Strategic Projects Fund

A new and exciting innovation during the year under review was the inauguration of the Strategic Projects Fund (SPF), established with a mandate to increase the participation of Black people (BB-BEE) in early stage projects that are aligned to the AsgiSA initiative.

Historically, most BEE deals were concluded via mergers and acquisitions with existing companies, and when transactions are completed, BEE beneficiaries would be left with less value to extract as these companies would either be matured, overpriced or subject to harsh market volatility as we have seen in recent times.

Most wealth is created and earned by those who have the means and ability to participate in projects that are high-risk but still in their infancy. It is in this space that a funding gap exists, particularly for Black people, and especially in transactions that require larger investment quantums, and also have very long timelines before dividends are realised. These would include projects such as the Coega Aluminum Smelter or the PetroSA Coega project.

The SPF aims to acquire equity in such national strategic projects within South Africa at a stage when the business bankable plan is still being developed. These projects are usually co-financed with other development funding institutions and commercial investors. The SPF aims to warehouse equity for BB-BEE and help drive transformation within the project. Once initial project risks have been reduced, and the NEF has earned its projected returns, the NEF through the AMD or other means, would then transfer its shareholding to selected BB-BEE groups through a transparent process as was the case with the NEF Asonge Share Scheme.

Accordingly, the SPF has been tasked with the responsibility of strategically identifying, initiating and scoping suitable projects that are aligned to the growth and development strategies of the country in a way that enables BEE to play a pivotal role. These projects are almost always of a Greenfield nature and fall into one of the following four sectors:
(i) Business Process Outsourcing;
(ii) Mining and Mineral Beneficiation;
(iii) Renewable Energy, and
(iv) Agro-processing and Tourism.

Some of the successes of SPF to date have been:
• A 6.2% equity investment in a R1.2 billion Solar Panel Manufacturing plant. The transaction was approved in the previous financial year and was subject to specific closure milestones that were met successfully after the signing of all business agreements and after the conclusion of financing agreements with other co-financiers. This means the Solar Project has moved from being a project to become a business and construction of the plant has begun. This is important as projects can take anything between two to five years before conclusion on agreements.

• Investment in a R80 million biomass manufacturing company called Renu Energy which will produce a renewable energy feedstock for power plants in Europe. The NEF has warehoused 26% equity for BB-BEE. The plant is currently ramping up production.

A further ten key sector transactions are under consideration and three scoping studies have been concluded in other targeted sectors. One pre-feasibility study has been concluded while three joint development agreements are being negotiated.

Through some of these projects, along with the FMD, the SPF are poised to play a vital role in NEF’s prospects of reaching the next milestone of R2 billion approved transactions. Overall, the transactions currently under the SPF’s consideration have a potential NEF investment value of R1 billion over the next two to three years. I am pleased to announce that the team has also grown from three to four people, with a Projects Investment Associate joining in April this year.