Mid-corp: The engine room of South Africa

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CIARAN RYAN: If you want to know what drives the South African economy, it’s mid-corporate businesses – those that often operate below the radar and perhaps don’t get the love and attention they deserve. This is where employment is created and where the supply chains that grease the real economy operate.

Nedbank has identified the mid-corporate market as a core part of its banking business, and that has given it some unique insights into how it operates and what the challenges facing managers are.

We’re joined now by Claire van Schalkwijk, head of Mid-corporate Credit Underwriting at Nedbank Business and Commercial Banking. Hello, Claire. Thanks very much for your time. Give us a high-level view of the mid-corporate market. How big is it and why is it important to the South African economy?

CLAIRE VAN SCHALKWIJK: Hi Ciaran. Thanks so much for having me here today. The mid-corporate market is integral to our broader economy. It makes up about 30-40% of the South African GDP and it has more than 60% of private-sector employment. I like to think of it really as the engine room of South Africa.

If you were driving along the highway and looked across to the different sides, you’d see the big multinationals, you’d see big South African corporates. But scattered around that you’ll see these mid-corporate sized businesses. You might not always know their names. Sometimes you will. But there are many of them – and that is actually what’s driving our economy.

What strikes me as really important about this is that you see their commitment to South Africa. You see that a lot of the time they build up the communities around them as well, and it’s not just across one sector.

They are involved across multiple sectors.

Typically these mid-corporate clients have revenue of about R750 million and upwards towards your listed companies. I think what’s key is that a lot of them are family-run and owned, and you’ve seen that sometimes through the generations as well.

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CIARAN RYAN: Now, I guess there are different risks associated with this market, with the mid-corporate market. There are different ways that a bank would look at this.

We hear a lot of complaints in the market about how long it takes to get a credit approval, and so on. So how do you look at this market, and how have you tried to smooth out some of those wrinkles?

CLAIRE VAN SCHALKWIJK: That’s a great question, Ciaran. What I found has differentiated us – and this is particularly with Nedbank in our mid-corporate team. I love it, because our credit team is very close to business and together we go out as a team to meet with our clients.

With that you get to build up relationships with clients as well. You get to stare at the owners, the shareholders, eye to eye, and really get to understand them – what’s driving their business, the risks that they face.

You get a good understanding of what their strategy is, what their pain points are. This helps for better decision-making.

And with that, you talk particularly about the turnaround time – getting a quicker decision. What I find as a credit executive is you can get out there, you meet with your client, you understand them, and you then are able to make a much more informed decision – a lot quicker as well.

CIARAN RYAN: It sounds like this is what the market is looking for. It wants a stronger banking relationship.

Now, a lot of businesses suffered during Covid-19, for example, and more recently with what’s happening in the Middle East. Supply chains have been disrupted. So we’ve seen revenue decline in some businesses – and a lot of companies have also taken on extra debt. Talk about the kind of relationships that mid-corporates are looking for when it comes to banking.

CLAIRE VAN SCHALKWIJK: Ciaran, I believe the clients are looking for a partner, someone who is going to stand with them through the good times and the bad times.

So what we’ve seen over the last couple of years is that there’s a lot of uncertainty in South Africa. Where we are sitting now, we’ve seen a lot of green shoots and a lot of optimism, and a lot of clients actually going out there and starting to say, ‘We still want to continue with our growth, and with making those big capital investment decisions’. We’re seeing a lot more of that.

Just to give an example, we’ve had a client in our construction and manufacturing sector who was experiencing a difficult time; it was really partnering with them through that.

We did have to get involved in some debt restructures, but really talked them through that. Now they’ve come out of that in a great position and are continuing well on their journey to growth.

CIARAN RYAN: All right. So debt restructuring – that’s one of the things that a lot of companies don’t look at. They have a very vanilla view of what debt is. It is an overdraft facility or a revolving credit facility, and you obviously can assist them in structuring something which is going to be cost-effective and is going to meet whatever it is that they’re investing in.

But take us through some of the challenges that businesses are facing right now from an operational standpoint – from your experience in the market.

CLAIRE VAN SCHALKWIJK: Right now I would say there are a number of challenges that the companies in this mid-corporate space have been finding. You’ve got import pressure; there are a lot of cheaper imports coming through, particularly impacting on our manufacturing sector.

We’ve had a lot of our clients then having to re-price. We have seen some margin squeeze on a couple of our clients.

But what really stands out for me is that among this mid-corporate market, you’ve a lot of entrepreneurs, and these mid-corporates are more agile.

They can make decisions faster. So with that, you’ve also seen some consolidation in various sectors.

For example, we have a steel client; the steel sector has been under some pressure and we’ve a steel client who was able to make an acquisition, a bolt-on acquisition that effectively helped another business to be consolidated into the broader group and able to be part of a bigger group and be successful.

So I think that’s key. It’s really the mindset of our mid-corporate businesses where they’re entrepreneurial and they have that agility to move quickly to keep their business growing.

CIARAN RYAN: And would you assist in something like that where a company is looking at an acquisition, because you’ve got corporate finance teams, you’ve got experts in business valuation inside the bank? Would you be able to go in there and assist them on how to actually structure this to get the maximum benefit?

CLAIRE VAN SCHALKWIJK: Yes, Ciaran, that’s the benefit of our Nedbank mid-corporate team. We have access to our corporate finance team, and we have a leverage finance team. And together with the bank and our credit team, we’re very involved with our clients and a lot of it is actually pre-empting as well.

We are continually out there visiting our clients, taking corporate finance and our leverage finance teams and having the right discussions.

We are also able to provide solutions across not just debt, but also equity and hybrid – which is looking into your mezzanine debt space as well.

But I think the key message I want to give here, Ciaran, is that it’s about being close to your clients and understanding them and helping them to almost pre-empt these decisions – and then partner with them through that journey.

CIARAN RYAN: Okay, Claire. Finally, let’s just wrap this up here. I get the sense that what these mid-corporate businesses want is – they want a relationship. They want something long term. They are looking for a partner, an advisor, a wingman or wing woman – if I can put it that way.

They want somebody who really does understand the business and the sector in which they operate. So you have to have some sector expertise, and you’ve got to have the financial expertise. You’ve got to have the banking expertise. Is this pretty much the situation?

CLAIRE VAN SCHALKWIJK: Yes, Ciaran, I believe it is. The clients are looking for a partner. It’s not just to get that sector expertise – because actually when you go to the clients what struck me is something really key.

Let’s take the example of US tariffs. We went to a couple of our manufacturing clients, and they’re very close to the ground. They know what’s happening. They’re very well connected in the industries in which they’re involved.

They often know what is happening in the market ahead of what shows in the economic data that comes through.

But what they’re looking for in a partnership – to go back to your initial question – [we have]. We do have a full range of skills across our credit team. We’ve brought people into mid-corporate who have multiple-product knowledge across various different lending structures, different types of trade products.

And in our credit team, as well, we’ve people who have come through from a corporate investment banking angle, and also those that have been in the commercial banking space.

So [we can] give very holistic solutions to our clients – no matter at what stage they are – because across our mid-corporates you have those that are just hitting into the mid-corporate space. And then you’ve got the ones that are bumping on the ceiling of going into the more corporate space.

So we’ve a broad range of skills where we can partner and advise our clients on many different areas. With that comes a wealth of experience across our team.

And yes, we do have specific sector expertise. So we have an agri team that will come in and help advise on agricultural clients. We also have an expert in sustainability finance.

We have been doing a lot more on that side of funding for sustainability options. So definitely we can tap into the various experts within our bank. But what is important is we, our corporate team, have a wealth of experience within ourselves as well.

CIARAN RYAN: Okay. We’re going to leave it there. If you’re in the mid-corporate market, you would definitely want to be paying attention to what’s going on in the banking market.

That was Claire van Schalkwijk, head of Mid-corporate Credit Underwriting at Nedbank Business and Commercial Banking. Thanks very much, Claire.

CLAIRE VAN SCHALKWIJK: Thank you, Ciaran.

Brought to you by Nedbank Mid-corporate.

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