Crede Capital Partners, managers of the recently launched South African Defence Industry Fund (DIF), is launching a series of investment funds to assist defence exporters and provide contract and bridge financing and sale and lease back finance for the defence industry.
In support of the Defence Industry Fund, Crede said it will, in progressive stages, launch a series of investment funds. These include the Contract Finance Fund aimed at providing contract and bridge finance to small and medium-sized enterprises (SMEs); the Trade Finance Fund aimed at providing trade finance and letters of credit for exporters; and the Annuity Fund aimed at providing sale and lease back finance for the public sector.
The Defence Industry Fund was launched in July 2018. Crede said the ability to provide the necessary defence equipment and services to the South African National Defence Force (SANDF) requires a vibrant and competitive defence industry comprising local and international companies, with the SANDF an anchor client for the defence industry.
However, Crede notes that the barriers to entry are high, resulting in over-dependence on international suppliers, even in critical and sovereign capabilities. This limits South Africa’s independence and to an extent puts is sovereignty at risk.
As a result, there is a need for a defence industry fund to provide access to finance for both existing and prospective defence companies; attract local and international investors; provide support to businesses; provide technical skills and create jobs and skills.
With the DIF, Crede is targeting a fund size of R1 billion with a maximum loan size of R50 million and minimum size of R100 000. Loan terms would be between one and 36 months.
Crede said the SANDF (Armscor/Department of Defence) is to act as an anchor client for contracts and provide payment security to the Fund. A Fund Manager will support Armscor to reach B-BBEE procurement targets by providing financing to Black-Owned and Empowered SMEs.
Crede noted that the Department of Defence (DoD) currently spends in excess of R12 billion on goods and services per year – some 200 contracts are awarded a year, with 4 000 suppliers in the Department of Defence database. However, the Department of Defence had a BEE acquisition shortfall of R2 billion for the 2016/17 financial year.
“An amount of at least R12.5 billion in expenditure is spent annually by the DoD on goods and services such as computer services, contractors, operating leases, property payments and inventory. This presents a sizeable market opportunity for SMEs in defence and defence related industries. The Fund will look to provide financial support to SMEs to enable them to finance and deliver on these contracts,” Crede said.
In March this year the Department of Defence said Crede had not yet issued a loan as it was still raising capital independently as there is no seed funding available from government. Capital funding is being sought both locally and internationally.