The board of the African Development Bank (AfDB) has granted an investment package of USD 15 Mn to Nigeria’s credit firm Infrastructure Credit Guarantee Company (InfraCredit), in what is an effort to support infrastructure financing via domestic debt capital markets in Nigeria. The investment from the bank comprises a USD 10 Mn subordinated loan and a risk sharing facility to the tune of USD 5 Mn.
Infrastructure financing is rudimentarily the natural monopoly under the management, control and financial responsibility of governments to look into the potential economies of scale. Meant to provide electricity, transportation, potable water and other essential facilities, the Nigerian case has – due to economic drawbacks – bumped into tumbling blocks while trying to keep up with an adequate level of service and rapidly increasing new investments requirements.
The spell in the West African country has been characterised by lacking of transparency, the inefficiency of service as well as financial insolvency. As is obtainable with other countries of the world, the process of internally reforming and allowing the private sector to provide finance infrastructure service has been the panacea.
Here is a report in which the Nigerian Sovereign Authority complained that the private sector hits quite some rough patches trying to borrow funds and invest in the country’s infrastructure development as a result of the insufficiency of institutional capacity to protect its investments. According to an earlier statement by the Finance Ministry, operations of the NSIA were geared towards the resolution of the challenge and to ensure the private sector is given what it needs to fill the infrastructural gap.
In 2014, the NSIA struck a partnership with GuarantCo, a leading international credit guarantee firm under the auspices of the governments of Australia, United Kingdom, Sweden Switzerland and Netherlands, to address the mediums through which the country can access capital for investment in infrastructure. Three years later, the collaboration led to the birth of InfraCredit, an establishment to address and best the existing financing setbacks – in supplying local funds to infrastructure projects and development of the domestic financial markets.
December 2018, InfraCredit received USD 25 Mn in equity investments from Africa Finance Corporation (AFC), a leading infrastructure development finance institution on the continent. The deal which made AFC and InfraCredit shareholder, was to support the investee’s goal of bringing more bankable projects to Nigeria, as the investor believes that such investments will allow the West African country to diversify its economy and reduce its huge reliance on oil. Shortly before the AFC deal, InfraCredit got USD 35 Mn unsecured subordinated capital from one of the largest development banks in Europe – KfW Development Bank.
The new financial injection from the AfDB will spur local institutional investor funds – not leaving out pension funds – into funding long-term infrastructure projects via the local bond markets. The capital will as well turbocharge the Lagos-based firm’s qualifying capital through the subordinated loan, and improve its capacity to expand its guarantee business through the proposes risk-sharing arrangement.
Image Courtesy: InfraCredit