Hybrid Equity, a division of Old Mutual Alternative Investments, has earmarked funds to boost subcontractors of local fibre network operators (FNOs).
The insurer, through Hybrid Equity, is taking a significant stake in the capital structure of Enable Capital, a short-term funder that uses technology as a distribution platform.
In a statement, Old Mutual says Hybrid Equity, through its Hybrid Equity Fund, will invest R150 million via a special purpose vehicle that funds Enable Capital.
The new development comes as Old Mutual has, of late, been making significant investments in the local fibre market.
In May last year, African Infrastructure Investment Managers (AIIM), part of Old Mutual, became the largest shareholder in FNO MetroFibre.
This, after AIIM, alongside a consortium comprising South African Housing & Infrastructure Fund and STOA, a foreign investment vehicle based in France, acquired an additional 25.8% interest in MetroFibre, previously held by Sanlam Private Equity, African Rainbow Capital and a minority shareholder.
Analytico’s 2022 South African Fibre Report revealed Vumatel and Openserve dominate the local fibre market, with over 50% market share in homes passed and homes connected.
According to the report, in 2022, FNOs had passed approximately 3.9 million of South Africa’s 17 million homes with fibre. It adds that 460 000 of SA’s 860 000 business premises have access to fibre.
Commenting on the new deal, Hybrid Equity co-head Abdu-Rahman Abrahams says the transaction provides the opportunity to deliver a real, tangible impact on internet accessibility in SA.
“Through the hands-on approach adopted by Enable and its deeply-entrenched relationships built with its client base, we believe we can impact the market for fibre internet and at the same time assist small and medium South African businesses with funding,” he says.
Enable specialises in providing short-term funding solutions to subcontractors involved in the physical construction and deployment of local, regional and national fibre network infrastructure in the country.
“This deal allows Enable to find solutions for specific challenges faced by the subcontractors − such as equipment hire, supply of building materials and diesel − where Enable deals with suppliers and service providers directly in bulk, to the benefit of the subcontractors.”
Abrahams says several small businesses that used Enable’s products grew significantly, transitioning from small subcontractors, to large primary contractors, creating many new jobs in the process.
In addition, Old Mutual says there was a significant increase in the size of Enable’s debtors’ book, which also reflected the growth in the industry and specifically demand for the Enable product from subcontractors in the fibre market.
Abrahams says the investment positively contributes to addressing inequitable access to finance for subcontractors in the fibre market.
“Most of these contractors are generally smaller informal businesses that would not be able to access financing through traditional banking channels. This investment now enables them to grow and employ more people, which will have a direct impact on unemployment.”
He explains the deal will support the rollout of fibre network infrastructure, particularly outside of affluent areas where there is unequal access to the internet, thereby increasing access to the internet for all.
It will facilitate additional deal flow expected from the expansion of the Enable Capital business to other locations, such as the rest of Africa, as well as to other categories, such as renewable energy, he notes.
Abrahams adds that Hybrid Equity will contribute elements, such as governance and human resources, as well as formalise environmental, social and governance data collection, analysis and continuous monitoring.
“As proud partners of Enable, we will add value through our expertise in supporting diversity and transformation by encouraging this throughout the operation, including at the primary contractor and subcontractor level.
“We will also support sustainability of small subcontractors through local economic development and employment opportunities in the communities where fibre is deployed,” he says.
Reuben Olifant, chairman of Enable Capital, points out that most of the current fibre network deployment is directed at peri-urban and rural areas where unemployment is especially high.
He notes that deployment of fibre to these areas has a direct economic impact, as most of the labour is sourced locally, and SMEs from the area will be subcontracted during the construction phase.
Post-deployment, Oliphant says, there is a further secondary economic impact, as the maintenance of the network will be outsourced to local SMEs, while the community benefits from access to modern infrastructure that has shown to uplift socio-economic conditions.
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