Frontier Markets Fund                            Managers                     US$ 1 billion committed to 54 projects    Ni...
Frontier Markets Fund Managers- FMFM       FMFM is the fund manager of            Emerging Africa Infrastructure Fund (E...
EAIF & GuarantCo are part of the Private Infrastructure Development    Group – PIDG        UK; SWEDEN; NETHERLANDS; SWITZE...
Emerging Africa Infrastructure Fund - EAIF       First dedicated debt fund for sub-Saharan Africa       Size: US$ 700m  ...
EAIF – investment policy       Lend to private sector owned, managed and controlled entities with infrastructure        s...
EAIF’s Portfolio is Spread Over 6 Sectors & 13 Countries6
GuarantCo    GuarantCo’s business is:       “Credit enhancement of local currency debt issuance by the private, municipal ...
GuarantCo offers       Partial credit guarantee covering default risk on a portion of a loan or bond -        generally o...
Infrastructure finance –    Africa future requirements       Infrastructure responsible for half of Africa’s recent growt...
Infrastructure finance - Sources        International Commercial Banks – shortest tenors        Domestic Banks –        ...
Infrastructure finance –     Attitude of Banks        Country Risk Capacity        Tenor Limits        Lending US$ agai...
Infrastructure finance – hierarchy of difficulty                Easy                                   • Telecoms         ...
Infrastructure finance – Telecoms         Historically mainly Mobile         Well established model – Zain Africa worth ...
Infrastructure finance –     Mining and Agribusiness        US$ cash flows available        Good development benefits   ...
Infrastructure finance – Power         Creditworthy off-takers         Regulator not always independent or in place (pol...
Infrastructure finance - Aircraft        ECA Finance available for new aircraft        But only max 80%        Pre-deli...
Infrastructure finance - Ports        Public Sector model generally sub-optimal        Vested Interests        Experien...
Infrastructure finance - Airports        Public Sector model generally sub-optimal        Vested Interests        Exper...
Infrastructure finance - Pipelines        Open multi-jurisdiction – lowest common denominator Country Risk        Vested...
Infrastructure finance - Railways        Colonial Legacy assets        Colonial configuration and rationale        Some...
Infrastructure finance –     Roads and Bridges        No successful toll road or bridge outside South Africa        Jury...
Infrastructure finance – Water        Political Interference        Universal entitlement – Should be free        Too m...
General Lessons        Private Ownership or management necessary for efficiency gains        And to address vested inter...
Contact details         Nick Rouse         Managing Director         Frontier Markets Fund Managers (FMFM)         Add: 20...
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Nick rouse soas conference

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Nick rouse soas conference

  1. 1. Frontier Markets Fund Managers US$ 1 billion committed to 54 projects Nick Rouse, Managing Director1
  2. 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 London2
  3. 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 & DevCo3
  4. 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$ 800m4
  5. 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)5
  6. 6. EAIF’s Portfolio is Spread Over 6 Sectors & 13 Countries6
  7. 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$400m  Covers similar infrastructure sectors to EAIF plus urban infrastructure  Can include refinancing to local currency  Operates globally  Financed 16 projects to date with a total exposure of US$ 200m7
  8. 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 basis8
  9. 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 GDP9
  10. 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 Bonds10
  11. 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 Considerations11
  12. 12. Infrastructure finance – hierarchy of difficulty Easy • Telecoms • Mining • Agribusiness • Power • Transport • Water Difficult12
  13. 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 longer13
  14. 14. Infrastructure finance – Mining and Agribusiness  US$ cash flows available  Good development benefits  Clean water  Power  Transport links  Employment  Health services  Market Risk14
  15. 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 more15
  16. 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 model16
  17. 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$ borrowing17
  18. 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$ borrowing18
  19. 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$ borrowing19
  20. 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 project20
  21. 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?21
  22. 22. Infrastructure finance – Water  Political Interference  Universal entitlement – Should be free  Too many “misunderstandings”  Debt pushed out by grant monies22
  23. 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 capacity23
  24. 24. Contact details Nick Rouse Managing Director Frontier Markets Fund Managers (FMFM) Add: 20 Gresham Street, London, EC2V 7JE Tel: +44 203 145 8600 Mob: +44 7921 283882 Mail: nick.rouse@frontiermarketsfm.com www.frontiermarketsfm.com www.emergingafricafund.com www.guarantco.com24

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