NEF forced to write off R290m loans
THE National Empowerment Fund (NEF), which uses its financial muscle to promote black-owned businesses, was forced to write off R290m of nonperforming loans last year — more than double the R105m the previous year.
The fund, which was recently embroiled in a controversy over its R34m funding of Hyde Park luxury store Luminance, said in its annual report tabled in Parliament that the much higher level of impairment on its loans was the result of “the increased number of distressed businesses that have been impacted by the tough economic times”.
A R96m provision was also raised on a single investment in the media sector which the NEF said had been “resuscitated” after the March 31 year-end. It was expected that the additional impairment charges on this transaction would be reversed.
Impairments have risen steadily from R57m in 2007-08.
CAPE TOWN — The National Empowerment Fund (NEF), which uses its financial muscle to promote black-owned businesses, had to write off R290m of non-performing loans last year — more than double the R105m write-off the previous year.
The fund, which was recently embroiled in a controversy over its R34m funding of Hyde Park luxury store Luminance, said in its annual report tabled in Parliament yesterday that the much higher level of impairment on its loans was due to “the increased number of distressed businesses that have been impacted by the tough economic times”.
“Specific to this are investments that have been restructured. A significant portion of these investments are in the construction sector.”
Impairments or write-offs were 18.6% of the total loans portfolio and 20% of the entire invested portfolio, which the report said was above the targeted 15%. These had a dramatic effect on the overall return on investments for the year — 8.8% before impairments, but 7.3% afterwards.
A R96m provision was also raised on a single investment in the media sector which the NEF said had been “resuscitated” after the March 31 year-end. It was expected that the additional impairment charges on this transaction would be reversed.
The fund has total assets of R5.4bn and is looking to the government for a recapitalisation. Without this, it would no longer be able to fulfil its mandate and would not be in a position to follow through on equity options at discounted values which are secured in projects still in their early stages, the report stated.
“Should these rights not be exercised there is a significant opportunity cost for the NEF in being unable to participate in a viable project of high economic impact that it has funded to reach an advanced stage,” said risk and portfolio management committee chairwoman Zukiswa Ntlangula.
“The increase in deal activity within the various funds without any new capital is impacting negatively on the NEF’s ability to grow.”
The NEF is seeking a reclassification under the Public Finance Management Act to allow it to raise additional capital against its portfolio of investment opportunities.
Ms Ntlangula noted that the NEF is no longer allocated capital via the national budget but has managed to sustain itself over the last three years out of current capital and internallygenerated portfolio returns.
Impairments have risen steadily from R57m in 2007-08, with last year’s escalation the sharpest since the NEF began in 2004. As well as reflecting the state of the economy, the level of impairments also mirror the increased size of the loan book. Last year the NEF approved 135 deals worth R1.33bn (R1.16bn).