Development bank cleared for equity participation
By Gitanjali Singh
Stabroek News
April 10, 2003
Development Finance Limited (DFL) has been cleared to offer private equity in Guyana as well as management services to small and medium enterprises, both of which were launched on Tuesday evening at the Cara Inn in Kitty.
The private equity-investing arm, Development Capital (DevCap), is aiming to invest US$1.5M in Guyana over the next twelve months, half of which is already committed to a local business venture.
DFL, which had relocated a planned development bank for Guyana to Suriname, also indicated that it would explore the possibility of opening a branch of that bank, DFL South America, in Guyana. It is to approach the Central Bank to determine whether it would require a licence to do so.
DFL had terminated its plans to establish DFL South America in Guyana after it could not secure a waiver of the advance corporation tax from the government or a waiver for the withholding tax, which was then 15% and has been raised in this budget to 20%.
However, head of the Guyana Office for Investment, Geoffrey DaSilva made a pitch for the executives of DFL to establish a development bank here.
"Go-Invest would do what it has to do to make it happen....whatever has happened in the past is water under the bridge....let us move from here now," DaSilva urged Managing Director Gerard Pemberton and Chairman Audley Walker at the launching.
Businesses have been clamouring for years for long-term financing which a development bank offers and which DFL had planned to offer at market determined rates. However, persons interested in seeking such financing would have to approach the operations in Suriname as part of funds available under a special project for Guyanese businesses.
DFL South America would require a licence to establish a branch here and this could effectively shut out a local arm of that operation unless the government provided the necessary concessions for its operations. However, Stabroek News understands that the government has adopted a position that if it has to grant such concessions to DFL, it would face pressures to offer similar concessions to others.
Guyanese businesses can already seek equity financing from DFL up to a maximum amount of US$800,000. However, businesses considered as a sound investment outlet by DFL would have to have 40% of their capital in equity as a safety catch.
DevCap is offering equity capital to private firms in all stages of their life and needs ranging from venture capital to buyouts. DevCap is comprised of investment funds that focus on structured equity investments; mezzanine investments; venture capital and growth capital investments and investments in other private equity funds.
However, because it would require a licence to offer any sort of loan to Guyanese businesses, DevCap would only be offering equity investments to Guyanese companies and management services.
Mezzanine financing, which is a balance between equity and debt financing, is to be discussed by DFL with the local Central Bank to determine whether it can be offered locally without a licence.
The services DFL is offering to Guyanese businesses would include identifying the needs and solutions to businesses.
DFL operations have a debt to equity ratio of 4:1 and an income of 0.6% and when questioned by chartered accountant, Christopher Ram whether the firm would consider investing into an operation with similar numbers, Pemberton said 2002 had been a difficult year for DFL. He also said that the capital soundness requirement for a private business was 32-35%.
Meanwhile, Walker, in remarks at the launching, noted that it was not enough to have oil and gas or substantial natural resources as Guyana had, but a country needed social capital - created by sound education systems, good governance and social cohesion based on strong values and common goals.
"Capital is made at home, not imported," the DFL chairman stressed. He said Hong Kong, Ireland and Barbados had shown how valuable social capital could be when one had few natural resources or none at all.
"When you look around Bourda this week, weather permitting, you will see social capital. Togetherness on the field and off the field. We will be playing a great team from the other side of the world. We will not feel marginalised, nor globalised.
There is no need to protect our batsmen against anything and our bowlers do not need concessions to get ten wickets. We just have to be competitive. Similarly, if Holland and Canada can play world-class cricket, Guyana can export first-class furniture and anything else it wishes to export. We just have to be competitive," Walker urged. He also noted that a strong private sector was an essential ingredient for development and maintenance of democracies.
He feels Guyana has the potential to be among the most important economic forces in the Caribbean and said this was the view within DFL. He said DFL would continue to have a presence in Guyana as long as it was encouraged to do so.
