Section 38 made the Business Day this week, Changes to law will aid new deals (watch out for this link it is broken on their website - it might be fixed). The story provides a little history on the complexity of doing deals when they can't be self financed. (I have to type this out - gets to the fingers a bit)
Vendor participation was limited by section 38 and this led to complex and expensive structures being put in place to facilitate the transactions...... there was a huge leakage to advisors and institutions.
An appropriate amendment to Section 38 will lead to simpler and cheaper structures and this is likely to result in more deals. The amendment is expected to come into force during the first half of this year.
The rules for vendor financing seem to be:
- After the deal is concluded, the company must still be able to pay its debts in the ordinary course.
- The company's assets must exceed its liabilities
- The company must pass a special resolution that requires the approval of 75% of the shareholders
Here is a question for the banking people. Section 9 of the Financial Sector Charter creates Empowerment Financing as a goal for that sector. If more deals are enabled through the relaxation of section 38, and the banks are requested to provide financing, will this still be considered as empowerment financing for scorecard purposes?
Comments