DBJ assessing bids, expects latest equity funds to launch mid-year

The Development Bank of Jamaica (DBJ) expects to launch two equity funds that will inject capital into small businesses by mid-year.

“The process is under way to evaluate and undertake due diligence on fund managers which have responded to the call for proposals. Once this process is completed and the necessary approvals are received, the fund managers will be expected to commence their fundraising, with a target of raising funds from other investors, within a few months,” Milverton Reynolds, managing director of the state-owned bank, said on Thursday.

Last month, the Financial Gleaner reported the DBJ’s plans to facilitate the setting up of two funds that will deploy a combined $6 billion in capital, around a third of which will be seeded by the DBJ and the rest by private-sector partners that the agency is in the process of recruiting as fund managers.

It would see DBJ and the fund managers taking ownership stakes in the small start-up businesses targeted for investment.

The DBJ has a number of existing lending facilities but started taking a more active role in equity and venture capital funds in 2016 to fill demand for financing by small businesses.

“The DBJ, however, continues to see a gap in the availability of risk capital, through equity financing, for Jamaican SMEs,” the development bank said.

“The establishment of these two funds … will see increasing levels of equity funding available to Jamaican SMEs and high potential, early stage businesses, and aimed at improving their capital structures, supporting business growth and expansion, and improving management capabilities and governance.”

The equity funds are to be privately managed, with no direct government participation on the investment committee or on the board of directors of the funds. The fund life is expected to run for 10 years, with an additional period of not more than five years.

Key features of each fund include minimum investment of $3 billion in the selected Jamaican SMEs; targeting companies worth between $15 million and $300 million; and the provision of technical assistance to SMEs.

The project falls under the wider SERVE Jamaica programme, otherwise known as the Government’s COVID-19 support plan. It is one of several initiatives deployed by the state to shore up households as the pandemic ravaged lives and jobs, resulting in historic fallouts in the economy, which contracted 10 per cent in 2020.

A consultant is being hired to act as technical adviser to the DBJ on the selection of fund managers. Expressions of interest in the consultancy position closed mid-January, but the DBJ hasn’t yet announced the selected bid.

Other prominent funds and loan facilities at the DBJ include its renewable energy infrastructure; growth equity facility for large companies across various sectors; a private credit facility; a mezzanine fund; its private equity/growth facility; and the SEAF Caribbean SME Growth Fund.

“The DBJ since 2016, also became an anchor investor in funds of varying strategies, with the objective of encouraging private capital investors to invest in this alternative investment asset class. This has been successful as all the funds have raised capital from local, regional, and international private capital sources and are expanding investments in Jamaica and the region,” added Reynolds.

DBJ will utilise the services of the technical adviser, over a six-month period, to assist in the selection of two private equity fund managers and provide advice to the DBJ in its role as an investor in the SME funds.

The Government of Jamaica, in a background document, said it recognised that the private equity market plays a key role in providing financing and other support to businesses. The DBJ reasoned that access to risk capital, along with capacity building from a professional fund manager, should assist the investees achieve higher levels of growth and productivity and contribute, where possible, to job growth in their sectors.

steven.jackson@gleanerjm.com