The State-owned Industrial Development Corporation (IDC) would set aside R6-billion over the next two years to support companies in financial distress as a direct result of the global economic crisis.

The development finance institution, which planned to approve loans of R70-billion over the next five years and R11-billion in the 2009/10 financial year, expected that resources and manufacturing companies to be the main recipients of the bail-out money.

Divisional executive for industrial sectors Shakeel Meer told Engineering News Online in an interview that it was "extremely difficult" to give precise figures. But he indicated that the IDC was currently expecting to approve assistance of R3-billion for distressed firms this year and a further R3-billion in 2010/11.

He confirmed that approvals had already been authorised for about seven companies, across various sectors, noting, however, that the number changed daily, owing to the fact that the IDC had established structures to facilitate a rapid response.

"Our ability to respond depends on the availability of information," Meer, explained, adding that, in one recent instance, it had been able to mobilise a team on site within a week of receiving clear distress signals.

The IDC had also established a new department to monitor the state of the clients it had on its books and continue to extend the services of its work-out and restructuring unit.

Individuals from the bank were also working closely with the task teams that had been set up, under the aegis of the Department of Trade and Industry (DTI), in the clothing and textiles, automotive, capital goods and mining sectors.

Meer again stressed that all bail-outs were being pursued on a "case-by-case" basis, and that support was also only being extended after the completion of intensive due diligence investigations.

Only companies that could prove that they had been viable prior to the crisis and had clear long-term plans would be considered for support. But Meer admitted that the IDC was also conscious of government's desire to maintain certain "strategic" enterprises.

The support being proffered could take the form of time extensions to loan repayments, the issuing guarantee, the restructuring of debt, and even the conversion of IDC debt to equity.

The IDC was making the approvals off its own balance sheet, which remained "robust", but Meer stressed that its support could not be "limitless".

FRANCHISEE DISTRESS

The IDC was also continually updating the state of distress among its clients, with Meer indicating that, initially, much of the distress had arisen to within the franchise sector.

This sector was a high volume part of its loan book and was also a key part of its recent black economic-empowerment success.

However, it had since evolved to a number of its larger clients and while predominantly centred on resources and manufacturing, Meer said that the distress was not limited to these areas.

That said, current default rates were showing that most of the pain was occurring from within the manufacturing environment.

"Therefore, we have not restricted our support to any specific sector or sector or sectors," Meer outlined.

He also indicated that it was working closely with the DTI to coordinate its response with other policy interventions, noting that its sector research was being fed to the department.

Trade and Industry Minister Dr Rob Davies indicated again at the World Economic Forum last week that South Africa would continue to assess an appropriate tariff response on a case-by-case basis, and could even raise some tariffs if the evidence justified such a move.

He noted that, while the developed world was not using tariff policies to protect their companies, bail-out packages were generally linked to messages about "buying local", which was ultimately protectionist.

He added that South Africa could not compete with such measures, and said that the government would seriously consider reversing some of its tariff cuts to protect the gains made by the country's industrial policy.