Private credit is not a new concept, despite the current attention it has garnered. Prior to the financial crisis, private credit was a specialised field…
Private credit is not a new concept, despite the current attention it has garnered. Prior to the financial crisis, private credit was a specialised field that focused on distressed debt and mezzanine finance (a hybrid of debt and equity financing). However, private credit has expanded to include lending to small and mid-sized businesses by non-banks.
The growth in the private credit market has mainly been spurred by the financing gap that exists, as all but the largest companies in Africa still struggle to raise capital at reasonable rates through traditional routes like bank borrowing or issuing shares. When sufficient cash for new investments is unavailable or out of reach, such businesses’ ability to compete and grow is restricted. Private credit has therefore been an effective way for growing private companies to bridge the gap between self-financing and bank financing.
The effects of the COVID-19 related lockdowns, the war in Ukraine, and other supply chain constraints have led to record high inflation in many countries with resultant increases in interest rates. Therefore, many traditional banks are likely to tighten their lending criteria as concerns of default and higher risk plague their portfolios. This further presents an opportunity for the private credit market to fill this void.
What makes private credit an attractive consideration for businesses?
- Risk appetite: Private credit providers often have a higher risk appetite than traditional debt providers.
- Structuring flexibility: Private credit offers greater flexibility in how a deal is structured to accommodate the client’s risk profile. Furthermore, mezzanine financing offers a variety of hybrid debt equity structuring options.
- Covenants: Less stringent and flexible covenants.
How can we help?
Tamela Capital Partners is one of the few credit-oriented alternative asset managers in Sub-Saharan Africa. Tamela provides funding of between R50 million and R200 million to companies in South Africa, Namibia, Botswana, and Lesotho seeking capital for growth, refinancing, and expansion. Our holistic investment approach and ability to create partnerships with management teams enables us to provide appropriate funding solutions to corporates while ensuring we deliver the promised returns to our clients.
For more information, please contact Lungi Gwente on 011 783 5027 or at Lungi@tamela.co.za