Specialist alternative investment fund management company Kholo Capital’s Mezzanine Debt Fund I has reached final close at R1.4-billion in commitments, in order to make long-term mezzanine debt investments in small and medium-sized businesses in Southern Africa.

The company says the funding provided to these businesses will positively impact communities and support economic growth, job creation, poverty alleviation and advancement of transformation in the Southern African region.

The fund provides growth capital, black economic empowerment (BEE) financing and acquisition funding into sectors of the Southern African economy with high social impact including social housing, healthcare, education, renewable energy, food and food security, information and communication technologies (ICT), financial technology and infrastructure.

Kholo Capital explains that the fund follows the UN’s 17 Sustainable Development Goals as guiding principles with key focus on those linked to job creation and those linked to sustainable growth.

The R1.4-billion in commitments was secured from leading South African institutional investors.

The company says it believes mezzanine debt funding, being a subordinated loan position that sits between senior debt and equity in the capital structure of a business, is attractive because it plugs any equity funding gaps and provides businesses with a tailored and flexible loan solutions in support of their growth requirements.

Kholo Capital’s investment criteria include investing in small and medium-sized businesses generating a minimum of R25-million in earnings before interest, taxes, depreciation, and amortisation (Ebitda) across various growth sectors of the Southern African economy, thereby providing much needed access to capital within a preferred range of R70-million to R200-million per investment.

“We are very bullish about South Africa, the South African economy and the future prospects of this beautiful country and the surrounding region. We are heartened and motivated by the optimism and the resilience of its people,” says Kholo Capital founder and managing partner Mokgome Mogoba.

He says the company aims to create in excess of 500 new jobs at a rate of more than 40 nett jobs created per investment, noting the company has committed to investing more than 50% of the fund in black-empowered companies.

“We are excited at the opportunity to bring creative funding solutions to the Southern African market and to form long-term sustainable partnerships with businesses over a four- to seven-year investment horizon, realising not only strong commercial returns for our investors, but also providing transformational funding that has a positive environmental, social and governance (ESG) impact on businesses and surrounding communities as we also look to boost our rural and township economies,” Mogoba continues.

“Mezzanine debt funding is non-dilutive by nature and therefore is an attractive funding option for family-owned businesses, BEE companies or any business that needs to raise capital and hold onto the equity in the business.

“And with the banks becoming more risk averse due to regulatory requirements, lending to small and medium-sized businesses has reduced, creating a great opportunity for flexible mezzanine debt structures. We are grateful that our investors recognise the opportunity and have shown us tremendous support,” adds Kholo Capital managing partner and founder Zaheer Cassim.

Kholo Capital says, with a strong pipeline of opportunities, Kholo Mezzanine Debt Fund I is well positioned to advance its investment objectives, and make a sustainable impact in support of the real economy.