f und n ational e mpowerment growing black economic participation 10 march 2006 presentation to the...

FUND

NATIONAL

EMPOWERMENT

Growing Black Economic Participation

10 MARCH 2006

PRESENTATION TO THE PARLIAMENTARY PORTFOLIO

COMMITTEE ON TRADE AND INDUSTRY

Presenters:Victor Mabuza – Asset ManagerAndrew Wright – Manager in the CEO’s OfficeNozizwe Mthembu – Legal Officer

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EMPOWERMENT


PRESENTATION SECTIONS:

POSITIONINGPERFORMANCEFINANCIALCURRENT INITIATIVESCASE STUDIES

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NEF STRATEGIC FOCUS

Broad Based Black Economic EmpowermentThe Codes of Good Practice

Accelerated & Shared Growth Initiative for SA ASGI - SA

6% GDP Growth 10% Investment Growth 10% Export Growth 2014

Government Aims:1. Access to Finance2. Job creation3. Geographic spread4. Women empowerment5. Integrated manufacturing economy6. Efficient, fast & flexible economy7. Diversity of enterprise8. Skills transfer & development

NEF Act:Objectives

The dti Objectives

Priority

Sectors

Arts & Culture,

Tourism,

Textiles,

Agro Processing

Automotive,

Chemicals,

ICT, Aerospace

Film Industry,

Exports

NEF POSITIONING IN ADDRESSING MARKET FAILURE• Identification of market failures particularly regarding participation of Black People in

ecoonomy

• Avoid duplication of other DFI product offerings

• Positioning of NEF to complement other DFIs and financial institutions

•Examples of market failure •NEF product •Complementary to other DFIs / Banks

•Limited access to finance for Black entrepreneurs with no collateral.•Bridging finance for honouring preferentially procured supply contracts.

•Start-up &•Expansion capital

•Places new businesses in bankable positions•Khula & IDC

•Enter buy-in / buy-out transactions from position of weakness •Transformation capital •Banks provide debt funding

•Lack of equity funding for rural & community infrastructure projects (longer term lower return)

•Rural & Community Support

•Leverages debt funding•DBSA, IDC & CPPP

•Institutional Fund managers focus on large listed companies >R1bn market capitalisation

•Capital Markets Fund •Assists with exits•IDC

•Dilution of broad based BEE shareholdings through second round capital raising

•Liquidity & Warehousing Fund

•

•Limited market liquidity to enable Black entrepreneurs to sell some/all of their businesses


•

•Over-geared historic BEE funding structures, potentially unwind out of the money


•Rescue & restructure

•Lack of BEE funding for large strategic (greenfield & brownfield) projects •Liquidity & Warehousing Fund

•Co-invest with IDC, DBSA

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BEE Participation Thresholds

•Start up •Expansion •Buy-in/ out•Market Making

•Liquidity & Warehousing

•Strategic Projects

•BEE participation •>75% •>50% •>25% •>25% •>25% •Influence

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PERFORMANCE

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NEF INVESTMENT PROCESS REPORT: Since 1 April 2005 to 28 February 2006

Investment Committee

Legal

Approx

9,532

ENQUIRIESAPPLICATIONS PENDING

MORE INFO

NEW DEALS ACCEPTED DUE

DILIGENCE

APPROVEDDISBURSE

D (Including Undrawn Capital)

1,092worthR801m

28worthR241m

30worthR244m

17worthR282m

60 worth R241m

1,556

NEF work in progress: 135 of R1bn

NEF - APPROVED & DISBURSED DEALS BY NUMBER28 FEBRUARY 2006

0

10

20

30

40

50

60

70

80

March

-03

May-03

J uly-

03

Sept

embe

r-03

Nove

mbe

r-03

J anu

ary-04

March

-04

May-04

J uly-

04

Sept

embe

r-04

Nove

mbe

r-04

J anu

ary-05

March

-05

May-05

J uly-

05

Sept

embe

r-05

Nove

mbe

r-05

J anu

ary-06

Accumulative No. of Deals Disbursed Accumulative No. of Deals Approved

75

60

NEF - INVESTED PORTFOLIO BY SECTOR BY VALUE28 FEBRUARY 2006

Construction18.7%Tourism & Entertainment

17.9%

Chemicals &Pharmaceuticals

2.1%

Wood & PaperIndustry

0.6%Transportation0.8%

Arts & Craft0.0%

Agriculture0.4%

ICT & Media26.3%

Franchise2.1%

Food & Agro Processing9.1%

Financial Services2.7%

Environmental0.1%

Education0.1%

Engineering2.3%

Manufacturing2.0%

Mining Services6.4%

Motor Industry0.3%

Printing Services2.8%

Services0.6%

Textile Industry4.7%

NEF - INVESTED PORTFOLIO BY SECTOR BY NUMBER28 FEBRUARY 2006

Agriculture1.8%

Arts & Craft0.0%

Tourism & Entertainment5.4%

Transportation3.6%

Wood & Paper Industry, 0.1%Education

1.8%

Engineering3.6%

Construction8.9%

Chemicals & Pharmaceuticals1.8%

Textile Industry5.4%

Services3.6%

Printing Services5.4%

Motor Industry3.6%

Mining Services1.8%

Manufacturing8.9%

ICT & Media14.3%

Environmental1.8%

Financial Services3.6%

Food & Agro Processing23.2%

Franchise1.8%

NEF - INVESTED PORTFOLIO OF STAGE OF INVESTMENT BY VALUE28 FEBRUARY 2006

Capital Market

21.4%

Transformer

38.9%

Expansion

12.5%

Start-Up

18.8%

Liquidity &

Warehousing

8.3%

NEF - INVESTED PORTFOLIO BY STAGE OF INVESTMENT BY NUMBER28 FEBRUARY 2006

Capital Market

5.0%

Transformer

10.0%

Expansion

26.7%

Liquidity &

Warehousing

1.7%

Start-Up

56.7%

NEF - INVESTED PORTFOLIO BY REGION BY NUMBER28 FEBRUARY 2006

Mpumalanga

1.7%

Limpopo

5.0%

Kwa Zulu Natal

8.3%

Northern Cape

0.0%Western Cape

16.7%

Eastern Cape

5.0%

Free State

1.7%

Gauteng

61.7%

NEF - INVESTED PORTFOLIO BY REGION BY VALUE28 FEBRUARY 2006

Limpopo

1.2%

Mpumalanga

0.2%

Northern Cape

0.0%

Kwa Zulu Natal

5.6%

Western Cape

19.7%

Eastern Cape

14.9%

Free State

0.1%

Gauteng

58.4%

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SIZE OF TRANSACTIONS BY VALUE 28 FEBRUARY 2006

> R3m84.6%

< R3m15.4%

SIZE OF TRANSACTIONS BY NUMBER28 FEBRUARY 2006

< R3m66.7%

> R3m33.3%

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FINANCIAL

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CURRENT INITIATIVES

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The creation of innovative savings and investment opportunities for Black people to create wealth (assets)

Provide a meaningful broad-based ownership of SOCE shares by Black people

Unlocking listed SOCE share value for NEF investments through value-adding and empowerment opportunities for Black people

Educating and promoting an understanding of

investments and other related savings instruments amongst Black people

BEE Retail Schemes: Key Objectives

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Designated SOCE’s

Asset Shareholding % Status

1. MTN Group 1.5 received by NEF2. Telkom 5 not yet received3. SAA 5 not yet received4. ACSA 10 not yet received5. Connex Travel 10 not yet received6. Viamax 10 not yet received7. Syncat 10 not yet received8. Transwerk Perway 10 not yet received9. Sentech 10 not yet received10. Uthingo 5 received by NEF11. SAFCOL 10 not yet received

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Product OfferingsOnce-off share offerings

Collective Investment Schemes

Broad-based Share Ownership structuring & administration

Assets to be used:

NEF SOCE share set-asides(currently on Balance sheet)

Further SOCE share set-aside allocations(upon transfer to NEF Balance sheet)

NEF invested equity portfolio(when it exercises its exit strategy)

Equity set-asides for BB-BEE groupings by applicant companies

(Database access and ESOPs)

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Targeted Beneficiaries

Targeted broad-based groups of Black people:

General public (nationally and of all income levels)

Savings Schemes (e.g. stokvels, investment clubs, etc.)

Rural and Community organisations (e.g. burial societies, co-operatives, etc.)

Women-entrepreneur groupings (both rural and urban organised groupings)

Other organized groupings (e.g. informal traders, employee share schemes, etc.)

Local, Provincial & National Governments (e.g avail affordable funding for their LEDs, IDPs & Strategic Projects)

INDIVIDUALLY OR COMBINATIONS THEREOF

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CASE STUDIES

Choice TechnologiesBohang Bead Manufacturers

Morobe Trading

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Company background

•Black owned IT and systems integration business (hardware and software solutions)•Established in 1997•Staff complement of 5 in 1997 ; 200 in 2005•Based in Gauteng, regional branches in Cape Town, Durban 10 service centers throughout South Africa•Shareholding pre NEF funding

- 51% owned by Choice Group

- 49% owned by Dimension Data

•Risks

•Strengths

•NEF funding

•Funding amount

Salient features of the deal

- Negative market perception- Financial risk – Negative cash position- Business risk – Need for more contracts

- Established from scratch ( not an equity acquisition) in existence for > 7yrs- Employs over 200 employees (>70% BEE)- Training and skills development for youth- Good track record with stakeholders- Lucrative government & private contracts- Preferred supplier for 2010 soccer world cup- Capital injection to buy out Didata ( R5m )- Cash injection for working capital ( R15m)

- R10m Equity- R10m Debt

•Strong empowerment dividend•ICT is a priority sector•Addresses market failure•Supporting black entrepreneurship •Saved 150 black IT professional’s jobs•Liquidity and Warehousing product •NEF to hold 49% equity whilst BEE managers return the business to profitability•Commercially viable

Compliance with funding criteria and NEF Mandate

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Company Background

Bohang Africa Investments (Pty) Ltd founded in 2003 by Mr. Tlholo Mohlathe.

All beads are imported into South Africa.

Large scale specialised glass plant in Wadeville producing

range of glass beads.

Located adjacent to Consol supplying glass and technical

expertise.

The company will in the first 2 years create 70 new jobs.

•Risks

•Strengths

•NEF funding

•Funding amount


- Exchange rate risks- Capital risks- Business risk

- First manufacturing facility of seed glass beads in Africa.- Will create 70 new jobs.- Training and skills transfer from Consol- Women Empowerment- Supports 106 000 rural & community crafters

- Cash injection for working capital and asset acquisition - R6.75m Equity- R13.5m Debt

•Strong empowerment dividend•Arts & Culture one of NEF’s sector focus •Addresses market failure•Supporting black entrepreneurship •New jobs to be created and supporting 106 000 bead workers jobs•Provincial bead SMME industry clusters •Strategic Projects product •NEF to hold equally with PIC 15% equity with 25% shareholding in the hands of Rural Women Crafters•Commercially viable

Compliance with funding criteria and NEF Mandate

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Morobe Trading Enterprises

CC(“Morobe”)

“Preferential Procurement”

Company background

•Electrification services company 100% owned by a Black woman, Ms. Alettah Ngwetjana (also a Managing Member).

•Established in 1993 to provide various services.

•Recently branched into contract work as a result of opportunities provided by preferential procurement policies.

•Company provides maintenance and installation services as a contractor to Eskom in areas surrounding Polokwane.

•Company has created 16 jobs.

•NEF provided non-financial support in a form of advise on business plan and financial modelling.


•NEF invested R1.1 million in a form of 5-year loan.

•Interest rate charged @ prime less 1% with capital holiday of 6 months.

•Loan secured by assets and suretyship by Ms. Ngwetjana.

•Proceeds used for funding working capital and capital expenditure – acquired specialized trucks

•ABSA provided asset finance as a result of NEF’s funding.

•NEF facilitated access to finance to enable the business to service the contract.

•Assisted the business to build the track record and hence improve its credit rating

•Without NEF’s investment, the company would not have qualified for ABSA facility.

•Assisted with capacity building of the business.

•Investment resulted in the creation of 16 jobs.

•Investment in Limpopo in line with government policy to spread economic development to rural provinces.

•Direct financial support to SME

Compliance with NEF Mandate

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f und n ational e mpowerment growing black economic participation 10 march 2006 presentation to the...

Documents

black entrepreneurs

participation of black

investment growth

gdp growth

dfis bankslimited access

nef work

round capital

sa asgi sa6