Category Archives: IFC

Helios & Fairfax to partner on Africa investments

July 2020 saw the announcement of a proposed strategic transaction between Helios Holdings and Fairfax Africa Holdings to create a new entity known as the Helios Fairfax Partners Corporation that aims to become the leading pan-Africa focused listed alternative asset manager with unique capabilities to invest across the continent.

Helios will contribute some management and performance fees it currently earns in exchange for 46% of the venture while Fairfax will retain control of the combined entity.

Helios, founded in 20004, manages $3.6 billion of assets, as Africa’s largest private equity fund with stakes in Nigerian oil (49% of Oando), e-commerce (Mall for Africa), payments (Interswitch) and South African telecom tower firms.

Helios will be the sole investment advisor to the partnership on all deals including Fairfax’s purchase of a stake in Atlas Mara for $40 million. The Co-Founders and Managing Partners of Helios, Tope Lawani and Babatunde Soyoye, will be Joint CEO’s while the current CEO of Fairfax, Michael Wilkerson, will become the Executive Chairman of the new entity.  

In Kenya, Helios first made a splash in 2007 buying 25% of Equity Bank and then going on to sell its stake in 2015 netting $500 million. They have since been involved in deals such as the Acorn green bond, Telkom Kenya, Wananchi Group and Vivo Energy.

Current investors in Helios include CDC which has invested over $100 million, and the IFC. Fairfax Africa shareholders will be asked to approve the deal that has been unanimously approved by a special board committee, that was advised by Alvarium, and have it completed in the third quarter of 2020. The partnership will be listed on the Toronto Stock Exchange, where Fairfax shares currently trade.  

Kobo360 and SWVL launch in Nairobi on the same day

On one day late in August 2019, two young disruptive, but non-competing, logistics companies had parallel breakfast events to mark significant milestones in Nairobi.

Kobo360: There was the formal launch of Kobo 360, the pan-African logistics company which has been operating for five months in Kenya. Kobo360 pairs cargo owners with transporters, enabling the seamless booking and transport of goods to destinations while lorry owners get extra business and revenue from running their trucks on the company’s platforms.

Kobo360 aims to introduce efficiency and predictability to the $150 billion African logistics industry through real-time data, by providing insurance & tracking, and all to facilitate trust in delivery and payments. They operate in Nigeria, Kenya, Togo, Ghana, and Uganda and make deliveries to other countries in West, Central and Southern Africa from port cities.

Founded in Nigeria, they view tech adoption as being  higher in Kenya and they want to use it as a launchpad for the East Africa region. Kobo360 has offices in Mombasa and Nairobi and currently has 3,000 trucks and access to 4,000 drivers on their platforms. They have raised funding from the IFC, Goldman Sachs, TL Com, Chandaria Capital, Verod, Asia Africa and WTI.

SWVL Kenya official launch: The same day as the Kobo event, SWVL also announced their official launch in Kenya with a Kshs 1.5 billion expansion of its Kenya operation. This is equivalent to $15 million which is a lot of money that will go towards increasing their route network offering of high-quality public transportation. The company which was started in Egypt in 2017 has been operating in Nairobi for six months now and recently raised $42 million from its investors including BECO Capital and Sweden’s Vostok New Ventures. It has gone from operating four routes on which passengers can book rides on SWVL shuttles to fifty-five routes now across Nairobi. Here is a rice review of using SWVL by a Nairobi commuter.

AVCA 2019 private equity and venture capital conference in Nairobi

The 16th annual conference of African Private Equity and Venture Capital Association (AVCA) was held from 1st -3rd April 2019 at the Radisson Blu Hotel in Nairobi. A guest post by Marcela Sinda.

This flagship conference event for the African continent had a fantastic kick-off and turnout, bringing together private equity and venture capital investors who handle a portfolio of over $1.5 trillion in assets. This was according to Kenya’s Cabinet Secretary for Trade, Peter Munya who officially opened the conference on behalf of President Uhuru Kenyatta. The goal of this kind of conference, he said, is to expose investors to the diverse prospective investment markets across the Africa as the continent was now being looked at as any other region, with the focus being around checking due diligence, ethics, looking at best practices and asking the same questions around deal sourcing.

 

DFI’s Role: Kenya is an increasingly attractive investment destination and according to AVCA data, it is the 2nd most attractive country for private equity investments in Africa over the next three years and hence an obvious choice to gather the industry players for this conference. The African PE sector has been shaped for decades by DFIs, and at AVCA 2019, there was some discussion about new DFI strategies for investment across Africa. Maria Hakansson, the CEO of Swedfund, noted that, as a community, DFIs could do so much more when it comes to anti-corruption, e-waste management, customer protection principles etc. and that Africa’s portfolio is constantly outperforming in terms of impact compared to other regions portfolio.

Djalal Khimdjee, Deputy CEO of Proparco said SMEs in Africa are essential towards job creation and achieving the sustainable development goals (SDG’s) and that 60% of the 1.5 million jobs that have been created in Africa every month come from SMEs and venture capital firms. He said that PROPARCO and French development agencies had committed £2.5 billion by 2022 to support African MSMEs, including £1 billion through private equity investments. 

Mathew Hunt, Principal at South Suez Capital shared that one of the reasons why investors are in Africa and especially now is because of the tech-driven growth that’s been on the rise in recent years. Venture capital investments are new in Africa and only a handful of funds have grown successfully.  The role of African Development Bank, said Robert Zegers, their Chief Investment Officer, was to now help support the industry and act as anchor investors in these funds as a lot of development agendas can be achieved by generating value through VC’s and great businesses.

The narrative throughout the discussion panels was around the real opportunities Africa presents for investment with building blocks in place such as improved policies, the rise in middle-income earners, the Africa Continental Free Trade Area, and enablers such energy, improved infrastructure and technology as pathways that cater for development needs. The most attractive areas for P/E investment were perceived to be consumer-driven sectors (financials, FMCG, agribusiness, healthcare and technology).

Deals Galore: VCs are willing and able to take risks and are looking to invest much more than they did previously. According to the  AVCA report 2018, VCs invested $725.6 Million in 458 deals a 300% leap in the total funding amount and over 127% increase in the number of deals as compared to 2017.  VC fund managers, therefore, need to have great entrepreneurial skills to identify numerous opportunities and create great pipelines for growth and expansion. This is the first generation of PE owners and from the lessons learnt, a good company always attracts a buyer and a great way for VCs to approach funding private companies is to ask; ‘if everything works out, how big can this be?’. But investors ought to be cautious not to misconstrue Africa as a single country with regard to investments, rather, and instead start by breaking down the micro trends in each jurisdiction and analyse the different risks.

Investments, not Aid: Charles Mwebeiha of Sango Capital urged investors to look at Africa while investing, like any other region in the world noting that many times, investing in Africa is made to sound like some sort of assistance. He offered that the issue should be whether returns can be made and reiterated that with good strategies, there is money to be made in Africa.

Women: It was also highlighted that having a gender-sensitive lens when investing is an imperative for an inclusive and fair investment strategy and that, especially in Africa, the number of female entrepreneurs supported is a key metric. There is an even split between male and female entrepreneurs on the continent but less than 2% of those women are getting formal funding as they are often working in hidden, informal sectors.

Exits: A major area of discussion was around exits. Carlos Reyes of the IFC,  pointed out that; “to prepare companies for exits, we try to improve reporting standards, corporate governance and we look at the bench – so if the entrepreneur leaves, who can come in? The succession process is quite important.” Exits are not the easiest but they are not deal-breakers and good exits can be achieved. At Leapfrog Investments, they evaluate exits right at the beginning, by sitting down with the owners to try to understand their dreams for the future so as to align funding with their plans for exiting.

Predictions: And finally, taking a forward look at the sector five years into the future, George Odo, Managing Director of AfricInvest Capital Partners observed that there would be more capital raised from African economies, more policy changes required to mobilise pension funds, much more experienced fund managers, and also more EA players paying attention to Ethiopia.

Glossary
AVCA – Africa Venture Capital Association
EA – East Africa
PE – Private Equity
LP – Limited Partners
DFI – Development Finance Institution
IFC – International Finance Corporation
PROPARCO – A Development Financial Institution partly owned by the French Development Agency
SME – Small Medium Enterprise
MSME – Micro Small & Medium Enterprises
VC – Venture Capital

KQ Capital Optimization: Government, banks, KLM, shareholders impact

Kenya Airways (KQ) shareholders have been asked to approve a balance sheet restructuring. They have known this day was coming for the last two years, but the KQ capital restructuring details will still be an initial shock to many of them.

The circular signed by Michael Joseph Chairman of the board cautions about the unsustainable debt levels at KQ and that the failure to restructure this, may lead to insolvency and closure. KQ’s Kshs 155 billion balance sheet has Kshs 113 billion of long-term debt and debt and 82 billion in current liabilities – resulting in negative 47 of KQ capital. The proposed deal will reduce the company debt by Kshs 51 billion and also unlock new funding. But this comes at a price and he cautions that minority shareholders will be significantly diluted, In this conversion of debt to equity, but they can still buy shares at a discount.

Excerpts from the 38-page shareholder circular (see investor documents) 

Individual shareholders:  Each ordinary share is being subdivided into 20 shares one of which is interim and 19 of which are deferred.

  • A KQ shareholder with 1,000 shares today will end up with 1,000 shares (initially they will be 250 shares) and 19,000 deferred shares. The ordinary shares will be listed on the NSE.
  • The deferred shares have no share certificate, carry no dividend or voting rights, and are not transferable (tradable). The creation of this class is to prevent an unlawful reduction of the company share capital.

Board restructuring: the Government shall have two seats on the board, while KLM will have one. The banks will have 1 director for every 5% they own (through KQ Lenders Co.). 2/3 of the board are to vote on new CEO & finance director appointments, and on partnership agreements, fleet plans, and strategy. The circular notes the changes will enable faster decision-making and less conflict at the board.

Shareholders Change:

  • Shareholding before: Kenya Government 29.8%, KLM 26.7%, IFC (9.56%), Mike Maina Kamau 4.3%, others 30%
  • Shareholding after: Kenya Government 46.5%, Kenya Banks 35.7%, KLM 13.7%, employees ESOP 1.9%, IFC 0.5%, Mike Maina Kamau 4.3% 0.2%, others 30%.
  • KLM and IFC significantly reduce their shareholding edit.
  • A new shareholders ESOP is proposed to be created and qualifying employees can buy up to 2% of the shares.

Shareholder Dilution: the existing Shareholders’ holdings of Ordinary Shares will be diluted by 95% as a result of the Restructuring and Employee Offer.

  • A shareholder with 1,000 shares will end up with 1,000 shares (initially they will be 250 shares) and 19,000 deferred shares.
  • The new shares will be consolidated after allotments are done i.e. mainly to the banks – so that meaningful trading can take place. (On completion, the company will have 7.4 billion ordinary shares and 28 billion deferred shares). KQ can’t also issue shares at discount to the nominal value, so a share split and an immediate consolidation will be done.
  • For an illustration of the dilution Mike Maina Kamau remains with 64.4 million shares but that shareholding, which was equivalent to owning over 4% of KQ, is now 0.22% assuming he does not buy new shares.
  • Shareholders can buy up to Kshs 1.5 billion of new ordinary shares, but new shares they buy are not tradable

The Government of Kenya: When he presented his budget speech earlier this year, Treasury CS Henry Rotich spoke of plans to restructure the KQ balance sheet in which the government could play a critical role and bring on board other stakeholders.

  • They had earlier provided Kshs 24 billion in loans that is being converted to equity
  • The government is will now providing in-kind contributions being the provision of government guarantees (not cash) of another 54 billion to US EXIM bank and Kshs 23 billion to Kenya banks.

KQ Capital and Kenya Banks: Kenyan banks are owed Kshs 23 billion plus interest, which they will convert to equity in a debt restructuring.,

  • Also, a group of Kenyan banks has agreed to provide Kshs 18.1 billion in new financing.
  • Eight Kenyan banks signed in on the deal on July 14.
  • Kenya banks have two options of how to participate – either to convert debt into equity or to subscribe to a new “Kenya Lenders Co” in a secured debt arrangement. If any Kenyan bank that has lent to the airlines does not indicate its preference, it is deemed to have accepted the equity route – but a majority has opted for the scheme. These novel agreements are part of the new companies act that allows companies to discuss distress debts with banks as long as 75% of creditors approve.
  • KQ Lenders Co. Ltd will be permitted to divest the Ordinary Shares it holds in KQ through the NSE and the sale proceeds will be used by MTC Trust Services to repay the Kenyan Banks loans;

KLM: will invest Kshs 7.5 billion through in-kind contributions of Kshs 2.7 billion, and will also subscribe for Kshs 5 billion (Kshs 2.5 billion of share in two phases) after settling some terms on employee number and aircraft leases.

  • Also, the recently criticized master cooperation agreement between KQ and KLM (signed in December 1995) shall be terminated.
  • KLM in-kind contributions include the slot (takeoff/landing rights) at London Heathrow currently used by KQ, and certain IT systems.

Don’t go to court: the circular warns that:

  • The key risk in relation to the Scheme is that creditors and other stakeholders dispute the process, which may result in delays or in it being unsuccessful
  • if the Restructuring is not implemented, there will be no amendments to any of the Existing Indebtedness and there will be no new money from KLM or the Government.

Way forward The circular from the Chairman notes that:

  • shareholders representing over 56% of the issued and outstanding Ordinary Shares have indicated their intention to vote in favour of the Resolution at the EGM. Such Shareholders include the Government and KLM.
  • .. Accordingly, the Board unanimously recommends all Shareholders to vote in favour of the Resolution to be proposed at the EGM as they intend to do in respect of the beneficial shareholdings of the entities they represent on the Board
  • Transactions are expected to be completed in August 2017, which includes the shareholders meeting (EGM) on August 7 in Nairobi and signatures from aircraft financiers and the banks.
  • 75% of shareholders have to vote at the EGM for the KQ capital restructuring to move forward.

KQ Capital Advisors: PJT Partners, Bowmans, White & Case (both legal), Kestrel stockbrokers, Redhouse, KPMG auditors, Deloitte (financial advisors), C&R Registrars. The exercise will cost about Kshs 25M with 9.8 million for lawyers and 14.4 million for transaction advisors

$1 = Kshs 103

IFC in Kenya

A snapshot of the pipeline of approved, pending, and other projects at the International Finance Corporation (IFC) that relate to Kenya. The IFC is the private sector lending arm of the World Bank and lends to private sector projects and entities in diverse sectors such as finance, logistics, energy, communications, and health, among others.

Financial Services

  • (Considering advancing $1.19 million to) Co-operative Bank to increase access to finance to the underserved SME market segment
  •  Britam Holdings (Kenya Shillings 3,553,375, 000 equity (approximately US$35 million for 10.37% of Britam to support the insurance company develop its local agency network, strengthen its capital base, and the integration of a new IT platform.
  • KCB Group ($75 million loan) facility to KCB to be on-lent as Tier II qualifying subordinated debt.
  • NIC Bank ($198,000) and is designed to increase access to finance to the underserved SME market segment.
  • Equity Group Holdings (US$100 million senior loan) to help the Bank grow its lending to Small and Medium Enterprises (“SME”), women entrepreneurs and to support the continued diversification of funding sources.

Communication & Infrastructure

  • C-Squared – IFC ($15 million) together with Google Inc., Convergence Partners, and Mitsui & C to start a partnership in CSquared building metro fibre optic networks in Sub-Saharan Africa starting in Uganda and Ghana
  • Western Indian Ocean Cable Company (US$20 million) to fund regional expansion through the acquisition of additional capacity in Africa, increase connectivity to other fibre optic systems, upgrade its capacity on the EASSy cable and purchase network equipment.

Investment Funds

  • Investisseurs and Partenaires Afrique Entrepreneurs II ($10 million into the $80 million IPAE Fund), that will invest in small and medium companies in West, Central, East Africa and the Indian Ocean Region.
  • LeapFrog Emerging Consumer Fund III ($25 million) to make mid-market growth capital investments into financial services and healthcare investments.
  • Catalyst Fund II, LLC (US$15 million) to the fund that is seeking to raise up to US$200 million in third party commitments to make 8-12 mid-market growth capital investments.
  • (IFC to invest $7.5 million in) Fanisi Capital Fund II, a 10 year closed-end SME Ventures fund targeting growth-oriented SMEs in Kenya, Rwanda, Tanzania and Uganda in four sectors: agribusiness, retail consumer (FMCG), healthcare and education.
  • African Local Currency Bond Fund (investment of $40 million) in a local currency bond fund sponsored by KfW and managed by LHGP Asset Management LLP.
    –
    Food Business
  •  ($3 million loan to) Nespresso (guaranteed by Nestlé S.A.) and $3 million grant from the World Bank’s BioCarbon Fund (to be disbursed through the Nespresso Sustainability Innovation Fund) to support smallholder coffee farmers and producers in Ethiopia and Kenya involved in Nespresso’s AAA Program that is  being implemented by TechnoServe.
  • Kenya Tea Development Agency ($2.7 million)
  • (A proposed investment in Tropical Heat) to finance the expansion plans of the company which has purchased eight acres of land in Redhill to set up a new state-of-the-art factory, free of logistical constraints, and add production lines as needed for exports in the region.
  • (Approved loan of $3.5 million to) Insta Products (EPZ) a producer of ready to use therapeutic food, a high calorie fortified peanut paste based food product.

Energy & Logistics

  • Tobene Power SA – Melec PowerGen thermal plant in Senegal.
  • Africa Logistics Properties (US$10 million in ALP) which will develop and manage Grade A warehousing space in sub-Saharan Africa. For the first phase of this project, ALP is raising US$65-70 million to develop three key strategic sites (Tatu, Tilisi and Embakasi) around Nairobi. In May 2017, they broke ground on the Tatu one which, with 50,000 sqm in three units, will be the largest warehouse in Kenya to be built to international standards.
  • (IFC is looking to invest $5 million in equity with Investec Africa Private Equity Fund II) in Mobisol, a pay-as-you-go off-grid solar electricity provider operating in Tanzania, Kenya, and Rwanda.

Health

  • The Medical Credit Fund (MCF) is a financing and technical assistance vehicle with a mandate to improve access to quality healthcare for underserved populations in Sub-Saharan Africa.
  • IFC is considering a $10 million loan to Meghji Pethraj Shah Hospital (M.P. Shah) is one of Kenya’s oldest and most reputed hospitals for the construction and equipping of a new physiotherapy building and purchase of key medical equipment.

From Other Sources

  • IFC owns 10% of Kenya Airways that’s about to undergo a balance sheet restructuring.
  • As Kenya plans a green bond launch, in in South Africa, IFC successfully raised a 9-year, 1 billion Rand Green Bond via the Johannesburg Stock Exchange.
  • Gulf African Bank aims to support SME businesses in Uasin Gishu County through provision of affordable Shari’ah compliant financing facilities and free business advisory services to be offered in partnership with (IFC.
  • The KCB Foundation and IFC, have a partnership to improve the sustainability of SME’s within the informal sector through IFC training within 2jiajiri to improve the management capacity and business performance of SME’s.
  • IFC invested $15 million in the Stanlib Fahari I-Reit.