Business Reporter
DEVELOPMENT Bank of Namibia (DBN) has announced the approval and implementation of a Business Rescue Programme for qualifying businesses financed by the bank as a possible alternative to liquidation.
The programme takes the form of partial conversion of debt into various types of preference shares to be held by the bank in the enterprise, and the deployment of independent business managers to such entities to render technical and management advisory services.
Speaking about the programme, the DBN Chief Executive Officer (CEO), Martin Inkumbi, said that the combination of prevalent unfavourable economic fundamentals has left many businesses at a point where they are barely able to operate.
The bank has a duty to recover its capital so that it can make further loans to other borrowers. However, the bank responsibly also strives to strike a balance to preserve the envisaged development impact.
Inkumbi illustrated this point by saying that the bank gives regards to employment opportunities created, income for owners, preservation of owners’ capital and assets, contributions to local, regional and national economies and continued economic growth as reasons to attempt to preserve businesses.
The bank, he stressed, does everything it reasonably can to preserve businesses that it has financed and, where possible, creates a win-win situation for the borrower and the bank.
Explaining the programme in detail, Inkumbi said DBN will in the next few weeks appoint independent business rescue advisors through a transparent procurement process.
Once an advisor is appointed to carry out an assessment of a distressed business, the advisor will make recommendations on the turnabout strategy. The turnabout strategy will identify changes that need to be made to the operation of the business, its governance and / or its capital structure.
If the capital structure is not appropriate, the bank could consider converting part of the debt to the bank into alternative patient financing instruments such as convertible preference shares.
Inkumbi went on to say that preference shares give the bank the ability to relax its repayment requirements for a portion of the loan in anticipation of growth of value and yields on the shares. Owners, he said, would always have the first right to repurchase the shares or, with the agreement of DBN, to arrange for the sale of the shares to third parties.
During the period which the bank holds preference shares, the business will be contractually obliged to meet a number of milestones identified by the advisor and agreed between the business and DBN.
Once the business is on its feet again, DBN will exit the preference share arrangement, preferably by selling its preference shares back to the original owners.
The first task of the business turnaround advisor, Inkumbi elaborated, will be to ascertain if the business can be rescued. If not, the bank will have to begin steps to recover its loans through the normal liquidation process.
