Development Bank of Southern Africa Amendment Bill [B 2-2014] Briefing of Select Committee on Finance National Council of Provinces 21 October 2014 Presenters : Mr Ben Mokheseng Deputy Director: Asset Liability Management Adv Empie van Schoor Chief Director: Legislation
Outline of presentation Background DBSA post-restructuring Main objects Process up to introduction Clause-by-clause discussion of Bill 2
Background (1) Development Bank of Southern Africa (DBSA) established in 1983 Following new 1994 constitutional dispensation, DBSA reconstituted by DBSA Act, 1997 to promote socioeconomic development in Southern African region DBSA Act regulates range of matters regarding DBSA including object, powers, management of affairs, board, CEO, share capital, expenditure, dividends, accounts & audit and Minister s regulation-making powers Comprehensive set of ministerial regulations made in November 1997 3
Background (2) DBSA is listed as major public entity in Schedule 2 to Public Finance Management Act, 1999 (PFMA) Characteristics of a Schedule 2 public entity generates profits and declare dividends operates in competitive market place (general business principles) may borrow money (section 66(3)(a) of PFMA) 4
DBSA Post-Restructuring Mandate (1) Primary mandate of DBSA is infrastructure development finance in South Africa (SA) and rest of continent South Africa (67% risk capital) DBSA is mandated to develop key infrastructure sectors: water & sanitation, energy, transport, ICT, education and health Municipalities, State Owned Companies (SOCs), Independent Power Producers (IPPs) and Public- Private-Partnerships (PPPs) remain key areas of focus Africa (33% of risk capital) Outside South Africa, DBSA still focus on Southern Africa Development Community (SADC) However, with expansion of the DBSA s mandate to other national territories on African continent, DBSA has begun to assess investment opportunities beyond SADC Support for key and leading economic growth sectors: energy, transport, ICT and water Focus on public and private sector projects that enhance regional integration Formation of strategic partnership & mobilisation of resources 5
Post-restructuring process - Mandate (2) Minister of Finance signs Mandate Statement with DBSA Board as part of shareholder oversight each financial year Aim of Mandate Statement is to: Set out Shareholder s expectations of Board for each financial year Serve as framework against which Shareholder Compact and DBSA Corporate Plan are to be drafted & agreed to by parties Provide for performance reporting by DBSA, to demonstrate achievements on following: o Quarterly Loans disbursements to the different market segments & sectors Actual projects financed o Annually Post-disbursement performance monitoring on funded projects 6
Post-restructuring process - Operating model As part of organisational review process, DBSA reviewed its strategy & operating model during 2012/13 to refocus its infrastructure development activities where it can have maximum impact. As a result, following operating model was adopted: Old organisation New organisation Lending operations Balanced portfolio of lending activities on commercial & subsidised terms Balanced portfolio of lending activities on commercial & subsidised terms Lending operations Non-lending operations Grant funding on balance sheet Institutional capacity building support Development planning and research Project preparation Fund Management Project planning support (pre-financing support) Project implementation support (postfinancing support) Cost recovery model Non-lending operations 7
Post-restructuring process - Disbursements Following DBSA s restructuring and capital support provided by government (R7.9 billion for 2013/14 to 2015/16) to support its growth objectives, Bank committed to increase its infrastructure financing support across various operating areas significantly Client segment Disbursement, 2015-2017 Composition R million South Africa 38500 70% Social infrastructure 21000 38% Municipal 16800 30% Metropolitan 11000 20% Secondary 4300 8% Under resourced 1500 3% Other 4200 8% Economic infrastructure 17500 32% SOCs 9500 17% Independent power producers 6800 12% Private sector 1200 2% Outside South Africa 16700 30% Total 55200 100% 8
Post-restructuring process 2013/14 performance In 2013/14, DBSA reposition itself for greater effectiveness & efficiency in delivery of its mandate. Following are some notable achievements: Net profit of R787 million in 2013/14 which reflects reversal in performance since restructuring process complete turnaround from loss of R826 million in previous year Improved cost management that contributed to overall financial performance, with cost-to-income ratio dropping from 48.9% to 28.4% Strong loan book with non-performing loans (NPL) as percentage of total loan book improving from 7.3% to 5.8% New record level of disbursements of R12.7 billion against target of R11 billion Increased disbursements to under-resourced municipalities Growth in asset base by 18.3% to R63.8 billion. Gross loan book has grown from R42.6 billion to R50.1 billion which is increase of 17.5% from previous year 9
Main objects of Bill Main objects of proposed changes to DBSA Act are to specifically enable and regulate in DBSA Act extension of DBSA s operations to African countries outside SADC to increase authorised share capital of DBSA & to enable further increases to address growing demand for infrastructure funding enhance DBSA capital base to amend Minister s regulation-making powers 11
Process up to introduction NT consulted DBSA before submitting Bill to Cabinet for approval Cabinet approved that Bill be published for public comment and be tabled in Parliament should there be no material changes Published 13 December 2013 with 17 January 2014 as closing date Only one comment - not related to proposed amendments Bill tabled before 2014 elections but not dealt with by previous Parliament On 18 June 2014 National Assembly agreed to resume proceedings on Bill 12
Clause 1 of Bill definitions (1) Inclusion of definitions in section 1 of authorised share capital, callable capital and issued share capital Authorised share capital is maximum capital Bank may raise Consists of issued share capital + callable capital Issued share capital = part of authorised share capital that is issued Callable capital = authorised share capital less issued share capital d 12
Clause 1 of Bill definitions (2) Inclusion of definition of Companies Act - clause 1(b) Amendment of definition of region to refer to new provision on determining scope of operation of DBSA - clause 1(d) 13
Clause 2 of Bill deletion of obsolete provision Proposed deletion of section 2(2) of DBSA Act which required Registrar of Companies to enter name of Bank in register of companies and issue a certificate to Bank to that effect Since done after DBSA Act commenced in 1997, obsolete 14
Clause 3 of Bill DBSA s scope of operation Though regulations already extended scope of DBSA s operation outside SADC, propose that DBSA Act itself- specifies countries in which DBSA may operate South Africa & other SADC countries enables Minister of Finance to approve by regulation other African countries that DBSA may operate subject to approved annual plan of activities Bank to submit annual plan to Minister for approval in form & on date Minister determines Minister may amend approved plan after consultation with Bank 15
New clause in Bill grounds for appointing Board directirs Standing Committee on Finance, NA - proposed new clause (to amend section 7(3) of DBSA Act): (3) Directors shall be appointed on the grounds of their ability and experience in relation to socio-economic development, development finance, business, finance, banking and administration, including in any sphere of government. 16
Clause 4 of Bill Alignment with Companies Act Section 8 of DBSA Act sets out the disqualification for directors of Board and in section 8(a) refers to Companies Act, 1973 Clause 4 proposes alignment with terminology in Companies Act, 2008 17
Clause 5 of Bill DBSA s share capital (1) Background on DBSA s share capital Legal instrument Authorised share capital Issued share capital DBSA Treaty 1983 R2 billion When Treaty was concluded, R168 million (South Africa) + R32 million (former TBVC territories) (paid-in capital) DBSA Act, 1997 R5 billion When Act commenced 25 April 1997, R200 million (paid-up shares) DBSA Amendment Bill [B 2-2014] - proposed R20 billion & R200 million 18
Clause 5 of Bill DBSA s share capital (2) Section 13 of DBSA Act deals with DBSA s share capital Propose to amend section 13 by increasing DBSA s authorised share capital from R5 billion to R20 billion & R200 million (cl 5(a)) changing number of ordinary shares from 500 000 to 2 020 000 (cl 5(a)) enabling Minister of Finance to increase authorised share capital & number of ordinary shares, after consultation with the Board, by Gazette notice (cl 5(b)) 19
Clause 5 of Bill DBSA s share capital (3) Propose to also amend section 13 of DBSA by instead of stipulating details in DBSA Act, providing that share certificates for Government as consideration for paid-up share capital must be issued as determined in ministerial regulations (cl 5(b)) requiring shareholder s approval for subscription by shareholders to portion of balance of authorised share capital on request of DBSA s board (clause 5(a) & (b) of Bill) (cl 5(c)) including term issued in s13(5) where reference is made to share capital (cl 5(d)) 20
Clause 5 of Bill DBSA s share capital (4) [cl 5(b) to replace new section 13(2A)] NA s Standing Committee proposed amendment to enable Minister to decrease or increase authorised share capital: (2A) The Minister may, after consultation with the board and by notice in the Gazette, adjust the amount of the authorised share capital of the Bank and the number of ordinary shares. 21
Clause 6 of Bill Regulation-making provision Propose to amend regulation-making power of Minister of Finance in section 17 of DBSA Act by distinguishing between regulations that must be made and those that may be made enabling Minister to initiate regulations and not only when requested by shareholders or Board omitting enabling regulation on territories of operation of Bank enabling Minister to regulate use of callable capital to calculate leverage ratio of DBSA limiting general regulation-making power, i.e. ancillary/incidental administrative/procedural matter that is necessary to prescribe for implementation/administration of the Act 22
Clause 7 of Bill Application of other legislation Section 17 of DBSA Act provides that DBSA is exempt from 1973 Companies Act and that Minister of Finance may apply provisions of Companies Act, Banks Act and other law Bill proposes to remove provision for exemption from Companies Act, since new 2008 Companies Act does not apply to DBSA; and rephrase provision enabling Minister to apply provisions of Companies Act, Banks Act and any other legislation to DBSA 23
Clause 8 of Bill Preamble Proposed amendments to Preamble Updating reference to Constitution Adjusting terminology pertaining to Southern Africa 24
Long title of Bill Standing Committee, NA - proposed amendments to long title of Bill to reflect proposed amendments in new clause 4 amending grounds for appointing directors clause 5(b) adjusting authorised share capital 25
Ri a livhuwa/enkosi/siyabonga/ Re a leboga/dankie/thank you