Accessing Finance for Development

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Accessing Finance for Development

• Ghana Investment Forum
• Accra 21st to 23rd May 2007

Nick Rouse
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- FMFM
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Frontier Markets Fund Managers FMFM

• A Fund Management Team
• Managing transactions for
• Emerging Africa Infrastructure Fund and
• GuarantCo
• A group of multi nationals fluent in English
  French Dutch and Italian
• Based in London

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- EAIF
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Emerging Africa Infrastructure Fund - EAIF

• First dedicated debt fund for sub-Saharan Africa
• Size US305 million, refinanced to US360
  million by the end of 2006
• Original sponsor UK Government DFID
• 3 other European Governments joined (Sweden,
  Netherland, Swiss)
• Debt from three development finance institutions
  and two private sector international banks
• Public/private sector partnership
• Donor aid funds leveraged private sector capital
  for development purposes
• First multi-donor initiative by Private
  Infrastructure Development Group (PIDG)

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(No Transcript)
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GuarantCo

• Aims at addressing failures in domestic markets
  to supply capital to infrastructure projects in
  Emerging Markets by
• providing guarantees as credit enhancement of
  local currency debt
• supporting both
• private and municipal sectors to obtain such
  capital
• domestic market to supply such capital

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GuarantCo Offers

• Credit enhancement products such as
• Partial Credit Guarantee to local banks to cover
  default risk on under-lying debt service
• Liquidly guarantee
• Bond guarantees
• Tenor extension
• Principle of risk sharing with local debt
  providers
• Acceptance of certain local currency risks

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• TECHNICAL ASSISTANCE FACILITY
• - TAF

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FMFM has access the TAF funding

• TAF provides grant funding to support the
  following activities
• Infrastructure development strategies
• studies intended to guide governments on options
  for financing of infrastructure
• Policy, regulatory and institutional reforms
• advice and training on the design and
  implementation of specific reforms aimed at
  facilitating infrastructure financing by the
  private sector
• Pioneering or pilot transactions
• support for the design and implementation of
  particular projects or transactions that are
  pioneering in some important respect or reflect
  some measure of innovation
• Capacity building
• activities aimed at building government capacity
  and/or the capacity of local capital markets,
  financial institutions, and/or quasi-public
  enterprises

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Infrastructure finance hierarchy of difficulty
Easy

• Telecoms
• Mining
• Agribusiness
• Power
• Transport
• Water

Difficult
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And how this looks in figures?
Primary Sector Investment in government assets (US millions) Investment in facilities (US millions) Total investment (US millions) of Total investment
Energy 1,086 6,084 7,171 20.7
Telecom 3,773 19,754 23,527 67.9
Transport 899 2,927 3,826 11.0
Water Sewage 35 111 146 0.4
Total 5,793 28,876 34,669 100
Private participation in infrastructure, in Sub
Saharan Africa 1990-2005 Source Private
Participation in Infrastructure Projects
Database, World Bank Group
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Infrastructure finance Telecoms

• Mainly Mobile
• Well established model Celtel worth US3.4
  billion
• Operators have a full control on cash flows
  generation
• No failure once EBITDA positive
• Less risk than Developed World
• No free handsets
• Lower churn / competition
• Financing issues
• US lending -v- local currency cash flows
• Short Tenors repay in five years

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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
• Globeleq
• 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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What do Private Investors look for

• A clear and transparent legal and regulatory
  framework
• Contracts with an appropriate risk allocation
• Credit worthy off-takers
• A long term sustainable market structure which
• Allows the private investors to predict cash
  flows, and returns
• Reflects cost recovery tariffs
• Stimulates collection discipline

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What do finance providers look for

• Business and policy rationale for concession
• Sponsor quality and strategic commitment to
  business
• Mitigation of completion risk
• Sustainable cash flows
• Incentives for equity to perform
• Clear legal frame work
• Involvement of domestic players investors,
  lenders, commercial participants
• Mitigation of environmental impacts
• Transparency of procurement process

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Which leads to a number of challenges for
Governments

• Transition from Public to Private Sector
• Implications for existing legislation
• Loan security law
• Creation of regulatory framework and body
• Resistance from vested interests
• Past tariff history of sub-economic pricing
• Tariff affordability for poor and compatibility
  with poverty reduction strategies
• Integration of donor aid, multilateral
  institutions and private sector finance
• Tender process versus direct negotiation

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key success factors for private sector investment
in the Infrastructure sector projects

• Government
• Legal protection of investors
• Judiciary / regulatory independence
• Transparency
• Market
• Adequate tariffs (cost recovery)
• Customer payment discipline
• Financing
• Availability of long term financing
• Availability of local currency financing

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Emerging Africa Advisers Team
    Direct Tel Number Email Address
    44 (0)20 7815- _at_frontiermarketsfm.com
Nick Rouse Managing Director 2780 nick.rouse
Sofia Bianchi Deputy Managing Director 2785 sofia.bianchi
Chris Vermont Head of Debt Capital Markets 2950 chris.vermont
Douglas Bennet Senior Guarantees Executive 2786 douglas.bennet
Orli Arav Senior Investment Adviser 2782 orli.arav
Tarun Brahma Investment Adviser 2951 tarun.brahma
www.emergingafricafund.com