 to secure early stage participation

Wednesday, 20 August 201409:00 – 13:00,

Parliament, Room M514

Providing Industrial Finance to Strengthen Investment in Productive Sectors

Parliamentary Portfolio Committee on Trade & Industry

NEF Delegation

1. Ms Philisiwe MthethwaChief Executive Officer

2. Ms Innocentia PuleChief Financial Officer

3. Mr Mziwabantu DayimaniGeneral Counsel

2

3

Contents

3

Section Slide1 Redressing past injustices 4

2 NEF Mandate 7

3 Bridging the economic divide 8

4 A High-Performing Organisation 95 Strategic Projects Fund 106 Constraints in Providing Industrial Finance 247 Typical Funding Terms 25

8 uMnotho Fund 28

9 Rural & Community Development Fund 3210 iMbewu Fund 37

Apartheid

“Millions were deliberately reduced to poverty. And to perpetuate itself, a system that claimed to be ordained from on high, could be sustained only by brute force, robbing us all of our humanity - oppressed and oppressor alike”.

- Dr Nelson Mandela, 27 April 1999

As a consequence of theapartheid legacy, BEE equitycontrol on the JSE’s averagemarket cap of R11.15 trillion asat 07 March 2014 (for ListedCompanies), stands at 3.9%,(R435 billion) for black SouthAfricans.

To reach 25% of black control itrequires an additional 21.1%worth R2.36 trillion at currentestimated market cap.

Source: Who Owns Whom as at March 2014

4

Broad-Based Black Economic Empowerment (B-BBEE)

B-BBEE - A strategy for inclusive economic growth

• In 1998 the Government of Nelson Mandela creates the NEF through legislation and mandates the NEF to grow black economic participation

• In 2003 Government publishes “A Strategy for Broad-Based Black Economic Empowerment” in order to propel transformation and growth through the Seven Codes of Good Practise: ownership, management control, employment equity, Preferential procurement, Skills Development, enterprise

development and socio-economic development

• Broad-Based Black Economic Empowerment Act No. 53 of 2003, also known as the ‘BEE Act’, is passed.

5

6

Funding Black Industrialists

Fellow South Africans, we have to work more intensively to develop emerging or black industrialists. Many of the aspirant black

industrialists complain about the difficulties they experience in obtaining industrial finance, supplier

and retail markets, and technical production support. The National Empowerment Fund, the Industrial Development Corporation and the Small Enterprise Finance Agency will continue to provide finance to

viable black-owned businesses to promote industrialisation.

President Jacob Zuma on the occasion of the Joint Sitting of Parliament - February 2014

“

”

NEF Mandate…

7

Established by the National Empowerment Fund Act No. 105

of 1998, the NEF is a driver and a thought-leader in promoting and

facilitating black economic participation through the provision of financial and

non-financial support to black empowered businesses, as well as by promoting a culture of savings and investment

among black people.

The NEF is an agency of the dti and is the only DFI exclusively mandated to grow

B-BBEE

7

Bridging the Economic Divide

8

Fund Management Asset ManagementFacilitates financial and non-financial support for black

enterprises requiring start-up, expansion and equity acquisition finance ranging from R250 000 to R75 million

Promotes a culture of savings and investments and the universal understanding

of equity ownership among black peoplePre-Investment – business development, entrepreneurship development, including training & incubation support, product advisory services, administration of applications and deal-sourcing

Develop and support public-share offers aimed at facilitating black equity ownership in State-Owned Commercial Enterprises and the private sector, eg Asonge and Sasol Inzalo

iMbewu Fund – SME Fund supporting Entrepreneurship, Procurement & Franchise Finance

Provide Investor Education and promote financial literacy and understanding of the equities markets among black people

uMnotho Fund – supports funding of New Ventures, Acquisition, Expansion, Capital Markets, Liquidity & Warehousing needs

Champion Enterprise Development by enabling measured entities to contribute aportion of Net Profit After Tax (NPAT) to the growth of black SMEs countrywide Rural & Community Development Fund - supports rural

economic development through New Ventures, Acquisition and Expansion Finance Women Empowerment Fund - deliberately facilitates the participation of black women in the economic mainstreamStrategic Projects Fund – supports early-stage investment in strategic sectors with export-earning potential

Post Investment – monitor the performance of NEF investees and provide ongoing mentorship support

Promote entrepreneurship and contribute to the creation of sustainable employment and the overall growth of an inclusive South African economy.

A High-Performing OrganisationOutput Achievements

1 Approvals Approved 549 transactions worth more than R5,4 billion for black-empoweredbusinesses across the country.

2 Disbursement Approximately R3,8 billion has been disbursed to 422 of these companies.

3 Integrity Secured unqualified external audit opinions for 9 years running.

4 Supporting jobs To date the NEF has supported in excess of 46 000 jobs.

5 Industrialisation 20 strategic and industrial projects worth R30 billion, with the potential to support over 80 000 jobs.

6 A culture of savings & investment

In a transaction worth over R1 billion the NEF Asonge Share Scheme madeavailable more than 12 million MTN shares to over 87 000 investors comprisingblack individuals and groups. 49% of investors were women.

7 Investor education Reached over 18 000 people in villages and townships through 80 communityseminars on how to save and invest, personal financial discipline, shares,dividends, bonds, the property and money markets.

8 Entrepreneurship training / incubation

Business skills training provided to 1 460 potential entrepreneurs who attended 83 seminars before funding stopped.

9 National footprint Regional offices in all but one province. 30% of the number of approvedtransactions emanated from the regional offices during Financial Year 2012/13.

10 Sefa secondment Seconded Investment Associates, who contributed 67% towards total Sefaapprovals within a 6-month period

9

10

Strategic Projects Fund:Early-Stage Projects

Strategic Projects Fund (SPF)

11

SPF MANDATEA unit of the NEF established with the

mandate to increase the participation of black people in early-stage projects

Aligned to national government’s socio-economic development policiesSeeks competitive investment

opportunities in the South African economy for the inclusion of black people

through participation in investment opportunities at the outset of project

development in contrast to the equity or financial close stage(s)

Industrialisation & Economic Impact

Creation of new manufacturing and industrial capacityCreation of new jobs as opposed to replacement capital financeInvestment of new fixed capital into economically depressed areas or poverty nodesCreation of an inclusive economy by increasing industrial investment participation of black businessesIncrease RSA export earning potential and reduce import dependenceIncrease co-investment and linkage with foreign direct investment

12

13

SPF Investment Sectors

RENEWABLEENERGY

MINERALBENEFICIATION

AGRO-PROCESSING

INFORMATION & COMMUNICATIONS

TECHNOLOGY INFRASTRUCTURE TOURISM

BiofuelsBiomassBiogasSolarWindHydro

Mining &Mineral

BeneficiationChemicalsAgriculture

TelecomsBroadcasting

RoadsDams and Bridges

Sewer and Bulk Services

B&BsHotelsGuest

Houses(Women-owned)

Real Estate

SPF Project Development Stages

14

SPF Portfolio – NEF Equity Rights

15

Project Sector Current NEF Equity Total Invested Total Project Size NEF Future

Equity Rights

RMI Mineral Beneficiation 30% 13 500 000 15 000 000 000 2 250 000 000 SA Metals Mineral Beneficiation 29% 40 000 000 1 950 000 000 282 750 000 Coking Coal Mineral Beneficiation 85% 6 000 000 500 000 000 212 500 000 African Silica Mineral Beneficiation 49% 7 000 000 1 500 000 000 367 500 000 Coconut Water Agro-processing 49% 5 000 000 50 000 000 12 250 000 Busamed Hospitals Healthcare 49% 260 000 000 1 600 000 000 -Milk for Life Agro-processing 49% 2 000 000 50 000 000 -Link Africa Infrastructure 30% 100 000 000 1 000 000 000 300 000 000

Radisson Blu Kruger resort Tourism 40% - 250 000 000 -TFST Renewable Energy 6% 5 313 210 1 800 000 000 46 080 000Biomass to Bioethanol Renewable Energy 49% 10 000 000 800 000 000 196 000 000 Tyre Energy Extraction Renewable Energy 49% 8 000 000 50 000 000 12 250 000 KC Energy Renewable Energy 40% 48 000 000 150 000 000 -Tyre Manufacturing Research Manufacturing 100% 1 590 000 335 000 000 167 500 000 FIS Biodiesel Renewable Energy 30% 10 000 000 800 000 000 120 000 000 MIBT Manufacturing 35% 18 600 000 30 000 000 5 250 000

Richards Bay Wind Farm Renewable Energy 17% - 1 700 000 000 69 500 000

Paediatric Dental Facility Infrastructure 49% - - -Auto Disable Syringes Manufacturing 49% 7 156 600 200 000 000 49 000 000 Mabele Fuels Renewable Energy 12% 40 000 000 2 232 000 000 31 750 000Totals 582 159 810 29 997 000 000 4 122 330 000

Venture Capital Fund of the NEF established in 2007 to secure earlystage participation of black people in projects of strategic importance,facilitate job creation and developmental mandate of the NEF

Equity investments - typically with 10 to 30 year investment horizon

Circa R600mn disbursed in past 7 years (R85mn p.a. on average), whichwill leverage circa R30bn of external funding when the portfolio of 20projects reaches financial close

Even geographic spread of investments by value; KZN (38%), Gauteng(24%), W. Cape (16%), Free State (8%), North West (5%), E. Cape (4%),Mpumalanga (3%), Limpopo (2%)

79% of the approved funds have been disbursed (87% excl. Richards Baywind farm)

74% of projects have advanced past the pre-feasibility stage

80,000 direct and downstream jobs to be created by the SPF portfolio

SPF Portfolio Performance to Date

16

17

Infrastructure & ManufacturingBUSA MED

Location National

Project Development Stage Financial Close

NEF Investment to date R260 million

NEF Equity 49%

Project Promoter Goldenwood Pty Ltd

Projected Financial Close Requirement R1.6 billion

Jobs 7 000

BusaMed will be the first black-owned hospital group to compete with the bigthree. The vision is to be a consolidator of the fragmented health care market.This will be kick-started with the commercialisation of 4 hospital licenses for630 hospital beds, spread over three provinces, namely Gauteng, Cape Townand the Free State. The aim is to develop centres of excellence, which willprovide world-class services. The first hospital, a cardiologic centre, is underconstruction in the Western Cape (Strand) and will be operational inJune/July 2015. Ground has been broken for the second hospital in Gauteng,a sports science centre, and financial close should be reached in 4Q 2014 forthe last two in Harrismith and Bloemfontein.

18

Renewable Energy ProjectsMABELE FUELS

Location Bothaville, Free State

Project Development Stage Financial Close


NEF Equity 11.76%

Project Promoter Mabele Fuels Pty Ltd


Jobs 16 700

The project intends to develop a circa R154 million litre per annum fuel gradebioethanol plant, in Bothaville, in the Free State Province. The plantfeedstock is grain sorghum and the production methodology involves aprocess utilising grain milling through starch conversion to sucrose as well asfermentation and drying that ultimately culminates in the production ofsaleable bioethanol.

19

Renewable Energy ProjectsKC ENERGY

Location Newcastle, KZN

Project Development Stage Construction


NEF Equity 40%

Project Promoter KC Energy

Total Project Cost c. R230 million

Jobs 250

The cogeneration project aims to develop a Combined Heat and Power(CHP) plant producing steam (60 tph) and electrical power (6MWp) forprocess plant usage and is based in Newcastle, Kwa-Zulu Natalprovince. The plant is currently under construction and is expected tocome online in September 2014.

20

Manufacturing ProjectsAFRICAN SILICA HOLDINGS

Location Coega/Richard’s Bay IDZ

Project Development Stage PFS

NEF Investment to date R7million

NEF Equity 49%

Project Promoter African Silica Holdings Pty Ltd

Projected Financial Close Requirement R1.5billion

Jobs 750

NEF has formed a Joint Venture with African Silica Holdings toinvestigate ways in which silica sands can be beneficiated andeventually build a plant to do so. Thus far the scoping study hasindicated sodium silicate as a possible product, which is used in water-treatment and detergent market. A pilot plant is under construction tovalidate the variety of possible products.

21

Infrastructure & ManufacturingLINK AFRICA

Location National

Project Development Stage Operational


NEF Equity 30%

Project Promoter Link Africa Pty Ltd

Projected Financial Close Requirement

R900 million

Jobs 800

The project aims to deploy Last Mile Fibre Optic cables across thenational landscape of South Africa, which can be deployed four timesfaster at less than half the cost of normal fibre. Licensed patentedtechnology that uses existing sewer and other currently existinginfrastructure rather than the normal method of digging up trenches tolay fibre optic cables, will be utilised. An initial capital investment ofR300 million will lead to the establishment of a South African Last MileFibre Optic Infrastructure Company, Link Africa.

22

Manufacturing ProjectsMODULAR INNOVATIVE BULDING TECHNOLOGIES

Location Pretoria

Project Development Stage Pilot Phase of BFS

NEF Investment to date R15million

NEF Equity 35%

Project Promoter MIBT Pty Ltd

Projected Financial Close Requirement R20million

Jobs 200

MIBT is constructing a 400 panels per shift (2 shifts per day) full-scalemanufacturing plant in Lyttleton, Pretoria, which will produce ModularInnovative (“MI”) panels used in the construction of energy efficient andenvironmentally friendly “green” buildings.

23

Mineral Beneficiation ProjectsSA METALS EQUITY

Location Witbank / Rustenburg

Project Development Stage BFS


NEF Equity 29%

Project PromoterGlobal Remediation and Resources Recovery (Pty) Ltd (“GR3”)


Jobs 1 360

The SA Metals (Pty) Ltd (“SAME”) project is for the potentialestablishment of a USD200 million pig iron production plant in theNorth West or Mpumalanga Province of South Africa for the productionof approximately 500,000 metric tons (mt) per annum of Pig Irontogether with Titanium and Vanadium slags as by products.

Constraints in Providing Industrial Finance Lack of funding for mining exploration;

Few Venture Capitalist, Private Equity and/or Angel Investors in SA;

Expectation gap of returns (IRR) between providers of capital and borrowers;

Investors and funders have difficulty in valuing projects and/or agreeing on projectvaluations;

“First-mover dilemma” of entering novel markets to pioneer new project developmentsor business ideas in a market lacking investment appetite;

Project promoters unable to raise own equity i.e. lack of required equity and/orcollateral;

Industrial projects have a long-term investment horizon (typically 10 to 30 years);

Projects face high financial risks due to implementation delays and cost overruns;

Low risk appetite restricted by prudential limits and investment mandate.

24

Typical Funding Terms

25

TERMS NARRATION

Instruments Debt (senior and junior), quasi equity and equity

Equity Contribution 10 to 50% (project-dependent)

Gearing (debt levels) 10 to 50% (project-dependent)

Period 10 to 30 years

Pricing Prime-linked

Grace Period / Moratorium

0 to 3 years (dependent on operations start date and availability of positivecash flows)

Payment Frequency Based on availability of cash flows (monthly, quarterly, bi-annually or annually)

DSCR Covenant Maintenance of Debt Service Cover Ratio (DSCR) of 1.2x or higher

DSRA Maintenance of at least 6 months debt payments reserves in the Debt ServiceReserve Account (DSRA)

O&M Reserve Account

Maintenance of reserves for regular and unplanned maintenance orreplacement of capital assets in the Operations and Maintenance (O&M)Reserve Account

Security The Senior Financier(s) will have first priority perfected lien on all projectassets and equity interests in the borrower

Hedging Programme Mitigation of risk associated with volatile commodities and/or variables such asinterest rates, FOREX etc. (project-dependent)

Typical Project Finance Structure

26

SPECIAL PURPOSE VEHICLE

(SPV)PRODUCT SUPPLIER PRODUCT BUYER

MAIN CONTRACTOR PLANT OPERATOR

TECHNOLOGY SUPPLIER SUB-CONTRACTOR(S)

FUNDING INSTITUTION(S)

SUPPLY AGREEMENT

OFFTAKE AGREEMENT

O&MAGREEMENT

EPC CONTRACT

TECHNOLOGY SUPPLY

AGREEMENT

SUB-CONTRACT(S)

INVESTOR(S)

27

Inclusive Growth• NEF’s strategic industrial projects

valued at R30 billion.

• NEF poised to contribute 1% to SA’s

GDP.

• Supporting over 80 000 decent and

sustainable jobs.

• NEF requires R4 billion to secure

equity rights to be warehoused for

B-BBEE.

28

uMnotho FundAccess to BEE Capital

29

Unique Engineering is a diversified engineering companywhich designs and manufactures products for the rail sectorand mining industry. It produces pantographs, doublediaphragm pumps, blast barricades, eco pumps,electrobrakes, electromagnetic sheets and metal foldingmachines. The company has been in existence since 1978,and is based in Boksburg, Gauteng, with a regionalrepresentation in Rustenburg, North West.

The NEF provided acquisition finance for blackentrepreneurs to acquire 100% of the business, and as aresult the company will be black owned and managed. Thetransaction contributes to the development of blackindustrialists, and going forward is poised to increase itssupply to Government for infrastructure programmes suchas PRASA, which is currently implementing a R123.5blnRolling Stock Renewal Programme. Another opportunity isTransnet’s Market Demand Strategy, worth R307.5bln oncapital projects over a seven-year period. The company isnow able to retain 149 jobs, of which 75% comprises blackpeople. There will also be black-woman participation, as wellas management and staff participation in the equity.

Development of Black Industrialists through infrastructure

Unique Engineering(R23 million)

Investee Stories

http://www.uniqueeng.co.za/sites/default/files/images/offroad_pantograph.jpg�

http://www.uniqueeng.co.za/sites/default/files/images/train_pantograph.jpg�

http://www.uniqueeng.co.za/sites/default/files/images/truck.jpg�

30

Investee Stories

Colliery Dust Control Pty Ltd. develops andmanufactures the components for integrateddust suppression systems used on continuousmining in underground coal mines. CollieryDust Control is a South African based businessand focuses on the design, manufacturing andsupply of integrated dust-suppression systemsfor various underground mining applications.The NEF provided funding to Business VentureInvestment towards the full acquisition of thebusiness. The main BEE partners are blackwomen, and the company supports 24 fulltimejobs

Building the Economy, Sharing the Wealth

Colliery Dust Control (Pty)Ltd.(R41 million)

31

Investee StoriesThe entity’s core business is the blending of topquality cement that is supplied to the infrastructuredevelopment sector and others. The invested R35million has enabled the company to own theproperty, plant and equipment that they wererenting as well as create 50 fulltime jobs in theprocess. The company is black owned and blends,produces and sells cement to a wide range ofcustomers across the country, and has a strongpipeline of customers interested in their productsincluding in the SADC region.

The business is managed by black entrepreneurs.With the infrastructure drive in the country, thisbusiness has great potential to contribute to thecreation of black industrialists.


Value Cement (R35 million)

32

Rural & Community Development Fund (RCDF)

33

Investee StoriesBuilding the Economy, Sharing the Wealth

Mohale Agricultural Cooperative(R13.7 million)

Mohale Agricultural Co-operative basedin Limpopo was funded by the NEF tothe tune of R13.7 million for thepurchase of Poultry and vegetablefarm. The product line includeschickens, cabbages and maize. Theidentified farm is located inSoekmekaar, Limpopo Province.Supporting operationally involvedentrepreneurship, the growth prospectsof the land will yield 15 additional jobs,and saving 30 current permanent jobs,offering significant job creationprospects, the farm is based inLimpopo Province- one of the lesseconomic active provinces

34


Dihoai Farming Cooperative(R8.45 million)

Dihoai Farming Cooperative is an existing cooperative consisting of five members that has been operating a small feed mill and broiler project on their farm in the Welkom area of the Free State Province. The cooperative has been producing feed mill for their own broiler projects and selling small quantities to the neighbouring chicken farms.

The NEF investment involved the expansion and full commercialisation of the feed mill targeting to supply existing small scale chicken farmers in the immediate area and neighbouring towns. The funding was utilized towards the acquisition of plant and machinery, construction costs and working capital.

35


Qumbu Shopping Centre, (R34 million)

Qumbu Shopping Centre is a 100% black-owned start–up retail propertydevelopment in the Eastern Cape. Theshopping centre measures 4800 m² inbuilding size and consists of 15 shops and72 parking bays. The key anchors at thiscentre are Rhino Cash and Carry, Pep,Price ´n Pride, Barnetts, Lewis, CapitecBank and Dunns. The current leasingstatus is 100% confirmed, with 96% beingnational tenants and 4% being localindependents. This investment hascreated 99 permanent and 151 temporaryemployment opportunities. The highconsumer demand has necessitated theneed to expand the shopping centre inorder to accommodate new retail tenants.

36


Richmond OpkomendeBoere Co-operative (R3.6 million)

Richmond Opkomende Boere Co-operative is a start-up primaryagriculture entity based in theNorthern Cape which will focus onfree range merino sheep farming forthe purposes of lamb and woolproduction.The business is a start-up and willcreate 7 permanent jobs, and it is aco-operatives which consists of 48members

37

iMbewu FundSmall Medium Enterprises

38

Investee StoriesWassa is a 100% black women-ownedbusiness operating in the energy sector.The business has been operational since2008 and is based in Kya-Sands, Randburg.The core business of Wassa is to wholesaleliquid petroleum gas (LPG) to Industrial andCommercials retailers. The company buysdirectly from SASOL Oil, SASOL Nitro, BPand Petro SA. LPG is usually used fordomestic, industrial and commercial cookingand heating purposes. The companycurrently supplies across Gauteng, and hasa long-term goal to distribute to otherprovinces. The company supports a total of14 full-time jobs


Finishing Touch Trading (Pty) Ltdt/a Wassa (R12.5 million)

39

Investee Stories FM Crushers is a small emerging rural 100%black-owned enterprise that operates asubsistence crush stone and sand miningoperation in the Ingwavuma area of Jozini,Umkhanyakude District, KwaZulu-Natal. FMCrushers has been in operation for 10 years. Thebusiness relies on private companies involved inroad construction within the Umkhanyakudedistrict. Research conducted by SSI Engineers andEnvironmental consultants identified FM Crushersas the only black supplier of construction materialin the rural area of Ingwavuma. The enterpriseholds a new order mining right for a period of 5years ending in 2016. Its quarry is situated on therock of the Jozini Formation of the Lebombo Groupand has estimated rhyolite material reserves of 11million tons. Assuming an annual production of221,058 tons, the life of the quarry would be up to50 years.


FM Crushers, R14,9 million

40

Investee Stories

Boniswa Corporate Solutions wasfounded in 2004 by a blackbusinesswoman, and is a turnkeytelecommunications services companythat supports the integral networkprovision of major telecommunicationsorganisations, to enable interaction andconnection via seamless digitalcommunication. It has offices Gauteng,Limpopo and Mpumalanga.Boniswa was given R5million NEFfunding in 2011 for expansion capital. Ithas MOU’s with MTN and Vodacom toprovide them with site infrastructure.


Boniswa Corporate Solutions (R5 million)

Thank you

41

Documents

Providing Industrial Finance to Strengthen Investment in Productive Sectors · 2014-08-20 · Venture Capital Fund of the NEF established in 2007 to secure early stage participation