SOUTH AFRICA - SA private equity has backing of regulators; should continue growth

Just what is it exactly that the market is about to face? Firstly, the debt markets are feeling the heat in Africa, though not as severely as in Europe and the US. "South African banks are not immune to the credit crunch but they are less directly affected by it," Kganyago continued, suggesting that the global squeeze could be precisely what was needed to help the market drive ahead, as a "back-to-basics" approach could foster healthy development of the industry. Leverage levels are likely to be 5-6x Ebitda, according to a panel moderated by Mezzanine Partners. Intermediate capital has been the least affected by recent events, and could even stand to benefit, as is the case in the US in Europe. Since this market only took off around two years ago in South Africa, when equity elements in subordinated debt had become a thing of the past in US and European markets, it could see the introduction of warrants, meaning that slice of the capital structure could become more lucrative for providers there.

In addition to the credit crunch, the South African market is also undergoing political turbulence. Here we are not referring to corruption - in fact: "In Africa, money flows to resources instead of where stable regimes are," according to Oliver Scholz of Control Risks, who added that resource-rich South Africa and Nigeria were favourites on his clients' Africa lists. He pointed out that interestingly, this was the opposite situation to the transition seen in Central and Eastern Europe, where political stability was seen as the driving force for investment, meaning the former CIS countries, rich in oil, did not see vast capital inflows compared to their Westerly, more politically advanced neighbours such as Poland.

The political issues that have come to the fore in South Africa are those that have become all-too familiar in Europe and the US - namely those of transparency and regulation. The South African Private Equity and Venture Capital Association is working closely with regulators to try to push forward an agreeable solution. "It would be a shame to see the industry fall because an adequate framework was not in place," Kganyago stressed. "The global private equity market has reached a turning point, but this does not mean we are on the way down. This is not the time to throw hands up. It is not a doomsday scenario. We, as policy makers, offer a partnership that means the growth of your industry should complement our own growth trajectory. We must ensure that any issues are confronted and dealt with so that the industry can continue to play an important role in South Africa's economy."

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