Namibia: Turn Debts Into Equities for a While - DBN

THE Development Bank of Namibia has advised companies unable to service their loans to consider turning such debt, or part of it, into equity.

This would reduce the impact of the lockdown on the cash flow of large corporate borrowers.

Martin Inkumbi, chief executive officer of the Development Bank of Namibia (DBN), suggested this last week while announcing a loan repayment break because of the Covid-19 lockdown.

He said if companies allow this, the DBN would become a shareholder in the said enterprise.

Inkumbi advised enterprises to reconsider their business concepts and operational models and make adjustments where necessary.

This is to minimise the impact of the lockdown on business expenses and enable said enterprise to continue as a going concern and to grow.

He said after debt-to-equity transformation DBN would exit by selling its shares back to the owners to a new group of investors or even through a listing on the Namibian Stock Exchange.

The debt conversion option is only viable for companies with a strong business case and potential for growth and will be applied with diligence, he said.

THE HOLIDAY

The development bank would also implement a temporary moratorium on loan repayment debt for three months, subject to the duration of the lockdown, with a reasonable allowance for recovery and resumption of economic activity.

The moratorium on debt and interest repayment, Inkumbi said, would be targeted at small and medium enterprises (SMEs) as well as tourism and hospitality enterprises (both SMEs and corporate companies) that already hold loans with the bank.

Inkumbi stressed the beneficiaries of the moratorium must make management accounts available to the bank and explain the direct and indirect impact the Covid-19 pandemic has had on their businesses.

Corporate borrowers not in the tourism and hospitality industry would also be considered on a case-by-case basis, he said.

The repayment holiday excludes contract-based finance beneficiaries, who would have to approach the bank for relief to be considered on a case-by-case basis.

Inkumbi said businesses need to provide financial records as proof of financial difficulties.

"The bank will take into account the impact of the lockdown on new borrowers, and appropriate repayment grace periods will be considered," he stated.

He noted the bank does not expect difficulties in financial submissions as 31 March is year end for many companies and financial statements should be ready.

Those with different year ends are urged to draw up preliminary statements.

"The moratorium will not absolve borrowers of their debts, but will be a three month debt holiday, during which repayment will be resumed at a later date. Interest will be capitalised for the period of the holiday," he warned.

Inkumbi said the bank will not cancel loan repayments because assets would still need to match liabilities.

He added the bank is expected to honour repayments and cannot completely cancel borrowers' loan repayments.

He added that DBN operates like a revolving fund, lending money to enterprises to grow and develop infrastructure.

The collection of a large proportion of the bank's current loan book is critical for the sustainability and existence of DBN, he said.

On the SME working capital support through the N$500 million facility announced by the treasury, Inkumbi said the bank would raise the required capital through its bonds on the stock exchange or through private placement.

He said the bank would announce the implementation in the near future.

He called on borrowers to approach the bank if they are experiencing sudden contractions in cash flow due to the Covid-19 lockdown.

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