Unlocking long term infrastructure finance in Nigeria
It has been estimated that, over the next 30 years, Nigeria will require over US$3 trillion of investment if the country is to overcome its existing infrastructure gap. Long-term patient capital is key to progressing infrastructure projects, however, accessing such funds in Nigeria can be challenging. Companies struggle to issue bonds on Nigeria’s Capital Markets which meet with the high credit rating requirements of investors such as pension funds and insurance companies. These institutional investors are largely unfamiliar with the infrastructure asset class having concentrated their investments to date in federal government securities.
In a bid to enable pension funds and insurance companies to diversify their portfolios and to unlock finance for vital infrastructure development, PIDG company GuarantCo worked with the Nigerian Sovereign Investment Authority (NSIA) to establish the Nigerian Infrastructure Credit Enhancement Facility (InfraCredit). Established in 2017, InfraCredit is a Lagos-based credit guarantee institution providing Naira-denominated guarantees to enable infrastructure projects to raise debt finance in local currency from the domestic market.
InfraCo Africa was approached in 2020 to become involved with InfraCredit. InfraCo Africa’s equity investment, made through the company’s dedicated investment vehicle, will support InfraCredit’s AAA credit rating and will strengthen its guarantee capacity, increasing its ability to attract long term local currency finance for bankable infrastructure projects in Nigeria.
InfraCredit’s guarantees enable infrastructure companies to issue bonds by providing a ‘credit wrap’ that secures timely repayment of principal and interest to investors, acting as a catalyst to mobilise investment from pension and insurance funds and other long-term private investors with exclusive appetite for investment grade bonds. The credit enhancement offered by an InfraCredit guarantee lowers the perceived investment risk which, from an issuer’s perspective, reduces the cost of securing long-term local currency debt, making infrastructure projects more bankable.
InfraCo Africa’s involvement will also enable InfraCredit to enhance its Health and Safety and Anti-Bribery and Corruption (ABC) management systems, providing a demonstration effect for others operating in Nigeria’s nascent infrastructure and debt capital market.
InfraCo Africa will provide additional equity that will strengthen InfraCredit’s balance sheet, enabling InfraCredit to issue more guarantees and supporting the financing of Nigerian infrastructures throughout the debt capital market.
By attracting institutional and varied private investors to support the development of infrastructure projects, it is hoped that the model will unlock significant funds, transforming the landscape of infrastructure finance in Nigeria and will be replicable across the continent.
InfraCredit is supported by the NSIA, Africa Finance Corporation (AFC), InfraCo Africa and KfW Development Bank.