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Nick rouse soas conference
1. Frontier Markets Fund
Managers
US$ 1 billion committed to 54 projects
Nick Rouse, Managing Director
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2. Frontier Markets Fund Managers- FMFM
FMFM is the fund manager of
Emerging Africa Infrastructure Fund (EAIF); and
GuarantCo
The fund manager is owned by Standard Bank (70%), FMO (18%) and EMP
(12%)
The fund management team is based in London
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3. EAIF & GuarantCo are part of the Private Infrastructure Development
Group – PIDG
UK; SWEDEN; NETHERLANDS; SWITZERLAND; GERMANY; AUSTRIA; IRELAND; WBG
PIDG Trust
EAIF GurantCo ICF TAF InfraCo DevCo
EAIF & GuarantCo
Management can finance projects
provides funding
agreement with developed by
along side
EAIF & GurantCo InfraCo & DevCo
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4. Emerging Africa Infrastructure Fund - EAIF
First dedicated debt fund for sub-Saharan Africa
Size: US$ 700m
Shareholders: 4 European Governments (UK, Netherlands, Switzerland and
Sweden) - US$ 150m
Equity leveraged through a combination of Senior and Subordinated Debt from 7
DFIs (FMO, DBSA, KFW, DEG, IFC, AfDB and OeEB) and 2 commercial banks
(Standard Bank and Barclays)
Approval process takes between 8-12 weeks from the in principle approval to
Board approval
Operates on commercial basis
Financed 38 projects to date with a total exposure of US$ 800m
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5. EAIF – investment policy
Lend to private sector owned, managed and controlled entities with infrastructure
sector focus
Power
Transport
Telecoms
Water
Manufacturers of components of infrastructure e.g. cement
Infrastructure within mining and agribusiness projects
Sub-Saharan Africa focus excluding Mauritius
Investment Size:US$10 – US$25 million
FMFM can arrange US$200 million and more through its financing partners
Tenor: up to 15 years
Instruments: Senior and Mezzanine Debt (possibly with equity features)
Does not require a Political Risk Insurance (PRI)
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7. GuarantCo
GuarantCo’s business is:
“Credit enhancement of local currency debt issuance by the private, municipal and
parastatal infrastructure sectors in lower income countries”
In addition to enabling infrastructure this approach also builds sustainable financing
capacity in domestic capital markets through partnering with local institutions and
introducing new approaches to project risk evaluation and financing
Initial capital of US$100m leveraged to US$200m by KFW and Barclays
Additional backing from KfW / Barclays up to total of US$400m
Covers similar infrastructure sectors to EAIF plus urban infrastructure
Can include refinancing to local currency
Operates globally
Financed 16 projects to date with a total exposure of US$ 200m
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8. GuarantCo offers
Partial credit guarantee covering default risk on a portion of a loan or bond -
generally on demand and unconditional
Partial risk guarantee covering default risk due to specific events - such
construction failure or revenue shortfall
Cover for senior, mezzanine or sub debt; maturity, coupon or principal strips;
Loans, bonds or securitisation
Other methods of risk transference considered (e.g. insurance / reinsurance or
CDS / derivatives)
Preference for risk sharing - defined on a case-by-case basis
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9. Infrastructure finance –
Africa future requirements
Infrastructure responsible for half of Africa’s recent growth performance
Poor infrastructure reduces GDP by 2% and depresses productivity by 40%
Africa needs USD 93bn pa infrastructure spend (current USD 48bn)
In fragile states amount needed can be equivalent to 40% of GDP
Only 25% of Africa’s population has electricity in the home
In 1970s SSA had 3x the generation capacity of South Asia; by 2000 it South Asia
had 2x SSA
Economic cost of power outages can be 1-2% of GDP
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10. Infrastructure finance - Sources
International Commercial Banks – shortest tenors
Domestic Banks – shorter tenors
some hard currency
DFIs – 15 year + tenors
Tied aid?
Private Equity, Hedge Funds – equity with exit
International Bonds
Local Bonds
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11. Infrastructure finance –
Attitude of Banks
Country Risk Capacity
Tenor Limits
Lending US$ against Local Currency cash flows
Availability of insurance – ECA, MIGA, Private Sector
Trade Finance
Sectoral Appetite
Strategic Considerations
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12. Infrastructure finance – hierarchy of difficulty
Easy
• Telecoms
• Mining
• Agribusiness
• Power
• Transport
• Water
Difficult
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13. Infrastructure finance – Telecoms
Historically mainly Mobile
Well established model – Zain Africa worth US$9.2 billion
Operators have a full control on cash flows generation
No failure once EBITDA positive
Less risk than Developed World?
Used to be but competition causing collapsing ARPUs and EBITDA
margins
New opportunities in fixed line – data transmission
Strong performers – Seacom, Main One, Dark Fibre Africa
Financing issues:
– US$ lending -v- local currency cash flows
– Short Tenors – repay in five years but fixed line longer
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14. Infrastructure finance –
Mining and Agribusiness
US$ cash flows available
Good development benefits
Clean water
Power
Transport links
Employment
Health services
Market Risk
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15. Infrastructure finance – Power
Creditworthy off-takers
Regulator not always independent or in place (political interference in tariff
setting)
Affordability / subsidy availability
Fewer sponsors
– Enron departed, leading to other developers retreating from the region
– Current Players
Contour Global
Aldwych
Corporate
Local players
Financing issues:
– US$ lending -v- local currency denominated tariffs
– Long Tenors – repay in fifteen years or more
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16. Infrastructure finance - Aircraft
ECA Finance available for new aircraft
But only max 80%
Pre-delivery finance need and balance of funding
Long tenors on “naked risk” – over 10-years
So need financially sound operations
In Sub-Saharan Africa only South African Airways, Kenya Airways and Ethiopian
Airlines qualify
Ethiopian Airlines is a role model
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17. Infrastructure finance - Ports
Public Sector model generally sub-optimal
Vested Interests
Experienced international operators available – Maersk, P & O Nedlloyd, DP
World, Mersey Docks & Harbour Board
Problems re security/deficient legal systems
“National Assets” – expropriation risk
BOT opportunities – SPM Ghana
US$ income to match US$ borrowing
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18. Infrastructure finance - Airports
Public Sector model generally sub-optimal
Vested Interests
Experienced international operators available
Problems re security/deficient legal systems
“National Assets” – expropriation risk
BOT opportunities
US$ income to match US$ borrowing
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19. Infrastructure finance - Pipelines
Open multi-jurisdiction – lowest common denominator Country Risk
Vested Interests
Problems re security/deficient legal systems
“National Assets” – expropriation risk
BOT opportunities
Local currency income versus US$ borrowing
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20. Infrastructure finance - Railways
Colonial Legacy assets
Colonial configuration and rationale
Some private sector dedicated building – mining project based
Privately owned rolling stock becoming more prevalent – computer tracking
Vested interests – power of employees
Freight is the future
Local currency versus US$ borrowing
RVR just reached financial close – looks a strong project
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21. Infrastructure finance –
Roads and Bridges
No successful toll road or bridge outside South Africa
Jury out on Lekki Toll Road in Lagos
Transparent tendering for contracts an issue
Sub-economic tendering?
Limited sponsor interest
Bad experience with donors – Grinaker LTA
History of loss-making for contractors
Cost versus capacity / willingness to pay
Shadow toll roads the answer?
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22. Infrastructure finance – Water
Political Interference
Universal entitlement – Should be free
Too many “misunderstandings”
Debt pushed out by grant monies
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23. General Lessons
Private Ownership or management necessary for efficiency gains
And to address vested interests
Political will
Legal framework for contracts
Good regulation to address regulatory risk
Recognising private sector concerns
Government capacity
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