IDC to inject extra R10bn into economy
May 22, 2009
By SAMANTHA ENSLIN-PAYNE
The Industrial Development Corporation (IDC) will pump R10 billion more than initially planned into the economy over the next five years despite its balance sheet and income being put under pressure by the global financial crisis.
A year ago the state-owned financier's aim was to lend R60bn over the next five years. It has increased this to R70bn.
Shakeel Meer, a divisional executive for industrial sectors at the IDC, said yesterday: "We are a development finance institution, not a bank, and we will continue to put money into the economy."
Funding is being increased even though it is difficult to assess the long-term risk of investments and loans in the present economic climate.
In the year to March last year the IDC's funding approvals rose to R8.5bn, taking the cumulative value of financing approvals since 2004 to more than R25bn. Figures for the 2008/09 fiscal year have not yet been released.
The IDC has been earmarked by the government as a key roleplayer in assisting firms hit by the global financial crisis.
It has recently been asked by its shareholder, the trade and industry ministry, to take a second look at KwaZulu-Natal textile business Frame, after declining earlier this year to save the firm from closure.
There is speculation that the government agency will provide blanket bailouts to businesses in trouble.
But Meer said: "That is not our approach."
Investments were decided on a detailed risk analysis of each business on a case by case basis.
The IDC opted not to invest in Frame because of doubts about its viability. But if the task team set up to look at solutions for the company came up with, for example, a change to the business model, then an investment would be reconsidered. As matters stand "our position has not changed".
He added: "We have not been put under any pressure to provide funding to Frame."
Although the IDC would generally take on more risk than a commercial bank, some existing clients were already facing problems so the agency had to be careful about the quality of new businesses.
Meer added: "We will look at companies that are viable now and will be viable in future, but have been impacted by the financial crisis."
Assistance could be a short-term loan, longer-term debt or an equity transaction. Help for existing clients that were in trouble could include the conversion of debt to equity or a moratorium on some debt repayments.
The IDC has already lent R70 million to clothing and textile companies through a programme aimed at helping businesses in this sector to become internationally competitive. The state financier has also been approached by businesses in the automotive industry for help.
Meer said: "The IDC is facing difficulties, just like other banks, in trying to get funding."
It had previously secured funding from the European Development Bank and the African Development Bank, among others.
It was announced this week that the IDC had secured a $50m (R422.1m) loan from China Construction Bank to boost its lending capacity.
Geoffrey Qhena, the IDC's chief executive, said: "Over the past year our units have been receiving an unprecedented number of applications, so we have seen fit to go out and source funding so we can increase our capacity to lend."
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