Razina Munshi

Capital for infrastructure is not in short supply

Equity funding could complement public sector focus

“Both equity and debt are available. The real issue is their deployment. Projects unfold far too slowly to address the long term need”

— ANDREW JOHNSTONE

Possible sources of funding directed at African infrastructure projects are growing — and the trend could propel public-sector projects to increase their pace of delivery.

The liquidity crunch and the subsequent global recession have sparked interest in emerging markets and as a result, as countries come out of recession, Africa is attracting investors from around the world.

A new equity fund, backed mostly by foreign investors, will boost infrastructure finance in Africa. The African Infrastructure Investment Fund 2 has commitments amounting to US320m. It comes at a time when local gross fixed capital formation, a measure of fixed investment, has started to wane.

The fund was launched in the same week as the controversial World Bank loan to Eskom was approved. It is a joint venture between Macquarie Capital and Old Mutual Investment Group of SA (Omigsa). It is the fourth such fund managed by the pair.

This kind of investment bodes well for the order books of a number of SA’s top construction companies, such as Murray & Roberts and Group Five Many of these companies are increasing their focus on projects outside SA.

Private equity finance can be of particular value to investments in fixed capital, says Andrew Johnstone, CEO of African Infrastructure Investment Managers, the fund advisers.

Infrastructure funds provide technical and commercial skills to a project and are able to energise and structure projects at an early stage, he says. In theory, by providing this early momentum, equity funds can increase the pace of work.

The challenge of developing African infrastructure is not about difficulties in raising capital.

“Both equity and debt are available. The real issue is their deployment. Projects unfold far too slowly to address the long-term need,” Johnstone says. And rather than being seen as a replacement for other forms of finance, infrastructure funds can be complementary. If the public sector recognised equity funds as partners, the level of collaboration between the private and public sectors, and with it the rate of delivery, could increase, says Johnstone.

The fund’s investors include the Australian-based Macquarie, the International Finance Corp (IFC), the African Development Bank, the Netherlands Development Finance Co, a French development finance institution, Old Mutual Life Assurance Co of SA and the Development Bank of Southern Africa

Projects have been identified: the fund is part of a bidding consortium for a Western Cape road construction project. It will also focus on opportunities for independent power producers and is considering buying into a number of wind farm projects in SA. Road and wind farm construction projects have also been identified in other parts of the continent.

The fund’s intention is to hold stakes in roads, airports, power, telecommunications, rail, ports and social infrastructure across sub-Saharan Africa. Johnstone says not more than 30% of the fund will be spent in any one country.

The African Infrastructure Investment Fund 2 is not the only one to focus on infrastructure. Old Mutual Asset Management’s infrastructure, development & environmental assets (Ideas) is a R1,3bn fund using a private equity investment model.

Futuregrowth has an infrastructure & development bond and equity fund, and Investec’s responsible investment equity fund places part of its emphasis on infrastructure projects.

Omigsa alternative investment head Paul Boynton says international institutions like the IFC have displayed an appetite for infrastructure, despite the liquidity constraints of the financial crisis. The IFC investment in this fund totals $100m, and its emphasis is on African infrastructure in the energy and roads sectors.

The infrastructure fund announced its first close with commitments of $320m. It hopes to increase this to $750m over the next 12-18 months.

Source: Financial Mail