IDC assessing 21 applications under R1.5 billion downstream steel incentive

The Industrial Development Corporation (IDC) is currently assessing 21 potential transactions, worth a combined R437 million, arising from applications for support under a R1.5 billion industrial financing scheme set up in 2017 to support manufacturers of value-added steel products.

The incentive, officially known as the Downstream Steel Industry Competitiveness Fund, became effective on 7 June 2017, and has been established to support domestic metals manufacturers facing import competition.

It is also seen as a way of partially offsetting the effect of government’s decision to raise tariff protection on primary steel products produced by ArcelorMittal South Africa.

The incentive is available to existing downstream steel manufacturers seeking to improve their competitiveness, as well as those companies in distress with bankable turnaround strategies. Start-up enterprises and early-stage technologies and prototypes are also considered on a case-by-case basis.

The fund has been created using a R95 million grant from the Economic Development Department, which will be disbursed to the IDC, in three tranches, from 2017/18 to 2019/20.

The development finance institution is using the grant to leverage a larger R1.5 billion incentive that is extended to eligible beneficiaries as a subsidy against IDC’s normal interest rates.

For large, or medium-sized enterprises with revenues of above R123.5 million a discount of 1.5% is applied when compared with the IDC’s normal risk pricing. However, the discount rises to 2% for smaller firms with yearly revenues of less than R123.5 million.

To date, three transactions, valued at a combined R42.4 million, have been approved, translating into an interest subsidy of R1.5 million. The approved transactions are expected to support 104 jobs.

The IDC has not disclosed the identities of the recipients, but reveals that the beneficiaries produce security fencing, cast iron and steel products and fabricated metal products, such as tanks, reservoirs and metal containers.

Qualifying recipients are entitled to use the funds for capital and working capital purposes, including for infrastructure investments and the purchase of capital equipment.

The fund will run over a period of 10 years in the form of an interest rate subsidy, but the maximum term for individual transactions is five years, after which normal IDC pricing resumes.