Matambo explains BDC terms of investment

LEKOPANYE MOOKETSI
Correspondent | Monday November 15, 2010 00:00

The business plan must cover financial plans and capital costs, a detailed market analysis, financial projections, project benefits, and risk and mitigating factors, among others.

The Minister of Finance and Development Planning, Kenneth Matambo said in addition, an environmental impact assessment report must be prepared.

'All of the above must demonstrate that the project is commercially viable and will contribute to the socio-economic development of the country,' Matambo said.

He was answering a question from the MP for Mogoditishane, Patrick Masimolole, who had wanted to know the prerequisites for an investor to qualify for financial assistance from BDC and why BDC acquires shareholding in some projects.

Masimolole also wanted to know how BDC determines the nature and quantum of such shareholding.

Matambo said in terms of the credit and investment policy, the potential investor is required to provide a contribution of at least 25 percent and adequate security to cover the corporation's exposure where a loan is being sought.

He said BDC would acquire shareholding in projects of strategic importance to the national economy where its non-participation may jeopardise the establishment of such ventures.

'This could be due to the significant size of the project which may be prohibitive to some investors,' he said.

Other reasons for BDC participation are where projects add value to locally available raw materials, produce goods for export or to substitute imports, and foster linkages with local industries.

BDC could also invest if the project contributes towards technology transfer and generates sizeable employment.

Matambo said in other instances, investors prefer BDC to be a shareholder to tap into its understanding of the local business environment and financial strength as well as its positive reputation in the marketplace.

Where the project is promoted by an external party, BDC prefers to hold a minority stake (25 percent) to avoid overshadowing the promoters.

He noted that the level of shareholding is influenced by expected returns from the venture and its strategic importance to the national economy.

'The corporation might also take a majority in green fields where private interest could be low due to the high risks but where the returns to the economy from the venture are high,' Matambo noted.

Answering another question from Masimolole, Matambo said the BDC board approved a loan facility for Matsiloje Portland Cement to fund the expansion of the project in order to increase its production capacity. He said the project met the BDC credit investment approval criteria, which includes a viability test.

In addition, the project is contributing to economic diversification, job creation, import substitution and utilises low materials, which are some of the key pillars of the corporation's strategy, Parliament heard.

Matambo said the expansion programme for the company has not yet been completed. However, he declined to reveal the shareholders of Matsiloje Portland Cement, saying it is a private company and that BDC is bound by a confidentiality clause.

He said BDC has only extended loan facilities to the company and is not a shareholder. He advised Masimolole to seek information about the company's ownership through the Registrar of Companies.

Responding to yet another question from Masimolole, Matambo revealed that the BDC board has approved loan funding of P39 million to the Seven Star Steel Pipe Group (Pty).

The money was to be used partly to finance the manufacturing of various diameter steel pipes for water reticulation, sewage and other uses for domestic and regional markets.

P19 million of the approved funding has been disbursed, he said, while the civil works and foundation of the factory building are complete.

'All the building materials have been purchased and are on site and the factory columns are currently being erected,' the finance minister continued.

'The factory building is expected to be completed by December 2010 and operations are expected to commence during the first half of 2011.'

Masimolole had asked how much has been disbursed by BDC to the Seven Star Steel Pipe factory in Palapye and about the progress of the company so far.