unlocking the potential for infrastructure financing in...
TRANSCRIPT
Our Footsteps in Time
2
EngagementofProjectImplementationTeam
InauguralBoardMeeting• AppointmentofCEO• ApprovalofBusinessPlan
NSIA&GuarantCoannouncepartnershiptoestablishNCEF
August2016
January2017June2016June2014
FitchRatingAssessment
October2016
Theconceptwasinitiatedanddevelopedovera3yearperiodfromfeasibilitytobusinessimplementation…
CompletionofFeasibilityStudies
January2015
December2016
Signing/CommenceDueDiligenceon1st Transaction
February2017
• NSIAsignsUSD25Mln SubscriptionAgreement
• AFCLetterofInterestforUSD25Mln
February2017
MinisterofFinanceLetterofSupport
November2016
GuarantCoandInfraCreditexecuteUSD50Mln
ContingentCapitalFacility
CompletionofBusinessPlan&FinancialModel
Background
3
InfraCredit has been established to provide guarantees to enhance the credit quality of localcurrency debt instruments issued to finance eligible infrastructure related assets in Nigeria
It would act as a catalyst to attract the investment interest from pension funds, insurancefirms and other long term investors, thereby deepening the Nigerian debt capital markets.
Its successful operation will address the constraints facing the Nigerian pension market andmotivate their involvement in investing in long term bonds to finance infrastructure assets.
This is in conformance with the overall objective of NSIA and GuarantCo to facilitate privateinvestment in infrastructure to support sustained economic growth in Nigeria.
This entity is necessary because long-term capital required by infrastructureentities/projects to be commercially successful is not available from the domestic bankingmarket.
The Market Opportunity
4
WITH a growing supply of capital from pension funds, and limitedinvestment instruments to safely channel these long term funds towardsinfrastructure, our market demands the creation of a funding tool that canfacilitate the efficient allocation of this long term capital into bankableinfrastructure assets in a sustainable manner.
…Nigeria’s huge infrastructure deficit requires long term capital…
hasgrown fromN47billionin2004to itscurrentlevel
Pension FundAssets
N6.6Trillion
N7 TrillionTotal Par Value Outstanding in Nigerian Debt Capital Markets as at February 2016
Annual Funding required to bridge infrastructure deficit (2014 – 2018)
$25 BIL
LIO
NN11TrillionFORECAST of the nation’s Pension Assets to double over the next three years
30yearsAve. Contractual Maturity of Pension Fund & Insurance Liabilities with limited assets of matching duration
According to Nigeria’s National Integrated Infrastructure Master Plan (“NIIMP”)
0No long dated bonds issued to finance infrastructure assets
INFR
AST
RU
CT
UR
E
BO
ND
S% Estimated Minimum Potential Pension Funds Investable in Eligible Infrastructure Bonds
N1 Trillion
Based on Current PFA Investment Thresholds and Limits in the Draft (2015) PENCOM Investment Guidelines
About InfraCredit
5
20 October 2016
US$
200 Million(NGN Equivalent) Times
17 January 2017 31 March 2017
US$ 50 Million
US$ 50 Million
( N G N E Q U I V A L E N T )
( N G N E Q U I V A L E N T )
Incorporation Date Announcement Date Commencement Date
“AAA”
Initial Core Capital
Initial Callable Capital
5
Expected Rating
Sponsor s T o ta l C ap i ta l Leverage R a t i o
AspecialisedfinancialguarantorestablishedtosupportlongterminfrastructurefinancinginNigeria
Sponsors Profile
6
• Nigeria Sovereign Investment Authority is themanager of Nigeria’s Sovereign Wealth Fund.
• established as an independent agency by an Act of theNational Assembly
• commenced operations in October 2012 with aninitial seed capital of 1 billion USD
• key institution facilitating private investment into theNigerian infrastructural sector
• Supranational Institution that provides guarantees oflocal currency loans and bonds to finance infrastructurein lower income countries
• member of the Private Infrastructure DevelopmentGroup (PIDG) sponsored by five G12 governments
• the only local currency guarantee facility in the worldtargeting infrastructure in frontier markets.
• GuarantCo is highly rated: AA- by Fitch, A1 by Moody'sAAA by Bloomfield, AAA rating from the Pakistan CreditRating Agency (PACRA).
InfraCreditwasco-sponsoredbytworeputableinstitutionsinthepublicandprivatesectorwithintheNigeriancontextofinfrastructurefinancingandcreditenhancement
Co-Sponsor’s Profile
7
GuarantCo was established to help address and overcome existing constraints in the supply of local financingto infrastructure projects and to help the development of local financial markets. GuarantCo has beenaccorded ‘supranational status’, it is part of the Private Infrastructure Development Group and sponsored byfive G12 governments. It is governed by a Board of Directors and commercially managed by GuarantCoManagement Company Limited. For more information go to: http://www.guarantco.com/
CreditRating AA- (Fitch) AAA (Bloomfield) A1 (Moody’s) AAA (PACRA)
ShareholdersEquity:$300Million
LeverageProvidersCapacity: FMO$30Million
DFID£40Million
› EQUITYCAPITALOFOVER$300MBYEND2016› PORTFOLIOOF$430MATEND2016› CAPACITYOFOVER$900MBYEND2016› SINGLEPROJECTEXPOSURESOF$5M- 50M› TRANSACTIONTENORSUPTO15YEARS
FinancialProfile
Why Do We Need InfraCredit?
8
KeyMarketChallenges
ChallengesfacingtheInfrastructure
Marketaremultipleand
inter-related
Constraints
KeyIssues
LackofLongDatedBonds
Asset/LiabilityMis-Match
• Banksmaximumtenorofloansat7yrs.• Assetsfinancedwithshorttermdebt
ReducedLendingbyBanks
LimitedAppetiteforCreditRisk
BudgetDeficit/FiscalConstraints
LimitedStructuring/UnderwritingCapacity
LackofLargeVolume
Transactions
IlliquidCorporate
BondMarket
• LiquidityConstraints
• BasleRegulation
• FXRiskonUSDFinancing
• LackofBankableTransactions
• LimitedResourcesMonitorTransactions
• LimitedInvestorBase
• LimitedCapacity
• HighCostofCapital
• LimitedTradeability
• InactiveSecondaryMarket
• LimitedVolumes
SolutionsFocusedModel
InfraCreditisbeingstructuredtomitigatetheseconstraints
acrossthevalue-chain
SolidCapitalStructure
Government/DFISupport
UnderwritingStandard
RiskManagement
StructuringExpertise
• Expected‘AAA’RiskRating• StrongClaimsPayingResources• CoreTier1&ContingentCapital• RegulatoryGovernance
• DFIknowledgetransfer• BestPracticesinDealStructuring
• TechnicalSkillstoUnderwriteTransactions
• ZeroLossUnderwritingPolicy• ConservativeUnderwriting
• EligibilityCriteria
• AggressivePortfolioMonitoring/Surveillance
• StrongRemediationSkills
• PrudentManagement
• SafetyofInvestment• PrecedenceofPoliticalRisk
• LimitedHighRatedBonds
• PFAshavelongtermobligations• NoInfrastructureBonds
TheNigerianfinancialmarketdemandstheestablishmentofnewfundingtoolslikeInfraCreditthatcanre-allocatelongtermcapitalformationforinfrastructurerelatedassetsviathedebtcapitalmarkets…
• DecliningOilRevenues
• LowTaxRevenues
• NSIAShareholding/AnchorInvestor
• DFIswillprovideacounterbalanceagainstpoliticalrisk
Nigeria’s Infrastructure Gap
9
25
46
70
98
140
203
2014-2018 19-13 24-28 29-33 34-38 2039-43
Averageannualspending,USDbillions
Requiredinvestmentstocloseinfrastructuregap
SOURCE:NIIMPDevelopmentTeam
NigerianneedsaninvestmentofUSD$127billionoverthenext5yearstranslatingtoanaverageof$25billionperannumfrom2014-2018
Infrastructure Portfolio Allocation in Emerging Markets
10
LatinAmericavs.Nigeria:PensionFunds’InfrastructurePortfolios
Country Brazil Columbia Chile Mexico Peru Nigeria
TotalAUM(US$bn) 310 51 158 121 24 19
InfrastructureInvestment(US$bn) 62.6 9.5 14.4 10.8 3.4 0.5
%of Portfolio 21.0% 18.7% 10.3% 8.9% 11.1% 0.04%
Chile:HoldingofInfrastructureBonds(%)
Insurance,54.8
Others;6.9
Pension;45.2
Source:IMFWorkingPaper
SomeEmergingMarketshavesuccessfullyusedthelocalDebtCapitalMarketstosecurelongterminfrastructurefinancingfrompensionfunds
Nigeria Pension Funds Portfolio Allocation
11
…..a reason attributed to thisportfolio characteristic is lowrisk appetite and limited assetclasses to invest. There isclearly an urgent need todiversify the portfolios ofpension funds away fromgovernment securities bycreating new highly ratedasset classes.
DomesticEquitySecurities(9%)
RealEstate(4%)
MoneyMarket
Securities(11%)
CorporateBonds(3%)
StateGovernmentBonds(3%)
Treasury Bills 8%
FGNBonds59%
Source:PENCOMQuarterly Report,March2016
GovernmentSecuritiescurrentlyconstituteover70%oftheportfolioallocationofthePensionFundIndustry,InfraCredit’sguaranteedbondswillcreateahighlyratednon-governmentassetclassfortheindustry…
How InfraCredit Will Work
12
INFRACREDIT– GUARANTOR
GUARANTEEFEES
ENFORCEMENTRIGHTS
MISSEDPAYMENTSOFINTEREST&PRINCIPALBYISSUER SUBROGATION
RIGHTS
Interest+PrincipalRepayment
InitialPrincipal InitialPrincipal
ISSUERBOND
TRUSTEE
INVESTORS(PensionFunds,InsuranceFirms,otherInvestors)
KeyFeatures
GuaranteeFeatureso Pari Passu Rightso VotingRightso NairaObligationso Partial/Fullo SeniorRankingObligationso Non-Accelerationo Upto20yearMaturity
LegalDocumentationo DeedofGuaranteeo RecourseAgreemento SecurityDeed
InfraCredit’s creditguaranteeprovidesinvestorswithtimelypaymentofprincipalandinterest
Interest+GuaranteeFees+PrincipalRepayment
Capital Structure
13
TheNigerianeconomyhasdemonstratedstrongresiliencedespitetheweakgrowthinducedbyfallingoilpricesandlowoilproduction
BasedontheCreditStrengthofitsCapitalStructure,InfraCreditexpectstoobtaina‘AAA’localcurrencyrating,InfraCreditwilladoptatwo-phasedcapitalraisingapproachinequaltranches
› TheQualifyingCoreCapitalisahighlyliquidfundedcomponentofthepaidin(share)capital
› actsasa“firstloss”protectiontothebeneficiariesofcreditguarantees.
› definedasthecashvalueofallinvestmentslessexpectedliabilitiesforthenextquarterincludingoperatingexpenses
› Investedinhighlyliquidsecuritiese.g treasuries,AAAratedbanks
› isanunfundedsecondlosscomponentoftheCapitalStructure› actsasaliquidcreditbackstoptotheQualifyingCoreCapital.› 15yearunconditionalandirrevocableobligation› CallableondemandtoreplenishQualifyingCoreCapital>20%ofinitialQualifyingCoreCapital
› Revolving,subjecttoacumulativeoutstandinglimitofUSD100millionNairaequivalent.
USD$100Million(NairaEquivalent)
(“AAARating”)
USD$100Million(Naira Equivalent)
Shareholders Equity
GuarantCoLead Investor- US$50Million (NGNEQUIV.)
InternationalDFIs e.g.KfW,AfDB,AFD,IFCetc
NigeriaSovereign InvestmentAuthority
Lead Investor- US$25Million (NGNEQUIV.)
IDFIs e.g AFC,ProparCo,etc;
Private Institutional Investors
0%Debt
Eligibility Criteria
14
ELIGIBLETRANSACTIONS ELIGIBLEINFRASTRUCTUREACTIVITY
• Nairadenominated• DebtInstrument(includingSukuk)• BrownfieldAsset• MustbeaneligibleInfrastructureActivity• AcceptableCreditProfilebasedonInfraCredit’sinternalcreditassessment
• Assetvalueisnotdirectlylinkedtooil• Minimum‘Bbb-’investmentgraderating• AdequateSecurityPackage• DebtTenorofupto20years• SatisfiesInfraCredit'sEnvironmentalandSocialSafeguardsStandards
• IsnotonIFC’sProjectExclusionList• IssuerisPENCOMCompliant
• AgriculturalInfrastructure• Energy• ElectricityGeneration,TransmissionandDistribution
• Gastransportation,distributionandstorage
• ICT/Telecoms• InputstoInfrastructure• Power• Transportation• Urbaninfrastructureincludingsocial&economicinfrastructuree.g.housing,hospitals
• WaterDistributionandTreatment• WasteManagementServices
ELIGIBLEENTITIES
• SpecialPurposeVehicles/Companies• OperatingInfrastructureCompanies�• Privatised Companies.�• Parastatals orPublicCorporations�• StateandLocalGovernments
Byadoptinga‘zerolossunderwritingpolicy’InfraCreditwillonlyunderwriteaportfoliothatcontainslowerpotentialdefaultfrequencyandlossseveritycharacteristics
Deal Origination
15
TheNigerianeconomyhasdemonstratedstrongresiliencedespitetheweakgrowthinducedbyfallingoilpricesandlowoilproduction
Anearlyandparallelevaluationofopportunitieshascommencedduringthestartupphasetoprovidegreaterselectivityinthechoiceofinitial(2– 4)transactionstobeexecutedinYear1
Initialdealoriginationwillbethroughthefollowingchannels:
› Source/Refinancetransactionsonselectbanks’balancesheets
› WorkwithGuarantCotoidentifyassets;�
› “Front”and/orCo-GuaranteepilottransactionswithGuarantCo;
› WorkwithInvestmentbanksstructuringnewdebtissuance;
› WorkwithselectedStatesonexistingandpipelineinfrastructuredeals;and
› DiscussionwithexistingIssuersof(infrastructurerelated)bonds
InfrastructureEntity InfrastructureActivity
1. Operating Infrastructure Company Power (Off Grid)
2. Special Purpose Vehicle Road Transport (Bridge)
3. Infrastructure Company Transport
4. Operating Infrastructure Company ICT/Telecoms
5. Operating Company Transport (Jetty)
6. Operating Infrastructure Company Gas Infrastructure
7. Operating Company Waste Management
8. Operating Company Agricultural Infrastructure
PotentialPipelineTransactionsOrigination
ProjectedDealFlow- ConservativeBaseCase
Base Case Par Outstanding Yr 1 Yr 2 Yr 3 Yr 4 Yr 5(Naira Billions) 9 29 89 209 509(USD Millions) 30 97 297 697 1,697
Guarantee Transaction Process
16
Origination(PreliminaryAssessment)
DueDiligence&Structuring
FinalApproval
› IssuertoprovidedetailedDueDiligenceInformationRequirement
› ConductSatisfactoryDueDiligence
› CommenceStructuring&DocumentationofTransaction
› IssuerobtainsCreditRatingofminimumBBB-
› ObtainGuaranteePricingApproval(RiskCommittee)
› IssuingHouse/IssuerprovidesPreliminaryInformation
› InfraCreditTransactors AssessEligibilityofTransaction
› PresentDealPapertoNewBusinessCommittee(NBC)
› ObtainApprovalfromNBCtoproceedwithtransaction
› Negotiate&ExecuteMandateLetter
› PresentCreditPapertoCreditCommittee/Board
› ObtainCreditCommittee/BoardApproval
› Negotiate&FinaliseTransactionDocumentation
› SigningofDocumentation
› SatisfyCPstoClosing
› RatingAgencyaffirmsIssuerCreditRating
› IssuerissuesGuaranteedDebt*
4weeks 1– 2months 3– 6weeks
DealExecutionwillbeconductedinthreephases:Origination(PreliminaryAssessment),DueDiligence&StructuringandFinalApproval/Closing
Illustrative Transaction Schematic
17
PublicServices
ProjectFunding
Residents
InfrastructureProjectEntity
InfrastructureProject
PFAs,InsuranceFirms
UserFees
Cashflo
ws
Issue‘Aaa’ratedseniornotes/bondsCreditEnhancement
KeyFeatures
InfraCreditwillprovidecreditenhancementforeligibleinfrastructureprojectentitiesseekingtoraiselongtermdebtcapitalfromPFAs,InsuranceCos,Banksonarisksharingbasis:
§ IssuingHousetoarrangedebtissuance
§ Whereapplicable,LendingBank(s)tosharecreditriskandandmonitorproject
§ Investors(PensionFund/InsuranceCompanies)willbenefitfromeffectiveriskmanagementconductedbyInfraCredit
Banks/OtherInvestors
TrancheANotes
TrancheBNotes
InfraCredit
N
Facilitatingaccesstothecapitalmarkets,liquiditytolendingbanksandaffordablelongtermfundingforcreditworthyinfrastructureentitieswithafairlybalancedrisksharingmechanism...
ExpectedRating:Aaa
CoreCapitalProviders
ContingentCapitalProviders
(NG)
+otherprivateinstitutionalinvestors
+otherInternationalDFIs
Facilitating Efficient Capital Allocation
18
NigerianBanksneedentitieslikeInfraCreditthatcanefficientlyre-allocatecreditworthylongtermrisktoinstitutionsthatcanabsorbsuchrisksbankscannolongercarryontheirbalancesheets
MARKETCHALLENGES FUNDINGOPPORTUNITIES
BaselIIIislikelytoaffectfurther,thecostto,
andwillingnessofmanybankstoallocate
capitalforprojectfinancebyapplyingahigh
riskweightingtolongtermloans(however
wellstructured)
InfraCreditwillpromotefinancialstabilityby
facilitatingliquiditytothebanks(via
refinancingofexistingeligibleinfrastructure
assets),andmitigatecurrencyandmaturity
mismatcheswithinthesystem
InNigeriatheoverallappetiteofthe
commercialbankingsectortotakeandhold
largeprojectloanassetsismuchreduced,
duetoliquidityconstraintsandpost-
financialcrisisregulation.
Insurancecompaniesandpensionfundsare,
infact,‘natural’investorsininfrastructure
assets,sincethelongmaturityandfixedrate
natureofprojectbondsareagoodmatchto
theirlong-termliabilities.
REGULATORYLIMITATIONS FINANCIALSTABILITYTOOL
LIQUIDITYCONSTRAINTS LONGTERMCAPITAL
Benefits of InfraCredit
19
Investors/Lenders
CreditRiskistransferredtoInfraCredit
InvestmentGradeCreditRating
UnderwritingSkills&ExpertiseofGuarantor
YieldPick-UpoverGovernmentBonds
Issuers
Government
Accesstoawiderpoolofinvestors
Longertermlocalcurrencyfinancing
AccesstoAffordableFinance
Largersizeoftransactions
IncreasedEmployment
EconomicGrowth ImprovedFiscalPosition
ImprovedInfrastructure
InfraCreditwillcreateanalignmentofinterestbetweencommercialparties,thefinancialmarkets,pensionfundsandthegovernment…
Initial Board
20
…..Ourboardbringsadepthofinternationalanddomesticexperienceininfrastructurefinance,debtcapitalmarkets,asset/portfoliomanagement,riskmanagement,structuringexpertiseandproductknowledgefoundintheforemostfinancialinstitutions.
CareerMilestones:
§ ProjectLead,NigeriaInfrastructureCreditEnhancementFacility
§ MD,DunnLorenMerrifieldAdvisoryPartners§ Chairperson,RegulationConsolidationSub-
CommitteeofFMDQDebtCapitalMarketDevelopmentProject.
MSc.Finance&FinancialLaw,UniversityofLondon,LLB.LawUniversityofLagos
Chinua AzubikeChief Executive Officer
Over14yearsof,corporateandstructuredfinance,debtcapitalmarkets
experience
+2348097778936
CareerMilestones:
§ CurrentlyMD&CEOofNSIA§ ManagingDirector,UBSSecurities,NewYork§ ManagingDirector,JPMorgan,London
§ PortfolioManager,GoldmanSachsAsset
Management,London
MBAfromHarvardBusinessSchool,BscChemicalEngineeringUniversityofPort
Harcourt,Nigeria
UcheOrjiNonExecutiveDirector
Over20yearsofglobalexperienceinasset/portfoliomanagement
+2348098740874
CareerMilestones:
§ CEO,GuarantCo(retiredDec2016)§ NonED,BPLGlobal§ HeadDebtSolutions,ANZInvestmentBank
MA,SocialandPoliticalScience,UniversityofCambridge,
ChrisVermontNonExecutive Director
Over20yearsexperienceoffinancefor
infrastructureprojectsintheemergingmarkets
+447768603053
CareerMilestones:
§ CurrentlyED&ChiefRiskOfficeratNSIA§ Director/HeadofOperationalRisk&Control
atBarclays§ VicePresidentandHeadofQuality
Assurance,AfricaatCitibank
M.B.ACranfield SchoolofManagement(UK),Bsc Chemistry,UniversityofLagos,Chartered
FinancialandTaxAccountant
StellaOjekwe-OnyejeliNonExecutive Director
Over20yearsofenterpriseriskmanagementand
control,financialadvisoryandbusinessassurance
+2348034020976
Theinitialboardmemberscomposeofrepresentativeofthesponsors,withongoingselectionofhighlyqualifiedandexperiencedboardmembersfromdiverseprofessionalfields
Key Operational Activities
21
Weexpecttocommence full
operations andexecutea first transaction
by Q22017
Jan Feb Mar
Obtain IndicativeCredit Rating
Commitment fromEquityInvestors
CommenceDueDiligence onTransaction
CommenceExecutionof1st Transaction
Apr May
InvestorNon-DealRoadshow
Commence BusinessOperations
Jun
Obtain FinalRating
Close1st Transaction
Inaugural BoardMeeting
StakeholderEngagement
FinaliseCapitalCommitment
CapacityBuildingInvestorWorkshop
Select ManagementTeam
Contact
22
+2348097778936
ChinuaAzubikeChief Executive OfficerInfraCredit
PeterFialaSenior Advisor
+447827813137
Allenquiriesregardingthecontentofthisdocument,approachesanddiscussionsshouldbedirectedtoInfraCredit.
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No representation or warranty, either express or implied, is made as to the accuracy, completeness or reliability of the information contained in this presentation. This presentationshould not be regarded by the Institution as a substitute for the exercise of its own judgment and the recipient is expected to rely on its own due diligence if it wishes to proceedfurther.
The valuations, forecasts, estimates, opinions and projections contained herein involve elements of subjective judgment and analysis. Any opinions expressed in this material aresubject to change without notice and may differ or be contrary to opinions expressed by others as a result of using different assumptions and criteria. This presentation may containforward-looking statements. Parties undertakes no obligation to update these forward-looking statements for events or circumstances that occur subsequent to such dates or toupdate or keep current any of the information contained herein. Any estimates or projections as to events that may occur in the future (including projections of revenue, expense, netincome and stock performance) are based upon the best judgment from the information provided and other publicly available information as of the date of this presentation. Anystatements, estimates or projections are accurate only as at the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. Actualresults will vary from the projections and such variations may be material.
Nothing contained herein is, or shall be relied upon as, a promise or representation as to the past or future. The parties expressly disclaim any and all liability relating or resulting fromthe use of all or any part of this presentation or any of the information contained therein except where stated. This presentation has been prepared solely for informational purposesand is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The Recipient should not construe the contents of this presentationas legal, tax, accounting or investment advice or a recommendation. The Recipient should consult its own counsel, tax and financial advisors as to legal and related matters concerningany transaction described herein. This presentation does not purport to be all-inclusive or to contain all of the information that the Institution may require. No investment, divestmentor other financial decisions or actions should be based solely on the information in this presentation.
This presentation has been prepared on a confidential basis solely provided that the Institution and any of its employees, representatives, or other agents may disclose to any and allpersons. Distribution of this presentation to any person other than the Recipient and those persons retained to advise the Recipient, who agree to maintain the confidentiality of thismaterial and be bound by the limitations outlined herein, is unauthorized. This material must not be copied, reproduced, distributed or passed to others at any time, in whole or in part,without the prior written consent of the Sponsor.
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ContactUsInfrastructureCreditGuarantee
CompanyLimited17Sanusi Fafunwa Street,VictoriaIsland,Lagos
www.infracredit.ng
+234(01)6312300- 29