Family business finds finance – and a whole lot more
In 2005 Shainil Doorjan was ready to take the family business, which he ran together with his father and brother, to a whole new level by building their own hot-dip galvanizing plant in Pinetown, Durban.
The family, who had a long history in metal works, knew that the business opportunity was ripe for picking. Pinetown’s large industrial area did not have a galvanizing plant, and all the signs were there that a new facility would fill a big gap in the market.
Hot-dip galvanizing is the process in which steel products such as fences, gates, guardrails, and machine parts are coated with a shiny layer of zinc by dipping the item in a bath filled with molten zinc of up to 630 degrees Celsius.
The family was in a position to build the plant using just their own internal resources, Shainil’s carefully drawn up plans showed.
Then came Hurricane Katrina, causing havoc in the south-eastern corner of the United States, which happened to be the region where most of the world’s zinc reserves are stored. Suddenly, the price of the metal tripled, and where Shainil had budgeted about R2 million to fill a dipping bath with the molten metal, he calculated that he would now have to fork out up to R7 million.
Overnight, the budget for a new plant had slipped beyond the Doorjan family’s means. Shainil, a commerce graduate, sat down to redo the plans and then started knocking on the doors of Durban’s financiers. The traditional banks and financiers did not bite. Some of them offered finance, but only half the amount that Shainil projected they would need for the new business.
He understood why the banks were so hesitant. “It is no problem to get bank finance for a house because the banks can sell a house on the open market quite easily if the loan goes bad. The same goes for straightforward buildings such as warehouses. It sells easily and the banks can calculate the risks,” says Shainil.
The situation is different with a specialised building such as a galvanizing plant. “So the banker asks: ‘What if these guys go belly up? Can we sell the building easily? No, we can’t. We’ll have to spend a whole lot more money trying to remove the tanks, trying to resurface and remove the specialised equipment that we have here’.”
Shainil says the same applies to the millions of rands worth of zinc that they also needed finance for. “Zinc can’t just be sold on a local auction, making it difficult for the banker to calculate the risk.”
The reception he got from Business Partners Limited, to whom he was directed by his accountants, was starkly different.
“Right off the bat, they knew exactly the risks, the business setup, everything. With the bankers you basically had to educate them about the business. But the folks from Business Partners Ltd had seen it before, so it made life simpler. They understood the business,” says Shainil.
Another important difference between traditional bankers and Business Partners Ltd, says Shainil, is the fact that they are prepared to go beyond just lending money. Because they understood the risks, they offered full financing of the new business, while taking a 30% shareholding in the property itself, which was housed in a separate company, and 30% shareholding in Pinetown Galvanizing, the business.
The agreement stipulated clearly how the Doorjan family could buy out Business Partners Ltd’s shares once the loan portion was repaid.
Shainil says he was happy with the structure of the agreement. Apart from the fact that it made the establishment of the business possible, it also gave them a partner in the business with deep sources of knowledge and expertise. “This was a new venture for us in the sense that it was our first galvanizing plant. So, their expertise, their mentors and all the guys they brought from head office to set us up properly, that was a benefit,” says Shainil.
Business Partners Ltd’s presence in the business helped in subtle ways. The zinc merchant, for example, felt much more at ease in selling millions of rands worth of metal to a new outfit because they knew that Business Partners Ltd were involved.
There was also an extra level of supervision to make sure that the specialised building was constructed properly.
Shainil also liked the fact that the agreement was structured with a retainer, so that there would be reserves to dip into to pay the instalment if the business went through a difficult time. In contrast, “the banks will give you a little bit of grace if you miss a payment, but then they come down very hard on you,” says Shainil.
As it happened, Pinetown Galvanizing never had to go close to the retained amount. Quite the opposite. From about 2008 orders for galvanizing linked to the 2010 Soccer World Cup construction boom started rolling in, and within a few years Shainil was negotiating an early exit with Business Partners Ltd.
Sales remained high, and the factory ran two shifts every day with a total of more than 100 workers, right up until the Covid-19 pandemic. Pinetown Galvanizing had enough reserves to tide the business over, and sales have recovered, but not up to pre-Covid levels.
Shainil was far advanced with expansion plans for the factory when Covid-19 hit and pushed it out until the crisis recedes for certain. Although the Business Partners Ltd loan has been paid off and the shares bought back, the facility is still there. It is just a matter of reviving it when the time is right, says Shainil.