Old Mutual: Innovative funding solutions can bolster black female ownership
By Abdu-Rahman Abrahams
South Africa has plenty of good policies and initiatives to promote economic empowerment, but historically disadvantaged groups, such as black females, may continue to be left behind without the requisite capital to fund their access.
Thankfully, industry bodies are recognising the importance of enabling historically disadvantaged groups to thrive economically by introducing new initiatives specifically designed to empower these groups.
An example of such an initiative includes the new codes from the Transport Sector Charter, set to be implemented from March 1, 2024. The codes have urged those in the industry to prioritise fostering broad-based black economic empowerment (B-BBEE) and diversity in the logistics sector, a sector crucial to the nation’s economic growth.
According to the SA Road Freight News, the codes will impact all road freight operators and companies in South Africa rated under the current Transport Sector Codes. Companies must align their planning according to the new Transport Sector Codes or risk not receiving a compliant B-BBEE certificate.
South Africa’s freight and logistics market is expected to grow significantly from 2024 to 2029 due to a substantial increase in online retail, according to a research study by Mordor Intelligence.
According to Mordor, the South African freight and logistics market is estimated to reach $22.92 billion (R432bn) in 2024 and $30.56bn by 2029, growing at a Compound Annual Growth Rate (CAGR) of 5.92% during the forecast period.
As this critical sector continues to grow and develop, it is essential that it embraces and facilitates transformation and empowerment to help fight economic inequality and promote inclusivity. At this critical juncture, investors can make a difference by going beyond financial transactions.
What we need to move the needle to empower black women, an under-represented group, in economic empowerment transactions, is innovative funding mechanisms. This is because innovative funding models such as hybrid equity can play a significant role in accelerating economic transformation by funding the risk elements that traditional mechanisms cannot.
For example, our funding model mitigates the risk for all involved parties by blending debt and private equity. It is this combination of debt and equity funding that allows a company to take up a direct interest in the business, giving it a say in the running of the company.
Old Mutual Alternative Investments (OMAI), through its Hybrid Equity capability, a specialist in innovative financial solutions, recently announced a transformative R125 million preference share facility to Afropulse Group, a wholly black women-owned investment holding company, to restructure its funding, which is backed by an equity interest in Imperial Logistics South Africa, one of the country’s largest logistics firms. This facility was supported by Afropulse’s 6.56% shareholding in Imperial Logistics.
Afropulse Group’s partnership with OMAI is a landmark agreement in our country’s journey towards economic inclusivity.
This investment not only supports our stake in a vital industry, but also propels the agenda of black women’s ownership in the South African economy. The strategic move also aligns with the goal of fostering broad-based black economic empowerment and diversity in a sector crucial to the nation's economic growth.
In addition to promoting equity ownership, the deal represents a strategic restructuring and replacement of existing funding, showcasing how expertise in executing complex structured equity funding transactions can make a difference. This restructuring will optimise Afropulse Group’s capital structure, further solidifying its position in the logistics sector.
Despite challenging economic conditions, this investment demonstrates continued confidence in South Africa's strategic logistics sector.
In 2021, Hybrid Equity concluded a B-BBEE deal to assist in funding the Afropulse Group’s acquisition of a 6.56% shareholding in Imperial Logistics. As part of the overall transaction, Hybrid Equity provided preference share funding of approximately R112m as part of a junior quasi-equity-related funding package.
Abdu-Rahman Abrahams is Co-Head of Hybrid Equity, Old Mutual Alternative Investments (OMAI)
BUSINESS REPORT