The Velocity of Finance: Reindustrialisation One Small Credit Facility at a Time

What we talked about.

In this episode of The Sunny Ray Show, host Sunny Ray talks with Russell Bozac, founder of Watersal, a private credit fund based in Johannesburg, South Africa. After 25 years inside bulge bracket institutions including Morgan Stanley, Barclays, and Old Mutual, Bozac left to build a faster, more nimble alternative to bank financing for the small contractors who service South Africa's mining and infrastructure supply chains. He explains why banks approve only 7 to 8 percent of applications from these subcontractors, how milestone based payment cycles spook traditional lenders, and why domain expertise, not just spreadsheets, matters when pricing risk on the ground. Bozac walks through Watersal's structure as a micro private credit fund, how it courts ultra high net worth investors and family offices as limited partners, and the personal shift from decades in suits to visiting muddy job sites in coveralls. The conversation covers his first fintech advisory deal in New Zealand, an early excavator financed for flood mitigation work, and his fundraising target heading into the next contracting season.

A 25-year Wall Street veteran now funds the small contractors banks won't, coveralls and all.

The questions, and the answers.

What are you building at Watersal, and what problem are you trying to solve?

Within South Africa there is a huge macro focus on reindustrialisation, making the best use of the natural resources we've been endowed with. We help smaller contractors in the supply chains of larger projects get capitalized, whether it's working capital or asset finance. We're based in Johannesburg, close to the financial services hub and close to the mines, so we're ideally positioned to play our part.

You spent 25 years inside Morgan Stanley, Barclays, and Old Mutual. What made you want to build outside of it?

There's a great institutional advantage inside a bulge bracket bank around deal screening and execution capability, plus distribution if it's retail. But the consequence is they say no to a lot of deals, and qualification runs through a committee, usually a series of committees. We thought if we could operate outside, we could be more nimble, quicker, and get money out to these guys so they could get onto projects fast.

Which deal early in your career taught you the most about how capital reaches businesses that need it?

A management consulting client wanted us to find them a platform they could earn through, not just billable hours. We found an ultra high net worth investor in Sandton who had strict criteria, no startups, must already be self-sustaining, five-year contracts, reliable cash flows, no moonshot exit. We found a fintech platform in Dunedin, New Zealand, workshopped it, and settled on 19 million kiwi, about a million US, purely through our network.

Banks decline these contractors for reasons they can defend. What are they reading right, and what are they reading wrong?

Banks only approve 7 to 8 percent of applications because they have debt covenants to protect and are used to monthly interest payments, whereas subcontractors get milestone based payments with no smoothing in cash flow, which scares banks. The other issue is a lot of financiers in banks are pure financiers without domain expertise. If you don't have a pair of coveralls in your wardrobe, you're not really out there doing it.

What's the most expensive thing you got wrong about African infrastructure risk, and what changed after it?

You don't just price the interest rate, you have to price the risk, and sitting in an air conditioned office behind Excel using business school models leaves a lot out. For example, you can price fuel price fluctuation actuarially, but you might miss that old, less productive equipment or a newly qualified driver with a heavy foot burns more diesel, which creates drag on the contract's yield. You only catch that by being on site.

Can you walk me through the fund? Who writes the check, who receives it, and what secures it?

Many of our deals started as intermediation, where someone wants to buy a deal and we broker it. What we're building now is our own micro private credit fund for infrastructure. Investors come in as LPs, the fund disperses capital, collects repayments, and distributes returns at the end. We become the lender of record rather than individuals, and some of our bigger clients have expressed interest in coming into the fund more permanently.

What does a yes from you feel like for a contractor who's heard no his whole life?

Our first excavator went to a contractor doing flood mitigation for a local council after his bank turned him down. We financed it, drove out the next day, and saw it operating in the distance doing good work. After 30 years office-bound, it was almost surreal to actually see what you're doing as a physical thing. That's when we realized this is exactly what we want to be doing.