Partnering to unlock domestic capital for infrastructure in Kenya
30th Jun 2021
Nairobi, Kenya: InfraCo Africa, part of the Private Infrastructure Development Group (PIDG), has signed a Joint Development Agreement (JDA) with Cardano Development (CD), committing up to US$1 million to the development of a credit enhancement facility in Kenya. The investment is being made through InfraCo Africa’s dedicated investment vehicle which is backed by the UK Government’s Foreign Commonwealth and Development Office (FCDO). The credit enhancement facility initiative is also supported by KfW on behalf of the German Federal Minisstry for Economic Cooperation and Development (BMZ). The facility will be designed to unlock local currency investment from institutional investors and once established, is expected to support infrastructure development across a range of sectors.
“InfraCo Africa are excited to bring our expertise and investment capital to the table, working with colleagues at Cardano Development to develop and establish a tailored credit enhancement solution to strengthen Kenya’s capital markets,” said InfraCo Africa CIO, Claire Jarratt. “Strong local capital markets serve to protect infrastructure projects from external shocks and currency volatility, giving investors’ confidence. That confidence, nurtured by credit enhancement facilities such as the one we are seeking to establish here in Kenya, has the potential to transform the infrastructure sector, driving economic development and unlocking new sources of long-term finance for the future.”
Kenya holds significant wealth in pension, life insurance and private wealth funds. However, Kenyan infrastructure projects are largely reliant on US dollar denominated bank loans, loans which seldom offer the length of tenor required for successful infrastructure developments and which expose borrowers to currency exchange risk.
“Since 2018, Cardano Development has collaborated with PIDG to undertake feasibility assessments for a financially viable, locally based and capitalised credit enhancement facility to promote the participation of long-term capital providers in Kenya’s debt capital markets, specifically around infrastructure.” said Cardano Development CEO, Joost Zuidberg.
Now, we are delighted to have signed an agreement with InfraCo Africa to bring this credit enhancement facility from concept to reality. The facility will serve to unlock local currency investment from domestic private and institutional investors in support of long-term infrastructure development in the country.
We at Cardano Development have a strong track record in establishing similar initiatives, notably InfraZamin Pakistan where we undertook the initial groundwork in 2018-2019. That institution is now ready to issue credit guarantees for infrastructure-related debt, thereby attracting private capital that would otherwise not participate in lending. Based on this success, I believe we can bring our expertise and investment to work diligently with our partners PIDG and InfraCo Africa to structure and develop this potentially catalytic facility for East Africa.”
InfraCo Africa has demonstrated its commitment to Kenya’s capital markets through its recent investment in the Acorn REITs designed to support affordable student accommodation in Nairobi. The company has also invested in the growth of InfraCredit Nigeria, a credit enhancement facility established in 2017 by its sister PIDG company GuarantCo – fund managed by Cardano Development – and the Nigerian Sovereign Investment Authority, to support Nigeria’s infrastructure sector. InfraCredit Nigeria has a similar mandate to the proposed Kenyan facility.