Transcript Emergin Africa Advisers

Financing Infrastructure Development
African Capital Markets Conference
29th & 30th April 2008
Chris Vermont
Head of Debt Capital Markets
Emerging Africa Infrastructure Fund EAIF
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First dedicated debt fund for sub-Saharan Africa
Size: Currently US$365m. Approval to increase to US$600 m
Original sponsor: UK Government – DFID
3 other European Governments joined (Sweden, Netherlands,
Switzerland)
Debt from three development finance institutions and three
private sector international banks
Public/private sector partnership leveraging private sector
capital for development purposes
First multi-donor initiative by the Private Infrastructure
Development Group (PIDG)
GuarantCo
GuarantCo’s
business is:
“Credit enhancement of local currency debt issuance
by the private, municipal and parastatal infrastructure
sectors in lower income countries”
An additional objective, over the medium term, is to help build
capacity in domestic capital markets through deal flow, product
innovation and risk sharing.
Private sector investment in infrastructure by region, 1990 - 2006
5%
9%
23%
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Statistics relate to low and
middle income countries
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Spending in Africa is
dwarfed by other regions
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Private sector more
entrenched in Latin
America / Caribbean and
East Asia
5%
East Asia and Pacific
Europe and Central Asia
Latin America and the Carribean
Middle East and North Africa
South Asia
Sub-Saharan Africa
19%
39%
Source: World Bank
Number of countries by region
16%
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Africa must compete with
other low income countries
for investment
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Sub Saharan countries in the
data total 41 (33% of the
World’s low and middle
income countries)
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Small countries
33%
East Asia and Pacific
Europe and Central Asia
17%
Latin America and the Carribean
Middle East and North Africa
South Asia
Sub-Saharan Africa
5%
9%
20%
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Small individual requirement
Few projects of international
scale
Infrastructure finance – hierarchy
of difficulty
Easy
• Telecoms
• Energy / Power
• Transport
• Water
Difficult
NB GuarantCo and EAIF finance a broader
definition of infrastructure which includes
basic industries and infrastructure aspects
of mining & Agribusiness
Sector breakdown of private investment in infrastructure, 1990 – 2006,
SSA Vs rest of the developing world
All Regions
Sub Saharan Africa
5%
0%
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Telecoms a success story
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Energy / Power has been
constrained at roughly half
the developing world
average
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Water virtually non
existent
16%
20%
16%
30%
49%
64%
Energy
Telecoms
Transport
Water and sewerage
Investment by country (US$ mn), 2000 - 2006
Telecoms
Energy
Transport
Water
Total
% of total
Nigeria
9,263
1,920
2,618
0
13,800
45%
S. Africa Moz'bique Cameroon
1,123
139
348
1,261
1,206
532
3,988
335
0
31
0
0
6,403
1,679
880
21%
6%
3%
Benin Tanzania
134
311
590
376
0
28
0
9
724
723
2%
2%
Other
2,680
2,059
1,491
3
6,234
20%
Total
13,997
7,945
8,458
43
30,443
100%
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By far the most investment has been in Nigeria and South Africa with 66% of
the total, followed by Mozambique, Cameroon, Benin and Tanzania
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Within “other” the largest destinations have been Angola, Benin, Ghana,
Kenya, Madagascar and Somalia
Mobile phone penetration rates in % (August 2004)
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Snapshot of mobile phone
penetration in 2004
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From 2001 to 2006 fixed
line penetration increased
from 4.4% to 4.7%
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During the same period
mobile phone penetration
went from 6.5% to 16.3%
Infrastructure finance –
Future requirements
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Predictions are difficult. US$30.4 bn invested during 2000 to 2006
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The Banker magazine predicts US$26.4 bn in the next 5 years. This
compares with a target of US$500m for India over the same period!
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A big gap between ambition and reality
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e.g Grand Inga project 55,000 MW & US$50 billion
Infrastructure finance - Sources
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International Commercial Banks –
Domestic Banks –
short tenors
short tenors
some hard currency
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ECA’s –
some appetite up to 15 years
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DFIs –
15 years
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Private Equity, Hedge Funds –
International Bonds –
Local Bonds –
equity with exit
limited but may pick up again
good potential but little track
record
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Infrastructure finance –
Attitude of Banks
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Country Risk Capacity
Tenor Limits
Lending US$ against Local Currency cash flows
Availability of insurance – ECA, MIGA, Private Sector
Sectoral Appetite
Strategic Considerations
Current liquidity crisis
Why Local Currency Guarantees?
Project Level:
Country level:
Matching currency of project revenue
with currency of debt service reduces
project risk for both developers and
lenders:
Reducing
reliance
on
offshore
finance
and
minimising
hard
currency debt service (unlike local
currency
loans
from
offshore
providers)
efficient – no need for
currency swaps which are often
expensive in illiquid markets
more
financing risk by avoiding
devaluation and convertibility risks
sustainable – helps
capacity
within
country’s
financial sector
more
build
own
lowers
involvement
of local lenders on the
ground may also improve monitoring
and reduce risk of discriminatory
action by host government
recycles
internal
savings,
via
pension funds, life assurance and
banks, for productive use in the
economy
– can provide as much or
as little support as is required to
enable local financing
flexibility
GuarantCo’s Products
 Guarantees
covering default risk on underlying debt service
- partial credit guarantees
 Guarantees
covering default risk due to specific events
- partial risk guarantees
 Cover
for senior, mezzanine or sub debt; maturity, coupon or
principal strips, monetisation of carbon credits
 Other
methods of risk transference (e.g. insurance /
reinsurance or CDS / derivatives)
 Preference
for risk sharing (defined on a case-by-case basis)
Eligible Clients
 Private
sector project companies undertaking greenfield
projects or expanding existing facilities
 Municipal
infrastructure if funded largely through user fees (or
ring-fenced structure providing satisfactory security)
 Parastatals
if privatisation is planned (or case by case if
operations are along commercial lines)
 Refinancing
of existing projects if cross-border financing is
substituted by local currency debt
Resources
 Participation
per project $5m - 20m (initial period)
 For
larger requirements, GuarantCo can syndicate risk to
other investors if requested (up to $100m)
 Portfolio
targeted at $300 - 500m in the medium term
 Technical Assistance
funds eg. up to $500k per initiative /
project but most are likely to be $25 – 100k
 Transaction
 Guarantee
tenor up to 15 years
pricing will vary according to risk but unlikely to be
below 2%pa (do not wish to displace commercial risk takers)
Funding Tenor Extension
 Tenor
of local bank lending often constrained due to absence of
longer tenor deposits (asset / liability mismatch)
 Either
internal treasury or external regulator constraint
 GuarantCo
is prepared to offer “put” options to local lenders:
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guarantee can be called for liquidity reasons (as well as
credit reasons)
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Could cover funding risk beyond a certain date or during
times of unusual volatility
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Only offered in conjunction with partial risk or credit
guarantees (ie not standalone)
Frontier Markets Fund Managers Team
Direct Tel
Number
Email Address
+44 (0)20 7815-
@frontiermarketsfm.com
Nick Rouse
Managing Director
2780
nick.rouse
Chris Vermont
Head of Debt Capital
Markets
2950
chris.vermont
Douglas Bennet
Senior Guarantees
Executive
2786
douglas.bennet
Orli Arav
Director
2782
orli.arav
Roland Janssens
Senior Investment Adviser
2926
roland.janssens
Tarun Brahma
Investment Adviser
2951
tarun.brahma
Benito Grimaudo
Investment Adviser
2784
benito.grimaudo
www.emergingafricafund.com