Loan comes at right time for IDC
May 14, 2009
By Lucky Biyase
A €60 million (R690m) loan received from the European Investment Bank (EIB) had come at an opportune time when the Industrial Development Corporation (IDC) was beginning to see a rise in its impairment provisions, the organisation said this week.
Gert Gouws, the IDC's chief financial office, said: "The business environment is extremely challenging and many of our clients experience cash flow pressures.
"Those that were exporting were at a distinct disadvantage because of weaker international markets."
In terms of the agreement, the IDC has to repay the loan after seven years.
"This is attractive," Gouws said, adding that the IDC "prices its loans to clients in terms of a pricing model, which takes the costs of borrowing into account, but also the risk of a client and developmental goals achieved".
Also commenting on the loan, Geoffrey Qhena, the IDC's chief executive, said the line of credit would improve access to funding for South Africa's small, medium and micro enterprises.
"This credit could not have come at a more opportune time, when the cost of raising funds is extremely high given the market volatility and the liquidity crisis," he said.
"We are particularly pleased that this loan will further enhance our commitment to development finance and addressing market failures."
Qhena said the IDC's expertise in project evaluation would ensure that the EIB funds were directed towards projects that promoted economic growth and job creation, as well as being environmentally and socially sustainable.
About 75 small businesses in the industrial, resources and services sectors stand to benefit from the loan.
Gouws said the funding selection criteria would include a due diligence inquiry to establish that a business was sustainable before it was given finance.
"Developmental aspects of an application are very important," he said. "Here we consider jobs being created, rural development and black economic empowerment. A project needs to be environmentally and socially sustainable."
The IDC would disburse to its clients after individual facilities had been approved and conditions met.
New and existing clients will be eligible for funding.
"As the facilities are paid out, draw-downs from the EIB will occur," Gouws said. "The maximum size of a project to be funded will be the equivalent of e10m, and up to 50 percent of this amount could be drawn from the EIB for any project."
He pointed out that getting funding was difficult as markets were very tight.
"The IDC is discussing loan facilities with a number of international development finance institutions, and indications are that they are more than willing to continue to support us. Pricing is, however, higher than a year ago."
The IDC supported its clients in an effort to minimise the adverse effects of the economic environment by restructuring facilities, capital moratoriums and converting debt to equity, he said.
Gouws added: "We provide funding to companies in distress to overcome short-term cash flow problems, as long as the business is sustainable over the long term."
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