DFIs and debt; if there were two major themes to last week’s private capital markets in Africa, it was the prominence of development finance institutions in deal activity and debt as the asset class. Equity deals were few and far between, and just as we were putting the newsletter to bed earlier, the Financial Times broke a story which, if borne out, will definitely be one of the biggest stories in private equity investing in Africa this year.
Various countries development finance institutions were active last week, particularly in the energy sector. Dutch development bank FMO led a $10.2 million syndicated loan deal for a 5.4MW run-of-the-river hydro power project owned by Lubilia Kawembe Hydro, a development company majority owned by Frontier Market Energy and Carbon Fund, a Danish private equity fund. The project is part of a broader $56 million financing mandate being led by FMO, which will support the development of four small hydros in Uganda which are expected to generate 31.9MW once they are up and running. The loan is the second of the four planned transactions for the mandate. Having participated in the first project, Siti 1, Emerging Africa Infrastructure Fund is participating once again, providing 50% of the financing for the loan.
UK development finance institution, CDC Group, is backing Virunga Energy, a hydro-electric power business, with a 10-year loan of up to $9 million for its project to build two new plants with almost 50MW generation capacity in North Kivu, Eastern Congo. It’s expected the financing will be made in two tranches – the first, an initial investment of $2.5 million will go primarily towards the expansion of the electricity grid around the recently-completed and operational Matebe hydroelectric plant which can generate 12.6MW. The balance of $6.5 million will become available once certain conditions are met, allowing the construction of two new hydroelectric plants with 35MW of generation capacity near Lubero and Butembo.
CDC was active in the financial services sector, too, last week. The UK development finance institution announced that it’s taking a 10.68% equity share in I&M Holdings, the East African banking group, by buying the stakes owned by DEG and Proparco, respectively the German and French development finance institutions. Financial terms of the deal were not disclosed. The deal is the second financial institution investment made by CDC in the region in recent months following the acquisition of a stake in CRDB Bank, Tanzania’s leading provider of financial services in September 2015.
In private debt news, Standard Bank led an increase of $95 million for Helios Towers Tanzania’s syndicated term loan facility. Both local and international institutions supported the lending syndicate. The fresh funding will allow the company, whose parent company, Helios Towers Africa, numbers several private capital investors among its shareholders, to expand its network of telecommunication towers across Tanzania as well as support ongoing investments in operational improvements across the tower portfolio.
In equity deal news involving a DFI, the IFC has agreed to acquire almost 10 million shares in publicly-listed Net 1 UEPS Technologies (Net1) for $107.7 million in a private placement, giving the development finance institution an 18% stake in the South African alternative payments systems provider. The agreed subscription price represents a 20.6% premium on the closing price on April 8th of the company’s shares on the NASDAQ. As part of the deal, the IFC will have the option to appoint an independent director to the Net1 board.
Private equity investment firm Kibo Capital Partners is backing General Cargo Group, a Kenya-based logistics services company in an undisclosed deal. The investment is being made through the $58 million Kibo Fund II, a private equity fund that looks to make growth equity investments in SME and mid-market companies across a number of sectors in East and Southern Africa as well as the Indian Ocean islands. Kibo is partnering with Velogic, a regional logistics provider, on the transaction in order to leverage the Mauritius-based company’s operational systems and best practices to accelerate value creation in the new portfolio company.
Continuing with other private equity firm sponsored deals last week, Quantum Global Investments Africa Management announced that it has acquired Lusaka’s InterContinental Hotel from Kingdom Hotel Investments in a deal that closed at the end of March. The transaction, which sees Quantum pay $35.9 million for 100% of the InterContinental Hotel was the debut investment for one of Quantum’s funds, the $500 million QG Africa Hotel, a Mauritius-based investment fund. The deal hopes to capitalize on the demand from rising numbers of international business travelers to Africa, attracted by the continent’s stronger performance in comparison to many other parts of the world as well as increasing political stability and transparency on the region.
The Japan International Cooperation Fund, or JICA, announced last week that is committing $30 million to the IFC’s Middle East and North Africa Fund which targets equity investments in private companies in the MENA region. The fund, which is being managed by the IFC Asset Management Company, is targeting primarily financial services, infrastructure and manufacturing opportunities in MENA’s developing countries. The investment helps the Japanese DFI achieve one of its objectives for the region, creating jobs and supporting economic growth to maintain socioeconomic stability in the region, as well as encourage other investors to re-enter the market where levels of foreign direct investment have still not recovered following the turmoil of the Arab Spring.
Two recently released private equity studies were in the news last week, one global and one specific to southern Africa. In the first, Bain Capital’s annual global private equity report finds that leading private equity firms are working hard to understand the criteria for their success as LPs look to expand their allocations to the asset class, competition for deals increases, recession risks mount and the industry looks to the next stage of its evolution. And a new study from the South African Venture Capital and Private Equity Association has found that despite a strong track record of superior returns and regulatory changes allowing increased allocations, the exposure of pension funds in the SADC region to the private equity asset class remains limited.
And finally, the Financial Times reports that Atlas Mara is joining forces with private equity giant Carlyle to prepare a bid for Barclays' Africa assets. No formal approach has been made to Barclays yet, the news organization reports, and bid preparations are at an early stage. If the partnership comes to fruition and is successful in a bid, it would be a significant industry story for 2016.
Allan Cunningham is a senior media executive who has spent the last 15 years of his career working for some of the world’s most respected M&A and Private Equity media companies including Dow Jones’s publications Private Equity Analyst and VentureWire and most recently, The Deal. He has built a number of successful digital and event content businesses, both subscription and sponsor-supported, delivering information and content-marketing services to clients in the M&A and broader deal ecosystem. He recently struck out on his own and launched Rowayton Press, a multi-platform media company focused on the private capital opportunities in emerging and frontier markets. Mr. Cunningham holds a Bachelors degree from Liverpool John Moores University in the UK.