verseas Private Investment Corporation (OPIC), the African Development Bank (AfDB) and ALCB Fund Board Members have signed a loan agreement to support high impact sectors in Africa focusing on housing, agriculture and SMEs.
OPIC contributed US $40 million to the Fund while the African Development Bank is providing a Senior Loan of ZAR 140 million ($10 million) to support the development of local currency corporate bond markets in Africa. The latter loan was first local currency financing obtained by the ALCB Fund. The Fund was incorporated in December 2012 by the German Development Bank (KfW), with initial paid-in capital of US $47 million.
Jim Polan, OPIC vice-president for Small and Medium Enterprise Finance; Pierre Guislain, African Development Bank Vice-President in charge of Private Sector, Infrastructure and Industrialization; Vitalis Ritter and Mark Napier, Board members of the African Domestic Bond Fund, signed the agreement.
Many local financial institutions and companies in Africa are new to capital markets transactions and to working with institutional investors. The ALCB Fund engages with financial institutions and companies at an early-stage of the funding process, helping them to understand whether a bond issuance is the right path and the process involved. It also seeks to address a number of challenges in African capital markets, including limited primary issuances, price transparency, and limited participation by local market investors.
“Capital markets in Africa are both a challenge and opportunity,” said Polan. “This fund will have a tremendous impact by increasing the amount of long-term local currency financing available to companies operating in impact sectors. OPIC looks forward to working with its partners on this innovative fund and facilitating sustainable economic opportunities in Africa.”
The development of well-regulated, deep, effective and liquid financial markets in Africa, said Pierre Guislain, is central to the African Development Bank’s strategy. The contribution to the Fund, he added, “complements our existing initiatives aimed at mobilizing domestic savings and stimulating non-sovereign debt capital markets for private sector growth across Africa. We welcome this opportunity and are proud to partner with institutions from Germany, UK, US and other African Development Bank Member Countries to finance Africa’s Sustainable Development Goals and the Bank’s High 5 priorities agenda.
“With the participation of OPIC and the African Development Bank, the ALCB Fund has achieved two milestones. First, it takes total committed funds to US $180 million, maximizing the Fund’s investment reach on the continent and its ability to mobilize domestic capital,” said Ritter, a Principal Project Manager at KfW.
Secondly, through the African Development Bank, the Fund is for the first time ever able to raise funding in a local currency from an African institution. Through the ALCB Fund, institutions from Germany, the UK and the US are joining forces with the AfDB to promote sustainable capital market development in and for Africa.
The OPIC loan will facilitate the Fund’s participation in approximately 10 to 14 local currency bond issuances for institutions operating in financial inclusion, housing, agriculture, renewable energy and other developmental sectors throughout Africa.