By: Nghiinomenwa Erastus
The 18 months of vulnerability on the part of some enterprises cannot be solved by extending more debts but options such as equity financing need to be assessed. The Development Bank of Namibia (DBN) chief executive officer, Martin Inkumbi suggested last week that the solution could be in providing optional capital to debt financing. “Advancing additional loans to borrowers, even as temporary relief measures, is not always a solution that works for all struggling businesses impacted by Covid-19,” Inkumbi said.
He said one solution can be found in equity finance through a national equity fund for qualifying troubled enterprises, but with potential for future growth prospects. He said a national equity fund would add to the financing toolkit currently being rolled out by various financial entities – mostly debts or loans. Inkumbi said this can happen provided that the equity investments or debt to equity conversions are made on pure business and economic merit, and on the potential viability and recovery of an enterprise.
“This requirement is paramount,” he stated. Ideally, the equity finance vehicle should not take a permanent shareholding in a company, said Inkumbi. “It should enable the original shareholders to repurchase their shareholding as the enterprise recovers and grows, or to onboard new shareholders depending on the preferences of the existing shareholders,” he said.
On business rescue, Inkumbi explained that the national equity fund can be used to intervene or recommend managerial and or operational methods to strengthen governance and improve particular business growth. However, he says, the ideal will be to allow existing enterprise shareholders the independence to manage their businesses and turn them around. While capitalising the equity fund, Inkumbi said that the capital requirement will be substantial. He suggested pooling of funds in a national vehicle that would be called the National Equity Fund to be capitalised with borrowed funds, through issuing of private sector bonds. The bonds will be repaid by taxpayers over time in exchange for equity in Namibian companies that will continue to grow in value over time, he suggested. The imminent benefit of a national equity fund intervention, however, is saving Namibian enterprises from collapsing during the current depressed economic cycle.
He added that the result would be preserving current and future employment and sustaining economic growth. Inkumbi said borrowers who have been economically challenged prior to the pandemic but were able to service their debts, albeit remaining persistently in arrears on their repayments can benefit from equity financing. Additionally, are the borrowers who were successful and were able to service their debts, but were challenged by the onset of Covid-19 lockdowns, they can benefit from equity injection. Jesaya Hano-oshike, founding member of the Namibia Business Angel Network (NBAN), said the National Equity Fund is a good idea, provided it will be well capitalised and supporting structures will be in place. He conceded that “there is a vacuum for this sort of equity funding in Namibia”
He said buying equity holding in an unlisted company is not that easy as the listed companies given the risk involved and organisation structure of these new entities. Hano-oshike explained that offering capital in the form of equity holding to the struggling small and medium entities will not be adequate, the fund needs to be involved to a certain extent to ensure the expected yield. This should provide support services like access to business development programmes, business coaches and a one-stop-shop for advisory services such as accounting, legal and human resources. “For the fund to have impact, it should be well capitalised,” he said. According to Hano-oshike, the fund size of anywhere between N$500 million to N$1 billion will be adequate given the size of the economy and the future plans.
“A small fund will only make a few investments and will not have impact,” he stated. Hano-oshike said the fund will be required to fill the gap in capital injection between N$100 000 and N$5 million in companies. Inkumbi says that the recovery will not be instant, but that in the medium to long term, Namibia and its enterprises can emerge into a period of growth, provided that their economic capacity is preserved. “The medium-term vision of equity finance will potentially accelerate the outcome,” said Inkumbi. Although the economic waters are choppy, with all hands-on deck, the vessel can make progress with equity finance, Inkumbi concludes.