AEF Tusk Project Management (Pty) Ltd

completed

Tusk Project Management (Pty) Ltd. provides contract management services and small working capital loans to emerging building contractors in South Africa. Tusk takes over the administration of the contracts and obtains performance guarantees. This leaves the contractors, usually small, black-owned businesses, free to concentrate on the construction work. To ensure that the contracts are viable, Tusk evaluates each of the contracts before it enters into agreements with the contractors. Most of the contracts are with local authorities for schools, clinics, low cost houses and other public buildings. The contracts are usually awarded under affirmative action programs which makes the service provided by Tusk very valuable as a support for small contractors who do not have elaborate back-office setups. The services provided by the company therefor have a strong developmental impact. Once Tusk is satisfied that the contracts are viable, it signs management contracts. Its fees are usually in the range of 2% to 4% of the value of the contracts. Tusk then makes working capital loans to the contractors equal to 10% of the value of the contracts. Thereafter, up to completion of the contracts, Tusk monitors the procurement of raw materials, advises on the work and organises the claims for payments. It maintains joint bank accounts with the contractors which provides security for the loans and Tusk''s fees. About two thirds of Tusk''s income comes from project management fees and one third from gross interest earned on the loans it advances.Tusk is operating at a level which, while demonstably profitable, would not attract many private equity investors. Working with small, emerging contractors was not something the consulting engineering industry in South Africa was accostumed to doing. Imali Capital started out as the "venture catalyst" arm of the Theta group which is very focused on microlending. It was seen as very appropriate for it to invest in Tusk. IFC''s role in the next stage of the development of Tusk could be an important catalytic one. The expansion of the business to meet the level of demand is likely to require significantly more capital than has been invested so far. The other potential financiers which have been approached are impressed that IFC may be willing to get involved and share the risks of such a venture. The sponsors regard IFC as an ideal partner from this point of view. On the debt side, it is also difficult to raise lines of credit for a business which has not a lot of hard assets to offer as security. Therefor, there is a strong role for IFC to play as both a financier and a knowledgable partner which would give comfort to the other minority shareholders. Imali Capital is very keen to have other institutional investors on board and to have more than one option when it comes to raising lines of credit.