VPB acts to plug investment depreciation

Staff Writer | Wednesday January 27, 2010 00:00

 

Some of these steps include facilitating access to finance and balance sheet restructuring, for the affected companies.VPB manages CEDA's Venture Capital Fund (CVCF) which has, over the years, invested close to P200 million across various business types and sectors.

According to CEDA's Annual Report 2009, the Fund was forced to write down P30 million investments, pulling out of Mabele Breweries and Benson Craig. The former has since been liquidated. This week, VPB Managing Director, Anthony Siwawa, told Mmegi that the fund manager's focus for the year would be on start up/green field ventures within the CVCF's investment portfolio. With most of the CVCF's portfolio made up of start up companies, the recession amplified the usual problems associated with these types of ventures. Most of the 13 associate companies and subsidiaries in the CVCF's portfolio are about three years old and many were just getting off the ground when the global recession hit late 2008.

 'One of the challenges that this segment of our portfolio has is short term capital; their ability to trade has been constrained by the shortage of capital. We have been working with the banks to secure overdrafts and short-term facilities for these ventures. 'We have also been looking at ways of adjusting their balance sheets, as the Fund is invested in equity and also debt in these ventures,' he said.

Siwawa explained that the CVCF made its loans in the portfolio convertible, out of the knowledge of the cash flow challenges many of these entities face and the need for financial flexibility.

In the last year, the CVCF has converted its debt in some companies and subsidiaries into equity, easing the pressure of these and facilitating their survival. 'This has also given the banks comfort that the balance sheets are still very strong, because converting a loan to shareholding strengthens the balance sheet.

'In addition, we want the business to be able to perform without having the pressure of repaying loans,' he said. The CVCF is also working with the businesses to help them access markets, as well as find strategic partners that can lessen the costs of breaking into these markets.

Siwawa said while the CVCF portfolio had suffered the impact of the recession, it had held its own when compared with similar investments in other countries. He noted that prior to the recession, the CVCF's investment returns were in line with international benchmarks.

'From 2009, most funds around the world were down between 25 and 60 percent in frontier markets. From that, we believe that even the drop we have had in these investments, is lower than the average.

'The performance of the CVCF has been good in relation to our peers elsewhere. However, we review our portfolio on a continuing basis and develop strategies with our partners for their growth,' Siwawa said.

 As of 2008/09, the CVCF's portfolio employed 1 075 people and had assisted in the development of 311 entrepreneurs and managers. Since its inception, the CVCF has assessed 404 projects with a value of P3.75 billion, out of which only 20 were approved, indicating the strict criteria and scrutiny the investments are put under.

The Fund is however dominated by start-up, reflecting the developmental nature of its objectives and Botswana's economy.