South Africa’s State-owned Industrial Development Corporation (IDC), which plans to issue bonds up to R12-billion in the next 18 months, on Monday announced stepped-up R2.7-billion funding to boost youth entrepreneurship.

The State-owned corporation, which disbursed a record R16-billion into the economy and sustained its funding approvals at R13-billion, is on course to up its game within the South African economy, undeterred by having to write off R2.2-billion to impairments in its 2012/2013 financial year, R797-million in the media and motion pictures category alone.

IDC’s rising impairments - which grew faster than the corporation's investments at market value - represent 18.6% of total financing and are indicative of the economic hardship being suffered by clients.

Subsidiary company Foskor recorded a loss of R165-million compared with a profit in the previous year, and new acquisition Scaw Metals recorded a loss of R78-million after financing costs.

The Small Enterprise Finance Agency (Sefa), which the IDC absorbed last year, lost R64-million as a result of capacity building in additional provinces.

The corporation’s profit fell 40% to R1.9-billion pre-tax, hit by a loss of R466-million from associate entities in platinum, aluminium, ferrochrome and stainless steel.

Turnover increased 25% buoyed by dividends from listed shares, unlisted shares, interest received and fee income.

IDC CEO Geoffrey Qhena said that the IDC would not be scaling back on its risk appetite, arguing that its approach to funding was the key differentiator when compared with other lenders.

Spurred on by its principal shareholder – the State – to expand its developmental role within the South African economy, the IDC is putting strong emphasis on developing the enterprise talents of young South Africans, for example.

“Come up with ideas and engage with us,” Qhena urged youth entrepreneurs, after Economic Development Minister Ebrahim Patel said at the corporation’s presentation of results that the IDC must turn its attention to youth entrepreneurship and small business development.

“It’s absolutely critical to our long-term industrialisation goal that we bring young talent into the industrial sectors and that we use the flexible instrument of small businesses to populate the supply chain of the core industrial sectors,” the Minister added.

In reply to Engineering News Online, IDC CFO Gert Gouws said the State-owned corporation expected to issue a bond of R1.5-billion in October and total bond issuances for the next 18 months until March of 2015 were currently planned at between R10-billion and R12-billion.

Gouws added that the bonds could be fixed-rate or floating bonds ranging from three years to seven years, depending on investor appetite.

The corporation is also taking steps to possibly more than double its gearing, which is currently at 20%, up from 11% in the previous financial year.

“We believe in five years time, our gearing will be between 40% and 45%, so gearing will more than double current levels,” Gouws told Engineering News Online.

Sefa has set aside R2.7-billion for special youth focus funding at concessional rates that can support the entry of young entrepreneurs into the economy.

Patel urged the IDC to invest more in the development of its project pipeline so that there were more investment-ready projects available in future, in partnership with the private sector, both domestic and foreign.

The State, as owner, did not look at the IDC’s financial results from simply a turnover and profit perspective, but wanted progress with job creation, small business development and the greening of the economy.

“It requires a more astute management and a board with a much bigger set of responsibilities,” Patel added.

Disbursement in the 12 months to end March improved 90%, created 19 000 new jobs and saved 4 000 existing jobs in the 12 months under review.

In the last five years, the market value of IDC assets increased 43% to R127-billion and the corporation approved R45-billion in project finance and amassed R10-billion in profit.

The State-owned finance entity is, however, being encouraged to “sweat its balance sheet" by ensuring that the proceeds from past successful investments help to finance its development finance portfolio and in that way distinguishing itself in development finance and moving itself further away from being a commercial bank.

The securing of lines of credit is aimed at enhancing the capacity of the IDC to support concessional funding and industrialisation efforts, indicated by the corporation’s R5-billion green bond and the R4-billion jobs bond.

The IDC will use a $100-million loan at concessional rates from the China Development Bank to support small business development.

Gouws reported IDC reserves at R97-billion, up from R92-billion, and that loans of R19-billion were up from R9-billion in in the previous financial year.

“In order to enhance our role in the economy, in order to disburse more funds into loans and equity finance, we need to borrow more.

“The balance sheet was relatively lazy, with a debt equity previously of 11%. That has now been managed to a level of 20%,” Gouws said.

Qhena emphasised that the results were achieved against a backdrop of a challenging economic environment, mainly owing to a prolonged sovereign debt crisis in the eurozone as well as a moderation in the growth momentum in a number of emerging and developing economies.

The acquisition of Scaw and the equity stake in Palabora Mining Corporation would help to build a more competitive industry together with related investments to reduce the cost of input material.

The IDC has made similar strategic interventions in the green economy, supporting government’s renewable-energy drive and associated localisation opportunities.

It is also focusing on expanding the fabricated metals, capital and transport equipment industries on the back of the infrastructure build programmes of State-owned enterprises like Transnet, the Passenger Rail Agency of South Africa and Eskom.

Through a collaborative effort with local manufacturers, retailers and government, the company has also contributed to the stabilisation of the clothing industry.

Qhena attributed the drop in direct jobs facilitated, compared to the previous year, to capital-intensive investments and strategic acquisitions. These investments are, however, expected to boost job creation in the longer term.