IDC interventions

01 Sep 2021 12:00 pm by John de Villiers

Economic rebuilding funding packages – IDC interventions

The IDCs Post-Unrest Business Recovery Fund, MCEP Economic Stabilisation Funds and matching grants: providing industrial loan support to affected companies towards the rebuilding of infrastructure, and restoration of equipment, fittings for the premises, stock, and provision of working capital.  

Businesses affected by the violent looting and unrest that took place in KwaZulu-Natal and Gauteng in July may now apply for financial assistance from Department of Trade, Industry and Competition (the dtic) and its Development Finance Institutions, the Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF).  The R3.75 billion package consists of a number of business recovery interventions the aim of which is to provide industrial loan support at zero percent interest rate to affected companies towards the rebuilding of infrastructure, and restoration of equipment, fittings for the premises, stock and provision of working capital.

Unpacking the IDCs initiatives gives us:

IDC Post-Unrest Business Recovery Fund

Amount R1,5 billion

Purpose

This fund is earmarked as a response to assist businesses that are either existing or new IDC clients, that fit into the IDC’s mandate and that have been adversely affected by the unrest. Businesses outside of the IDC mandate are expected to be assisted through the programmes under the ambit of Partnership Programmes for Regional Stabilisation.

Application of funds

  • To provide bridging finance, pending the receipt of insurance proceeds arising from the unrest
  • Funding to cover short-term operational losses, provided that the business demonstrates clear plans of recovery of operations through a reasonable business plan
  • Working capital funding
  • Capex/equipment finance where funding is used to replace assets that were damaged or destroyed, and where such assets were uninsured or underinsured
  • Property finance where property was not subject to finance (this will be limited to industrial, retail and warehouses)

Salient features

  • Businesses that can demonstrate that they were affected by the unrest with a high level of certainty that they will be profitable and sustainable going forward
  • Limited only to South African companies affected by the unrest
  • Client to undertake that there will be no retrenchments for the duration of the funding support

Financial instruments and other terms

  • Debt
    • Maximum amount R30 million
  • Bridging finance
    • Price 0%
    • Term 12 months
  • Term loan
    • Price 0% for 12 months thereafter P+1%
    • Term capex and working capital - 36 months; capex replacement 60 months
  • Infrastructure finance
    • Price – prime+1
    • Term – 10 years

Exclusions

  • Repayment of existing debt obligations to commercial banks or other financiers
  • Funding for expansions
  • Property finance, where property was financed and proceeds of insurance will flow to financier
  • Capex/equipment finance funding to replace lost capacity, where assets were financed and proceeds of insurance will flow to financier
  • Repayment of shareholders’/ intercompany/related party loans

Manufacturing Competitiveness Enhancement Programme (MCEP) Economic Stabilisation Fund

Amount R400 million

Purpose

The purpose of the MCEP Economic Stabilisation Fund, administered by the IDC on behalf of the dtic  is to provide funding to companies that have been affected by the unrest and associated supply chain disruption. This will be done through financing businesses that are not covered by insurance or those with funding insurance shortfalls.

Application of funds

  • Replacement of lost capacity and associated stock which should largely be addressed by current MCEP funding. However, an equity style product will likely be required
  • Replacement of stock in distributor and retailer warehouses that are currently not supported by any IDC or the dtic funding schemes but which would have a negative impact on the manufacturing sector
  • Working capital shortfalls as a result of supply chain disruptions, which could result in delayed receipt of raw material and subsequent cancellation of sales orders

Salient features

  • Available to manufacturing companies affected by the unrest, including those impacted by associated supply chain disruptions (consideration could be given to non-manufacturers within the supply chain in support of manufacturers, excluding financial institutions)
  • Companies that have been in operation for at least 12 months
  • No retrenchments for the duration of the facility

Financial instruments and other terms

  • Debt and quasi equity-type instruments will be used
  • Maximum investment size of R50 million
  • Revolving credit facility
  • Could be provided on a standalone basis
  • Term to be limited to a maximum of 48 months for working capital and 84 months for plant and equipment (inclusive of moratorium)
  • Return
    • Debt – interest-free loans for the first 24 months and 2% thereafter.
    • Quasi equity – RATIRR of 2% for quasi-equity type

Exclusions

  • None

The IDC Business Recovery Fund: Matching grant

Part of the above package includes a R100-million matching grant facility to support affected small and informal businesses in townships, rural areas and small towns impacted on by the unrest. The grant facility will be distributed primarily through strategic implementing partners (SIPs) up to a maximum of R10-million per SIP.

The fund is designed to target the socio-economic challenges of businesses in townships, rural areas, and small towns directly affected by the recent unrest, through:

  • Supporting the most vulnerable from business closure, job losses and income reductions
  • Providing resources to promote social inclusion in building back after the unrest
  • Providing support to the social and solidarity economy to fulfil their missions in relation to responding to impacted community needs
  • Investing in small businesses and traders that have suffered the effects of the unrest
  • Re-establishing supply chains and routes to market
  • Supporting entrepreneurship and strengthening business partnerships

Application of funds

Funding (capex and opex) needs to address the recovery, including:

  • Replacement of lost capacity and associated stock, which should largely be addressed by the fund
  • Replacement of stock in distributor and retailer warehouses that are currently not supported by any IDC or dtic funding schemes but would have a negative impact on the manufacturing sector
  • Working capital shortfalls (maximum 48 months) due to supply chain disruptions, which could result in delayed receipt of raw material and subsequent cancellation of sales orders

Salient features

  • Fund administered through intermediaries that are financially stable and socially responsible
  • Intermediary expected to crowd in other funding
  • Companies that are supported must have been in operation for 12 months and plan no retrenchments for the duration of the facility

Financial Instruments, terms and other

  • The facility will be grant funding and where possible, funds will be crowded in from other institutions
  • The maximum grant per intermediary to be revised from R5 million to R10 million

Exclusions

None specified

Eligibility criteria for beneficiaries

  • Focus on businesses that were directly affected by the unrest
  • Small and micro business within townships, small towns and rural areas. These include formal and informal traders, social businesses, small retailers and manufacturing businesses
  • Uninsured and under-insured businesses
  • South African-owned businesses, or those owners with legitimate/valid residential permits, based in KwaZulu-Natal or Gauteng
  • Registered businesses, licensed businesses, valid municipal permits or other forms of verification of operation prior to unrest
  • Was in operation as at 30 June 2021

Financial instruments and terms

The facility will be grant funding and should serve to crowd in additional resources and funding from other institutions and sources.

Strategic Implementation Partners (SIPs)

Principles

SIPs must be able to demonstrate a commitment to the following broad principles:

  • Financially inclusive and sustainable business model
  • Proven verification, implementation and disbursement infrastructure
  • Proven ability to track and report adequately on progress and impact
  • Commitment to be fair, accountable, and transparent in processes
  • Socially and environmentally responsible
  • Ability to crowd in co-funding and leveraging of the partnership for additional resources
  • Contribute to building a robust, enabling, supportive and inclusive ecosystem in support of businesses
  • Promote collaboration and development of social capital
  • The IDC reserves the right to appoint a member onto the investment committee or approval panel

Contact details

Proposals to be sent to the IDC at recovery@idc.co.za or contact 011 269 3111

To read more about the funding packages see funding packages for the full document or go to http://www.thedtic.gov.za/economic-rebuilding-package-now-open/ for a list of contacts and centre hotline established to help with enquiries