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African Development Bank Group
Prospective Models for Investment alongside
Experienced Actors In Africa – The AfDB perspective
Presentation by GCRO/IRMA at the Workshop
Mobilizing Institutional Investment in Africa
A joint Initiative by USAID and SIDA
October 22-23 2014
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The Bank’s new Group Chief Risk Office is actively
supporting various private sector portfolio management
initiatives to manage its capital efficiently, create new
headroom, and crowd in new investors.
• Africa Growing Together Fund (“China Fund”)
• Africa 50
• Private Sector Facility (“PSF”)
• Credit Insurance and Risk Participation Agreements
• Collaboration with other IFIs such as MIGA
• Vertical risk sharing with credit enhancement NEW!
2
Institutional investors have shown interest in risk sharing
with the Bank on its infrastructure portfolio (summary).
• Investors have a preference for Cash flow generating long term
infrastructure projects. They are interested in Africa as a diversification and
want to team up with a experienced partner who has privileged client
relationships, project finance expertise and a long term vision.
•
AfDB is exploring with a US based asset management firm a synthetically
transfer of part of its private sector exposures into a Special Purpose
Vehicle (“vertical risk sharing”) while remaining lender of record and
managing the portfolio as usual.
• A credit enhancement, fully collateralized by cash or highly rated securities,
would support the transferred portfolio, benefiting the AfDB and providing
capital relief and additional headroom.
Characteristics of the AfDB Private Sector Infrastructure Portfolio
Country of Project
(Data as of YE 2013)
Infrastructure Sector
Ticket sizes (approx. at
approval in USD MM)
Date Origination
(i.e. Board approval)
Cameroun
power projects
$50, 25 and 35 MM
2006, 2010, 2011
Cape Verde
wind power project
$15 MM
2010
Ivory Coast
power and transport
$70 MM and X MM
2011, 2013
Djibouti
transport
$50 MM and 2 MM
2003, 2008
Egypt
Oil &Gas
$150 and $30 MM
2010
Ethiopia
air transport
$4, $10, $10 MM
2011, 2011
Ghana
power
$20 MM
2012
Kenya
wind, thermal power
$145, $7, $35MM
2011, 2013
Madagascar
hydro and mining
$140, $4 MM
2007
Morocco
mining
$200 MM
2011
Mozambique
mining
$17 MM
2003
Nigeria
toll road, port,
$50MM, XMM
2008, 2013
Rwanda
power
$20 MM
2011
Senegal
Airport, port, road, power
$100, 20, 15, 75 MM
2005. 2009, 2010, 2011
South Africa
Power, transport, mining, gas
$450, 150, 175, 8 MM
2007, 2009, 2010, 2011
Togo
port
$50 MM
2011
Tunisia
Airport, Oil & Gas
$75, 45 MM
2009, 2010
Uganda
Power
$8 MM
Zambia
Power
$35 MM
2008, 2011
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2012, 2013
Characteristics of the Private Sector Portfolio of the African
Development Bank which makes it an attractive partner for
Institutional investors (pension funds and asset management cies).
• The AfDB has a large portfolio of Cash flow generating long term
infrastructure projects, which provides diversification as to geography,
sectors and sponsors.
• The Bank is a seasoned, experienced partner who has privileged client
relationships, project finance expertise and a long term vision.
• Preferred Creditor status for convertibility and transferability and excellent
workout experience because of its close relationships.
• AfDB has a strong culture of social and environmental safeguards
• The Bank is present with a representative office in most of its countries of
operation which allows for close monitoring
5
New risk sharing model being explored with a particular
Institutional investor, which can be replicated.
• An US asset management firm which manages pension funds for state
retirement plans and corporate retirement accounts is working with the
Bank on a model which can be replicated once put in place (scheduled for
Q1 2015).
• AfDB would synthetically transfer part of its private sector exposures into a
SPV (“vertical risk sharing”) while remaining the lender of record and
managing the portfolio as usual.
• A credit enhancement, fully collateralized by cash or highly rated securities,
would support the transferred portfolio, benefiting the AfDB and providing
capital relief during the time of protection which would correspond to the
WAL of the portfolio.
6
SPV = Special Purpose Vehicle
New risk sharing model being explored with a particular
Institutional investor.- continued (2)
• The asset management firm would agree with the AfDB on a certain
percentage of a selected group of projects while the Bank would retain an
material stake in the project (to avoid “moral hazard”).
• The AfDB would synthetically assign that part of its private sector
exposures into a SPV (“vertical risk sharing”, using credit linked note
documentation with reference obligations and defined events of default)
while remaining the lender of record and managing the portfolio as usual.
• The asset management firm would provide due diligence on the Bank’s
underwriting and portfolio management policies and procedures but not in
depth deal specific due diligence
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SPV = Special Purpose Vehicle
New risk sharing model being explored with a particular
Institutional investor.- continued(3)
• A credit enhancement would protect the transferred portfolio, for the
benefit of the AfDB.
• It would be sized in function of the diversification of the pool of assets in
terms of countries, industries and sponsors, size of the individual
transactions being included and length of this proposed arrangement.
• In case of an event of default as defined, a pre-agreed percentage of
expected loss would be applied and securities sold in the collateral account
to make the Bank whole. After final recovery, adjustments would be made
if appropriate.
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New risk sharing model being explored with a particular
Institutional investor.- continued(4)
• The collateral account would remain available throughout the period of
protection (or in unlikely case until all credit enhancement would have
been exhausted).
• While only cash flow generating assets would be included initially,
greenfield projects could be identified for future inclusion, once the
construction period (and risk) were over, creating as such a revolving
structure and allowing for substitution in case of refinancings.
• Pricing of the credit enhancement would be in function of appropriate risk
rewards for the asset management firm and its investors.
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AfDB also has other initiatives to crowd in institutional investors
•
The following slides are for information purpose only, they provide additional examples of other AFDB
risk mitigation initiatives, to provide create headroom, manage capital more efficiently and provide coinvestmentopportunitiesto institutionalinvestorsinAfrica
For additionalinformationon the aboveand otherinitiatives,pleasecontact:
Tim Turner, Group Chief Risk Officer, African Development Bank Group
Office: +225 20262051 Email: [email protected]
Dominiek Vangaever,Initiative for Risk Mitigation in Africa, AfDB
Office: +216 7110 1837 Email: [email protected]
Luigi de Pierris, Initiative for Risk Mitigation in Africa, AfDB
Office: +225 20261000 Email: [email protected]
Keith Martin, Initiative for Risk Mitigation in Africa, AfDB
Office: + 225 2026 1000 Email: [email protected]
StefanoCapodagli, Chief Risk Reform Officer, AfDB
Office: +216 71101210 Email: [email protected]
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The Private Sector Facility (PSF) is a dedicated guarantee facility for
private sector operations in low income countries and can be scaled
up to catalyze more private sector investments
• The AfDF established a private sector credit guarantee facility with $250 mn
seed funding, but will seek other bilateral partners as well.
• AfDB identifies, appraises and finances new non-sovereign loans and acts as
the lender of record
• AfDB implements guaranteed projects on behalf of the PSF and pays a
guarantee fee reflecting the margin on the underlying loans..
• The PSF will leverage its capital 3-4:1 through its partial credit
guarantees and will seek to maintain an “investment grade” rating
and thus should enable the Bank to expand its non-sovereign
operations even in higher risk countries.
11
Africa 50 is expected to become a key infrastructure co-financing
partner for the Bank
• The Bank is the lead partner for the Africa 50 infrastructure project
development and project financing facility.
• The Bank will invest in Africa 50 and expects to catalyze at least $5
from other investors for each $1 from the Bank.
• The Bank expects to use Africa 50 to co-finance most of its large
commercially viable infrastructure projects.
• Expected to be operational before year end 2014. (approved during
recent Annual Meeting.)
12
The AGTF is an example of a catalytic managed facility to cofinance Bank-led public and private sector operations, which the
bank seeks to replicate
• China funds the $2 bn Africa Growing Together Fund co-financing facility that is
managed by the Bank
• AfDB identifies, appraises and finances new sovereign and non-sovereign loans
and acts as the lender of record for the AGTF* and passes-through pro-rata
cash-flows.
• The AGFT leverages the Bank’s strengths – project appraisal and
implementation experience – and the investor’s (China) appetite for
sound investments in Africa.
• The AGTF provides flexibility on sovereign versus non-sovereign, risk
sharing percentage, countries and sectors with a streamlined approval
process matching the Bank’s.
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* Similar to the A/B loan structure used by the Bank for non-sovereign syndication
The Bank is also actively pursuing Risk Participation
Agreements and Credit Risk Insurance for its own books
• The commercial insurance market has expressed interest in providing
credit protection on commercially viable NSO (either pari passu or for
the AfDB the first loss), including a pilot transaction with an insurance
company for 35% of a loan to an IPP in Zambia on the basis of a credit
insurance policy (unfunded).
• Commercial banks and DFIs such as SIDA have been interested in Risk
Participation agreements where they would act as “silent participants”
behind the ADB without Borrower consent.
• In both cases, single assets as well as new or existing portfolios would
be considered. The difference between the RPA and CRI is that the
latter is usually negotiated on a case by case basis while RPAs tend to
be much more standardized (usually 50/50 and payment on demand.
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The Bank is also collaborating with other IFIs to provide
complementary financial products to its clients.
• MIGA has recently developed a credit guarantee instrument covering
State-Owned Enterprises (“non honoring of sub sovereign's financial
obligations without sovereign counter guarantees”).
• The Bank has been negotiating pilot transactions with MIGA for state
owned enterprises, including loans for a gas pipeline in Tunisia and a
major South African transportation. In the latter case, MIGA may be
providing coverage to the B-loan participants.
• The Bank is also looking to combine its Partial Credit Guarantee product
with MIGA’s political risk insurance, taking advantage of each
institution’s strength and limit availability.
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