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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6. EAIF’s Portfolio is Spread Over 6 Sectors & 13 Countries
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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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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.com
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