top of page

BLACKLEAF

Beyond Banks - Why Private Credit is the New Structural Core of the Strategic SA Capital Stack

29 September 2025

The architecture of corporate financing in South Africa is undergoing a profound transformation. For decades, the ‘Big Five’ commercial banks commanded the debt markets, acting as the singular source for large corporate and project funding. That model is now structurally outdated. Private Credit direct lending by non bank institutions has rapidly matured from an alternative source to the essential foundation of a modern, resilient South African capital stack.


For sophisticated corporations, vital mid market enterprises, and institutional investors, grasping this strategic shift is not merely an investment trend it is critical to securing superior returns, driving national growth, and managing risk in a complex operating environment.


ree

1. The Banking Retrenchment: A Permanent Structural Void


The ascendancy of private credit is a direct consequence of global regulatory changes that have made certain types of lending uneconomical for commercial banks.


The Long Shadow of Basel III


International banking reforms, notably Basel III, mandate that commercial banks hold significantly higher capital reserves. While South Africa’s major banks are well capitalised, these rules dramatically increase the capital cost of complex or long term lending.


  • Infrastructure and Long Term Project Finance: Basel III assigns high risk weightings to long dated assets, especially those found in infrastructure and large scale, multi year Black Economic Empowerment (BEE) or Mergers and Acquisitions (M&A) deals. This effectively locks up too much bank capital, making such loans commercially unviable for them. Trevor Manuel, former Finance Minister, has explicitly voiced this concern, stating that Basel III makes long term infrastructure lending prohibitively expensive for African banks.

  • The Mid Market and SME Funding Gap: Banks naturally pivot towards lower risk, standardised retail and large corporate loans. This has created a vast and persistent financing gap in the crucial mid market segment. These are businesses too large for small enterprise finance, yet often possess complex financial profiles or require bespoke structures that do not fit a bank’s rigid, credit scoring template. Private credit funds thrive in this void, providing tailored solutions where traditional lenders retreat.


This is not a temporary market condition; it is a permanent structural reality. Private credit funds, operating outside these specific banking regulations, can afford to take a longer term, more granular view of credit risk, making them the default provider of patient capital.


2. Architectural Superiority: Flexibility and Control


Private credit is not a standardised product. It is a bespoke financing architecture that offers flexibility a commercial bank simply cannot match. This adaptability makes it a powerful strategic tool for corporate objectives.

Feature

Private Credit (Strategic Architecture)

Commercial Bank Debt (Standardised Product)

Loan Tenor

Patient Capital: 5 to 8+ years, aligning with complex asset lifecycles.

Typically 3 to 5 years, often requiring early refinancing risk.

Repayment Structure

Highly Customisable: Allows for Payment in Kind (PIK), interest deferral, or balloon payments, conserving operating cash flow.

Rigid: Standardised amortisation, fixed cash interest payments.

Covenants

Bilaterally Negotiated: Focused on business specific milestones and future cash flow performance, not just arbitrary ratios.

Standardised: Based on generic debt coverage and collateral ratios.

Interest Rate

Predominantly Floating Rate (JIBAR/Prime + Spread), attractive to investors for inflation and rate hike protection.

Often fixed rate or simple Prime linked.

ree

Facilitating Corporate Action and Restructuring


The simplicity of the creditor base is a major advantage during periods of corporate change or distress.

  • M&A Execution: In a fast paced M&A process, a private credit fund can deliver a certainty of funding commitment faster than a fragmented bank syndicate. This speed is often the differentiator that wins the deal.

  • Collaborative Business Rescue: When a company hits a bump, a private credit structure, involving only one or a few lenders, simplifies negotiations. Direct lenders are typically experienced financial sponsors who favour out of court restructurings. This avoids the costly, public, and time consuming formal Business Rescue process under the Companies Act, providing a more efficient resolution for South Africa’s mid market businesses. They act as solutions providers, not merely transaction blockers.


3. Funding the National Imperative: Infrastructure and BEE


The most compelling case for private credit’s foundational role lies in addressing South Africa's critical national challenges.

ree

Powering the Energy Transition


The government’s drive to liberalise the energy sector and encourage Private Sector Participation (PSP) has created an unprecedented pipeline of infrastructure projects, particularly in renewable energy.

  • Bridging the Gap: These long life, capital intensive assets (solar farms, battery storage, transmission lines) require long tenor project finance that banks are reluctant to provide due to Basel III. Private credit funds fill this exact need by structuring debt against the predictable, long term cash flows from Power Purchase Agreements (PPAs).

  • Commercial Real Estate and Affordable Housing: In the property sector, specialist private debt providers are essential for funding urban regeneration and affordable housing projects. They provide development finance to property entrepreneurs, particularly in inner cities and townships, that struggle to access traditional bank loans for non standardised, impact driven residential and mixed use developments. They are effectively funding the revitalisation of local economies.


The Strategic Role in BEE Transactions


Historically, a major challenge in sustainable BEE transactions has been the reliance on complex, fragile, and often ring fenced debt structures that are sensitive to market fluctuations.

  • Enabling Sustainable Empowerment: Private credit offers bespoke, patient capital to fund BEE acquisitions. By incorporating features like PIK interest or flexible debt amortisation, the structure is better shielded from short term market volatility. This flexibility ensures the BEE partner can build real, long term value and equity without the immediate pressure of rigid repayment schedules, making the transaction sustainable beyond its initial scorecard impact.


4. The Investor Mandate: Predictable Yield and Institutional Flow


On the investor side, the local and international appetite for South African Private Debt is accelerating, making it a critical asset class.

  • Regulation 28: Unlocking Local Capital: Amendments to South Africa’s Regulation 28 for pension funds have significantly increased the maximum allowable allocation to private markets, including private debt. This legislative shift has unlocked billions in domestic institutional capital, actively seeking the steady, inflation hedging returns private credit provides.

  • The Attractive Risk Adjusted Return: Private debt funds typically offer a floating rate structure, which means their yields rise with the repo rate (JIBAR/Prime plus a credit spread). This provides a reliable, high income stream that is relatively protected from the inflationary pressures and market volatility that often plague public equity or fixed income. The result is a consistent, high quality income stream that is low correlation to public markets, making it a powerful portfolio stabiliser.


Fortifying the SA Economy


The transition from a bank centric to a private credit driven debt market is fundamentally about efficiency, flexibility, and resilience. Private credit is not competing with banks; it is structurally complementing them by funding the complex, long term, and idiosyncratic risks that a modern, dynamic economy demands.

For South African corporates, this asset class provides the sophisticated financial weaponry needed to execute strategic M&A, navigate economic distress, and fund the large scale infrastructure projects that underpin national recovery. For investors, it offers a proven, high yield, and structurally fortified path to accessing returns insulated from the turbulence of public markets.


The future of South Africa’s corporate finance landscape is built on bespoke debt solutions. This is where strategic value is created, and where the most impactful growth will be financed.


ree

Web: www.blackleafwealth.co.za Email: info@blackleafwealth.co.za

Date of Publication: September 28, 2025

Cape Town, 7110

@BlackLeaf Group


Important Disclaimer


This material is for informational purposes only and does not constitute financial, legal, tax, or investment advice, or a recommendation to buy or sell any security or financial instrument. The information contained herein is general in nature and does not take into account the specific investment objectives, financial situation, or particular needs of any specific person.

BlackLeaf Wealth is a provider of strategic capital solutions and bespoke advisory services. We do not act as a commercial bank. Investment in private credit involves significant risks, including loss of principal, limited liquidity, and speculative strategy. Prospective investors should consult their own professional advisors before making any investment decisions. BlackLeaf Wealth makes no representations or warranties regarding the accuracy, completeness, or suitability of any information provided herein. Past performance is not indicative of future results.

 
 
 

Comments

bottom of page