Based on principles of due diligence
Stringent measures are taken to ensure projects are bankable
Infrastructure project financing has come under increased focus in recent years as development finance institutions (DFIS) try to leverage their balance sheets and in-crowd private sector investments.
At the Development Bank of Southern Africa (DBSA), the transaction division is responsible for converting bankable projects into investments.
This is achieved through due diligence performed on each proposed project to ensure it meets the bank’s developmental impact criteria.
“Due diligence is an art rather than a science,” says Zodwa Mbele, group executive for transacting.
Deals, however, must be viable and creditworthy.
The bank provides both vanilla and sophisticated financial instruments ranging from debt, mezzanine finance and limited nonrecourse to municipalities in SA, as well as private sector, state-owned enterprises (SOES), sovereigns and PPPS in SA and the rest of the continent.
Municipalities and SOES form the bulk of the DBSA’S loan book, yet some of them are often perceived to have poor governance.
While good governance preoccupies the bank, Mbele says when lending to an institution perceived to have poor governance, part of the due diligence is to establish the source of the adverse audit findings, and remedial action thereof becomes the condition of the loan.
For instance, an adverse audit finding may be resulting from irregular expenditure.
An expenditure may not have been incurred in vain. It may mean that transparent procurement processes were not followed for various reasons,” she says.
It is pleasing that more municipalities have achieved a healthy financial state and are able to borrow.
This is due to the various government-supported reforms, including funding the initiatives for capacity building by the DBSA.
Consequently, more players can now fund the municipal niche that was not always possible.
“Given the huge backlog in infrastructure development and limited government resources for infrastructure funding, there is huge scope for the DBSA to fill the gap,” she says.