DBN explains debt relief measures

The relief measures by the Development Bank of Namibia (DBN) to cushion businesses against the impact of Covid-19 include a temporary moratorium on repayment of capital and interest, as well as equity conversion.

In addition, the DBN will implement the N$500-million relief facility announced by finance minister Iipumbu Shiimi as part of government’ economic stimulus and relief package last week.

The DBN recognises that borrowers are experiencing difficulty, particularly in the tourism sector and among SMEs, the bank’s chief executive officer, Martin Inkumbi, said in a statement.

The thrust of the loan repayment holiday will be targeted at SMEs and tourism and hospitality enterprises - both SMEs and corporates - that already have loans from the DBN and are affected by the Covid-19 lockdown.

Tourism and hospitality includes accommodation establishments, restaurants, car hire and other enterprises in the sector.

Other corporate borrowers not in the tourism and hospitality industry will be considered on a case-by-case basis and should individually approach the DBN to discuss relief needed.

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

Borrowers

Although the bank monitors repayments, the sudden and extraordinary nature of the situation means that the DBN will not immediately be able to identify all individual clients experiencing difficulties from ongoing monitoring of repayment records, Inkumbi said.

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

The moratorium will not absolve borrowers of their debts, but will be a three month “debt holiday”, subject to the current duration of the lockdown.

Repayment will be resumed at a later date and interest will be capitalised for the period of the holiday. The DBN will entertain a “reasonable allowance for recovery and resumption of economic activity”.

This will however be reviewed on the basis of the ongoing economic impact of measures to contain Covid-19.

‘Cancel repayments’

Asked why the DBN won’t cancel loan repayments, Inkumbi cited two reasons.

Firstly, he said the bank has to match its assets and liabilities. The DBN is itself expected to honour repayments on amounts it has borrowed and hence it cannot completely cancel borrowers’ loan repayments.

Secondly, he said the bank is duty bound to recover its capital and the interest in order to make additional loans.

THE DBN operates like a revolving fund, lending money to enterprises to grow and to develop infrastructure. Collected repayments from these borrowers are used for on lending the money again to finance a new wave of borrowers.

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

Financial records

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

The regular provision of financial records to the bank, Inkumbi said, is a normal requirement in the DBN’s contracts with borrowers.

As 31 March is year-end for many companies financial statements should be in preparation for many of the DBN’s borrowers. For those with different year-ends, Inkumbi urged them to have their accountants or bookkeepers draw up preliminary statements.

Although the DBN is accepting and assessing applications for finance through remote working practices such as email, the bank will take into account the impact of the lockdown on new borrowers and appropriate repayment grace periods will be considered.

Equity conversion

Equity conversions may be offered to large corporate borrowers that have larger loans and are experiencing cash flow challenges that can only be addressed through a restructuring of the business’ capital structure - usually by increasing the equity component and reducing the debt portion.

This has the implication of DBN becoming a shareholder in the said enterprise.

The intent will not be for the DBN to hold the equity in the business for the long term, Inkumbi said. The equity will be used to reduce the debt burden and enable the enterprise to continue as a going concern and grow.

The DBN will at some point 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 (NSX).

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

N$500-mln support

The DBN bank is in close consultation with the finance minister to raise the required capital and how to implement this relief measure, Inkimbi said.

An announcement on implementation will be made by the DBN in the “very near future”.

Although Covid-19 is disrupting the economy, it is vital to focus on recovery and resumption of economic activity, Inkumbi said.

“This will rest on all pillars of the economy but particularly Namibian enterprise. We are in this together, and by working together, we will emerge stronger,” he concluded.