DBJ co-finances two equity funds | Deal

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It would see DBJ and its private-sector partners taking ownership stakes in the businesses targeted for investment.

A third of the $6 billion targeted for investment by the funds will be provided by the development bank, under a project titled ‘Financing Support for Business’.

Highlights

  • The project falls under the wider SERVE Jamaica programme, otherwise known as the Government’s COVID-19 support plan.

  • The latest step involves the hiring of a consultant, to act as technical adviser to the DBJ on the selection of fund managers. Expressions of interest in the consultancy position are due by January 14.

The pandemic has resulted in historic fallouts for Jamaica, the economy having lost 9.9 per cent of its value in 2020, the year the coronavirus began wreaking havoc on jobs, incomes and business activity.

“DBJ will invest a total of $2 billion in the fund, or funds, and private investors will, in aggregate, commit at least $4 billion in matching funds,” the state-owned development bank said.

In 2021, the economy has been on the mend, with the latest report from Statin showing Jamaica grew 5.8 per cent in the third quarter, July to September, relative to 2020. Stain data also indicates that over nine months, January to September 2021, the economy expanded by nearly four per cent, a level that still falls short of the amount Jamaica needs to overcome the 10 per cent contraction in order to return to its pre-pandemic status.

SERVE funds are provided to the DBJ by the Ministry of Finance.

The development bank will deploy $1 billion to each of the private equity funds under consideration, and private investors will be required to invest at least twice the amount invested in the respective funds. DBJ will utilise the services of the technical adviser, over a six-month period, to assist in the selection of two private equity fund managers and provide advice to the DBJ in its role as an investor in the SME funds.

The bank said it’s already started the process of selecting the fund managers, but didn’t say when it would be concluded. It added, however, that the technical adviser would come on board to assist with the remaining steps of the fund manager selection and contracting process. The Government of Jamaica, GOJ, in a background document, said it recognised that the private equity market plays a key role in providing financing and other support to businesses. The DBJ reasoned that access to risk capital, along with capacity building from a professional fund manager, should assist the investees achieve higher levels of growth and productivity, and contribute, where possible, to job growth in their sectors.

“With the focus on recovery of the business environment, post-COVID, the GOJ seeks to collaborate with eligible private capital funds to provide smart financing to SMEs,” the bank added. Key features of each fund include: minimum investment of $3 billion in the selected Jamaican SMEs; companies to be targeted are those worth between $15 million and $300 million; and the provision of technical assistance to SMEs.

business@gleanerjm.com Additionally, the equity funds are to be privately managed, with no government participation on the investment committee or on the board of directors of the fund. The fund life is expected to run for 10 years, with an additional period of not more than five years.