Presentation by GCROIRMA at the Workshop Mobilizing Institutional Investment in Africa A joint Initiative by USAID and SIDA October 2223 2014 Prospective Models for Investment alongside Experienced Actors In Africa The AfDB perspective ID: 315514
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1
African Development Bank Group
Presentation by
GCRO/IRMA at the Workshop Mobilizing Institutional Investment in Africa
A joint Initiative by USAID and SIDA
October 22-23
2014
Prospective Models for Investment alongside Experienced Actors In Africa – The AfDB perspectiveSlide2
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. 2Africa Growing Together Fund (“China Fund”)Africa 50
Private Sector Facility (“PSF”)
Credit Insurance and Ris
k Participation Agreements
Collaboration with other IFIs such as MIGAVertical risk sharing with credit enhancement NEW!Slide3
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.Slide4
Characteristics of the AfDB Private Sector Infrastructure Portfolio
4
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
Ivor
y 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
2008, 2011
Zambia
Power
$35 MM
2012, 2013Slide5
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 safeguardsThe Bank is present with a representative office in most of its countries of operation which allows for close monitoring
5Slide6
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 VehicleSlide7
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 VehicleSlide8
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.
8Slide9
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.
9Slide10
AfDB also has other initiatives to crowd in institutional investors
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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 co-investment opportunities to institutional investors in Africa
For additional information on the above and other initiatives, please contact:
Tim
Turner, Group Chief Risk Officer, African Development Bank Group Office: +225 20262051 Email: T.Turner@afdb.orgDominiek Vangaever, Initiative for Risk Mitigation in Africa, AfDB
Office: +216 7110 1837 Email:
D.Vangaever@afdb.org
Luigi de
Pierris
, Initiative for Risk Mitigation in Africa, AfDB
Office: +225 20261000 Email:
L.DePierris@afdb.org
Keith Martin, Initiative for Risk Mitigation in Africa, AfDB
Office: + 225 2026 1000 Email
:
K.Martin@afdb.org
Stefano
Capodagli
, Chief Risk Reform Officer, AfDB
Office: +216 71101210 Email:
S.Capodagli@afdb.orgSlide11
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.
11Slide12
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.)12Slide13
The AGTF
is an example of a catalytic
managed facility to co-finance Bank-led public and private sector operations, which the bank seeks to replicateChina funds the $2 bn Africa Growing Together Fund co-financing facility that is managed by the BankAfDB 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.
*
Similar to the A/B loan structure used by the Bank for non-sovereign syndication
13Slide14
The
Bank is also actively
pursuing Risk Participation Agreements and Credit Risk Insurance for its own booksThe 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.
14Slide15
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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