CEO Geoffrey Qhena, speaking at the group’s 2007/8 financial results presentation on Thursday, also insisted that the company planned to increase the amount of risk it took on in pursuing these investments so as to deepen the IDC’s developmental impact.
The organisation would seek to play a significant role in the development of manufacturing enterprises that could feed into the massive investment programmes of Eskom and Transnet, which together would involve capital expenditure of more than R400-billion over the next five years.
However, new opportunities were also opening up in the production of renewable-energy systems, such as solar panels and solar geysers, as well as in cogeneration. The development finance institution said it stood ready to support South Africa’s cogeneration drive and was considering a number of funding opportunities for bidders to the Eskom programme.
Qhena said it would also continue to look at resource-beneficiation initiatives, but told Engineering News Online that some of these projects, including the $2,7-billion Alcan aluminum smelter, had been affected by the prevailing electricity shortages. He did not have details as to how many of the projects in its pipeline were affected, but said the power crisis would be a constraint for the short- to medium-term for a number of its energy-intensive projects.
The IDC also envisaged playing a role in infrastructure and public private partnerships, including making funding available for Broadband Infraco, a new State-owned enterprise that plans to build a 'super cable' between Cape Town and London ahead of the 2010 FIFA World Cup. The IDC was planning to inject some R500-million into Infraco in the not too distant future.
In addition, it would invest in private hospitals in rural areas and townships, having set aside R500-million for these projects.
Qhena also insisted that it was increasingly aligning its business to government’s industrial policy and would be seeking to support more projects in the four key sectors identified, including automotive, forest products, chemicals and steel fabrication.
IDC TO RAISE DEBT LEVEL TO R18BN
The group would need to triple the debt on its balance sheet from R6-billion to R18-billion in order to help in financing this more robust and expanded project pipeline.
However, CFO Gert Gouws said that it would not be raising this debt on the capital market, but would instead be turning to other development finance institutions, including the African Development Bank, the European Investment Bank, as well as development finance institutions in France and Germany.
The African Development Bank was in the process of doing a due diligence of the IDC, as it was likely to extend between $150-million and $200-million into its South African counterpart.
Additional funds would be released when its 97,5% subsidiary Foskor was listed toward the end of 2009. The IDC currently valued Foskor on its books at R9-billion, but it expected its valuation to climb to more than R18-billion by the time it was listed on the JSE.
The IDC increased its approvals during 2007/8 to a record level of R8,5-billion, but had only been able to disburse a small proportion of that by year-end. Gouws said that this was normal given the long lead times involved in the projects it was supporting.
But he stressed that, while IDC’s balance sheet remained strong, with capital and reserves of more than R75-billion (underpinned by listed and unlisted investments whose value grew from R50-billion to R72-billion as of March 31, 2008), it was also taking on more risk that could affect some of its ratios.
For instance, impairments as a percentage of total financing at cost (excluding the group’s investment into the pebble-bed modular reactor nuclear technology company) had risen from less than 10% in 2006 to over 12% in the last financial year.
“This is in line with our development mandate, which often sees us assuming high levels of risk in the form of equity or mezzanine finance, as compared with our private banking partners,” Gouws explained.