DBN offers distressed debtors another chance

Tujoromajo Kasuto

The Development Bank of Namibia will implement a Business Rescue Programme for qualifying businesses financed by the bank as a possible alternative to liquidation. This will take the form of preference shares and independent business advisors for selected businesses on the verge of liquidation.

The program consists of partial debt conversion into various types of preference shares held by the Bank in the enterprise, as well as the deployment of independent business managers to such entities to provide technical and management advisory services.

DBN CEO, Martin Inkumbi, highlighted that not all businesses in distress would qualify or meet the

criteria of the rescue program.

‘’There must be some level of business activities happening and revenue generation. Ideally such a

business must be in a position to at least partially meet its loan repayment obligation to the Bank. The Bank will not convert full debt into a preference share instrument. The owners must also be committed and willing to make further capital investment and meet the Bank halfway,’’ he said.

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 in 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,’’ he explained.

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.

‘’If the business can be rescued, the advisor will make recommendations n management, capital

structure and governance which the enterprise will be contractually obliged to implement. In some

cases, control of the management of the business could be transferred to mutually agreed business

managers with expertise to help manage the enterprise out of a loss making position,’’ he said.

Meanwhile, where changes to the business’s capital structure (i.e. the debt to equity ratio) are required, the advisor will be able to either assist with bringing equity investors on board or to recommend the conversion of DBNs debt to preference shares.

Through this conversion, he noted, the DBN will hold preference shares in the business for a limited

period only and the aim is always for the Bank to exit and transfer full ownership and control of the

business to its owners or new investors or a combination of both.

Asked about resistance to the advisors, Inkumbi said the programme is voluntary.

‘’There will be consultation between the Bank and the distressed business owners. Where a distressed business owner is not willing to accept terms and conditions of a rescue program, they can always opt to repay the Bank’s loan or alternatively face liquidation.’’

Inkumbi stated that the terms of reference for independent advisory services have been drawn up, and they emphasise high degree of experience and skills. The Bank believes that some businesses fail due to poor management and lack of financial control.

By Observer