Pillar: Financial Markets

InfraCredit Secures UK-Funded Debt Issuance Guarantee For Nigeria’s Solar Rural Electrification

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InfraCredit, yesterday announced the credit enhancement of Darway Coast Nigeria Limited’s green debt issue, under a co-financing arrangement with the £10 million Climate Finance Blending Facility funded by the United Kingdom Foreign, Commonwealth and Development Office (FCDO), an initial transaction under InfraCredit’s Clean Energy Funding Programme.

The Programme seeks to aggregate, de-risk and unlock domestic institutional investments to support eligible clean energy projects in Nigeria to contribute towards meeting the country’s universal electrification goal by 2030 and the SDG 7 target of ensuring access to affordable, reliable, sustainable, and modern energy for all, whilst putting the country on a path to achieve net zero emissions by 2060.

In February 2022, the UK announced a £10 million local currency blended co-financing facility with InfraCredit to help de-risk, reduce the capital cost and catalyse at least an equivalent amount in private investment from domestic institutional investors to support off-grid clean energy companies to increase energy access for unserved and underserved people and small businesses in Nigeria.

It is expected that the Facility will be increased through funding by other development partners to co-finance a pre-assessed initial pipeline of over $128 million (NGN equivalent) that will mobilize at least N26.8 billion or $64 million of domestic institutional capital to construct 22.7 MW of isolated off-grid renewable energy projects in 580 unserved communities across 32 states in Nigeria, that will connect 172,535 unserved households and small businesses, create 6,977 jobs and reduce 394,403 tonnes of GHG emissions.

This initial transaction under the Programme, was financed with the UK-funded Facility through a blended instrument enabling domestic institutional investors to directly invest in a 7-year fixed rate local currency debt financing for the project, making it the first-ever certified blended local currency green debt issue for a solar mini-grid project in Nigeria.

Speaking on the transaction, the Managing Director of Darway Coast Nigeria Limited, Mr. Henry Ureh in a statement said, “For mini-grid developers, access to long term affordable local currency finance is critical for sustainability and scale, which is why we are extremely excited about the possibility of participating in such a milestone transaction.

“That mini-grid developers like us can now access patient green capital in naira from domestic institutional investors, to construct off-grid infrastructure for renewable energy access to unelectrified rural communities in Nigeria for productive use, is unprecedented.

“We sincerely appreciate the team at InfraCredit and the FCDO for this novel structure which will reduce the financial burden of clean energy developers like Darway Coast, and help the off-grid renewable energy market to scale sustainably.”

Also, the CEO of InfraCredit, Chinua Azubike, in a statement said, “According to Nigeria’s Integrated Energy Planning Tool, it is estimated that up to $16.4 billion of funding will be required to finance off-grid infrastructure for solar mini-grids and stand-alone solar systems that will electrify 621,000 unserved communities not connected to the grid, which represents 98% of the identified settlements without energy access.

“However, Nigerian domestic institutional investors assets under management in local currency, is estimated at over $35 billion, but less than one per cent is currently invested as domestic credit to the private sector due to perceived risks and limited quality projects.

“We are very excited by the success and scalability of this innovative blended finance transaction anchored by UK FCDO and InfraCredit, because it demonstrates a strong case for donors and concessional financiers, to make smart use of impact-seeking capital to de-risk, reduce the capital cost and mobilise private sector financing towards green life-saving investments that can unlock domestic pools of resources that will promote green growth and climate resilient development by accelerating Nigeria’s universal energy access, whilst transitioning the country to a low-carbon economy that will create jobs, reduce poverty, promote gender inclusion and stimulate local economic growth.”

The UK Deputy High Commissioner in Lagos, Ben Llewellyn-Jones said, “We are very pleased that this innovative UK-funded blended finance facility, managed by InfraCredit, has supported the first green-certified local currency debt issue for off-grid solar in Nigeria.

“Using a scalable approach, this UK-funded Facility is mobilising domestic institutional investment into much needed clean energy projects. By providing green and affordable financing for local developers, the Facility is creating access to clean energy in unserved and underserved communities in Nigeria, for both households and businesses. The UK remains committed to increasing access to clean energy in Nigeria, to drive sustainable and resilient growth, and support Nigeria in meeting its climate goals.”

The Facility’s subordinated first-loss capital helped de-risk and reduce the capital cost of the project by unlocking InfraCredit’s “AAA”-rated guaranteed senior green debt that crowded in first-time matching investments from six domestic institutional investors in a solar mini-grid project for unserved markets, resulting in a blended affordable interest rate. The financing will be utilised to construct isolated solar mini-grids with total capacity of 526.1 kW in six communities without grid access within Rivers State and Abia State in Southern Nigeria.

The project on completion will electrify up to 7,711 unserved households and small businesses, create up to 497 temporary and permanent jobs and avoid 4,856 tonnes of GHG emissions whilst enhancing access to renewable energy for productive uses. The nominated projects & assets conform to the Climate Bonds Standard Solar Sector Criteria and the financing has been labelled and certified green by the Climate Bonds Initiative.

The six hybrid-solar mini-grids will have environmental benefits of climate change mitigation, energy savings and greenhouse gas reduction and simultaneously have a positive direct contribution to the United Nations Sustainable Development Goals (SDGs) 7, 8, 9, 11, 13 and 17 as identified in the Green Bond Framework

The green debt was verified by Agusto & Co as green verifier, and the guaranteed senior debt was rated “AAA” by Global Credit Ratings.

The green verification of the debt instrument was supported by funding provided by FSD Africa under a Technical Assistance Agreement with InfraCredit, to support first time issuer costs for eligible projects that can issue climate-aligned local currency infrastructure bonds. FSD Africa (https://fsdafrica.org/) was established in 2012 through funding by UK aid from the UK government as a specialist development agency to build and strengthen financial markets across sub-Saharan Africa, and to address systemic challenges within Africa’s financial markets, with the aim of sparking large-scale and long-term change.

KfW Development Bank (https://www.kfw-entwicklungsbank.de)) provided technical assistance support for the technical, legal and environmental and social due diligence costs.

The project is registered under the World Bank Nigeria Electrification Project Performance Based Grant Programme administered by the Rural Electrification Agency (REA). The REA is a rural electrification government agency established to implement, provide, and support decentralized electrification in Nigeria.

InfraCredit signed a Memorandum of Understanding (MoU) in August 2022 with the REA to help eliminate long-term financing bottlenecks for off-grid operators in the energy sector by enabling credit enhancement and financing to private sector mini-grid developers to enable adequate power generation and supply to underserved and unserved areas.

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Ghana Stock Exchange launches Green Bond Rules at its 32nd anniversary celebration

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As part of programs to mark its 32nd anniversary, the Ghana Stock Exchange (GSE) in collaboration with its regulator, the Securities and Exchange, launched the new Green and Sustainable Bond Rules to guide the listing and trading of green and sustainable bonds on the Ghanaian market.

This year’s anniversary was under the theme “Investing into a Green and Sustainable Future’.

Green Bonds are bonds that support new or existing projects that generate climate or other environmental benefits that conform to Green Guidelines and Standards while Sustainable bonds support new or existing projects that generate both environmental and social benefits that conform to the Sustainability Guidelines.

The first Green Bond was issued in 2007 by the European Investment Bank under the label Climate Awareness Bond. Due to the role the finance sector plays in allocating capital efficiently, it remains a key channel for economies all over the world to make a real impact. As such, the best way to combat climate change while still making a profit is through the financial market.

In his remarks, the keynote speaker for the event, Mr. Aliou Maiga, IFC’s Regional Industry Director for the Financial Institutions Group in Africa said, “I commend Ghana and the Ghana Stock Exchange for showing leadership in green and sustainability finance. Climate financing is not only a development imperative but also a significant market opportunity.

IFC is committed to working with Ghana’s stakeholders to facilitate investments that reduce greenhouse gas emissions and support climate change adaptation.”
Speaking at the event, the Director General of the Securities and Exchange Commission stated that “Investing in green and sustainable future is both well timed and opportune.

Sustainability is a broader topic that stands on social human, economic and environmental pillars, none of which can be ignored. It is the most pressing challenge of our time for many business leaders. However, there is evidence of a correlation between the long-term success of a business and sustainability. Investors across the world are demanding opportunities to invest in companies or investments with strong ESG markets.”

Delivering his goodwill message at the event, the Senior Financial Markets Specialist at FSD Africa, Victor Nkiiri hinted that “At Financial Sector Deepening Africa (FSD Africa), we see the development of capital markets to an end, to increase income and job creation, access to basic services and building of sustainable futures. Deep liquid markets are fundamental to economic growth because they help channel longer-term domestic savings of an economy to the most productive use.”

In his remarks, the Managing Director of GSE, Ekow Afedzie said, “Green and Sustainable bonds have gained traction globally due to the enormous benefits it brings to the environment and society at large.” GSE has been very committed to sustainability initiatives over the past years culminating in our recent admission to the UN Sustainable Exchanges in July.

The launch of ESG Disclosure Manual Guidelines in November this year is another testament to our commitment to this sustainability journey. The launching of Green and Sustainable bond rules today is another milestone on our sustainability journey. Listed companies in Ghana now can tap into these fast-growing bond investment products to raise capital that can be used in supporting ESG initiatives.

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InfraCo Africa to invest US$15m to anchor pioneering new guarantee company

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Sharm El Sheikh, Egypt: On the opening day of COP27, InfraCo Africa, part of the Private Infrastructure Development Group (PIDG) has announced that it will invest US$15m into a newly established guarantee company, alongside a US$5m commitment from Cardano Development. The announcement was made as part of a KES 500bn package of new investment from the UK to support Kenya’s leadership on climate change.i 

Established by InfraCo Africa and Cardano Development with support from PIDG and FSD Africa, the new company is modelled on InfraCredit Nigeria and InfraZamin Pakistan, aiming to unlock local capital into sustainable infrastructure and projects that improve climate mitigation and adaptation and deliver on the SDGs. InfraCredit Nigeria is an infrastructure guarantee facility established in 2017 by PIDG company GuarantCo and the Nigeria Sovereign Investment Authority. InfraCo Africa became InfraCredit’s third investor in 2020. PIDG has sought opportunities to replicate this innovative model in other geographies, including establishing InfraZamin Pakistan. FSD Africa has also extended grant funding to Cardano Development valued at nearly US$297,000 for the establishment of the new company, and GuarantCo is exploring the possibility of providing a contingent capital facility to the company in the near future. 

PIDG’s CEO Philippe Valahu said, “We are pleased to announce our anchor investment into this new guarantee company during the important COP27 summit. As well as addressing Kenya’s and East Africa’s infrastructure access gap, the new company will issue guarantees to projects that are Paris aligned, helping to link flows of finance with global efforts to mitigate and adapt to the climate crisis.” He continued,  “This innovative model of local currency guarantees has proven to be successful in Nigeria – where InfraCredit Nigeria has issued circa NGN 114 bn worth of local currency guarantees in its first five years of operations – and also in Pakistan, where InfraZamin Pakistan recently issued its first guarantee.”  

The initial focus of operations will be in Kenya. Kenya holds significant wealth in pension,ii life insurance and private wealth funds. However, Kenyan infrastructure projects and other cash-flow based investments are largely reliant on US dollar denominated bank loans, loans which seldom offer the length of tenor required for successful developments and which expose borrowers to currency exchange risk.  

InfraCo Africa’s Chief Investment Officer, Claire Jarrett said, “The new guarantee company seeks to issue up to US$100m of local currency guarantees in its first few years of operations. Kenya’s capital markets are developing quickly and it is hoped that access to local currency guarantees will enable institutional investors such as pensions and insurance funds to invest into high-quality assets whilst also supporting businesses to secure the finance needed for them to deliver vital new infrastructure, underpinning economic development across the country.” 

Joost Zuidberg, CEO Cardano Development added, “Cardano Development is proud to act as a catalyst for making emerging and frontier markets more investible, through our incubating activity and investment into the new guarantee company. With climate change at the top of the global agenda, our expertise, alongside our partners InfraCo Africa and PIDG, will help fast-track the flow of climate friendly finance into key sectors, through local currency guarantees.” 

Mark Napier, CEO FSD Africa, and Board Member of the GFANZ Africa Advisory Board said, “The mandate of the new guarantee company is well aligned to critical climate finance initiatives such as the Glasgow Financial Alliance for Net Zero’s (GFANZ) objective of addressing sector-wide challenges associated with the net-zero transition helping to ensure high levels of ambition are met with credible action.  FSD Africa is committed to supporting local currency bond markets in Africa as well as local currency credit enhancement facilities as they play an important de-risking role. This role is pivotal in the mobilisation of climate finance from both local and international owners of capital to African economies that require different sources of capital to fund their green growth.” 

 

The Nigerian Green Bond Market Development Programme Impact Report -2018-2021

This report documents a comprehensive overview of the Nigerian Green Bond Market Development Programme, with a focus on market capacity building, policy advisory and technical support for Green Bond issuance.

The report provides a breakdown of the Programme’s activities and how they have supported the use of Green Bonds in financing low carbon infrastructure.

The NGBMDP has successfully organised ten (10) capacity building sessions for Investors, Intermediaries, Regulators, Media, Solicitors, Rating Agency, State Executive Councils and Verifiers.

Also, it has delivered five (5) focused trainings for Banks, the Securities and Exchange Commission, Nigeria (SEC), and National Pension Commission (PenCom), etc.

The Programme has also assisted in the issuance of four (4)
corporate green bonds and issuance/reporting of two (2) sovereign green bonds while supporting five (5) issuers with green bonds verification reports and post issuance impact reports.

As part of its market development and capacity building efforts, the NGBMDP provided support for the development of guidelines and listings requirements for Green Bonds in Nigeria by the SEC, and organised training sessions focused on developing a pool of local Green Bond licensed verifiers, issuers, investors and intermediaries.

The Programme is committed to accelerating the development of the Green Bond market in Nigeria and supporting broader debt capital markets reforms that impact green bond as a financing instrument for the
transition to a climate resilience economy in Nigeria.

The Programme has the overarching objective of developing a non-sovereign green bond market that will entrench the principles of sustainability into the Nigerian capital markets over the next three (3) years.

Private debt markets in Africa

We engaged Lion’s Head Global Partners to conduct a study on Private Debt markets in Africa. While keeping a pan-African perspective, the study focussed on Nigeria, Kenya, Ghana, and Morocco as markets of strategic importance. South Africa was used as a reference market, given the development of the financial sector and the size and scale of the South African institutional investor base.

In addition to desk research and data analysis, the outputs, analysis, and recommendations were driven by stakeholder consultations, workshops, and interviews to both reflect individual positions, but also generate buy-in from stakeholders.

The insights from the study will support FSD Africa’s overarching strategic goal to mobilise long-term finance in local currency to support Africa’s development priorities and inform our transaction support, regulatory initiatives and knowledge and capacity-building engagements under its Africa Private Equity and Private Debt programme. The study will also benefit stakeholders including institutional investors, borrowers, regulators and policymakers, who seek to improve the enabling environment.

Financing for natural capital in Africa

Africa is highly exposed to risks associated with climate change and biodiversity loss.

In 2022, the IPCC reported with ‘high confidence’ that the continent is already experiencing significant changes from climate change and that future impact on the region will be ‘substantial’.

Effects include ongoing and accelerating changes in rainfall patterns, water availability and heatwaves with a sharp reduction in agricultural productivity – the mainstay of many African economies – and increased climate-related ill-health and mortality.

The economic consequences are likely to be severe. According to calculations by the African Climate Policy Centre are likely to be as much as a 12% contraction of Africa’s gross domestic product (GDP).

Furthermore, biodiversity loss of forests and coastal ecosystems threaten the environment and livelihoods in Africa and will contribute to an acceleration in global climate change.

Despite these risks, finance for the maintenance and enhancement of Africa’s natural capital is grossly insufficient. There is a financing gap in Africa of more than $100 billion annually. The biggest gap is in the sustainable management of landscapes and seascapes – a key area for Africa given the lower carbon intensity of its economies relative to developed countries.

Moreover, the limited finance that is available is from public sources. But domestic public budgets do not have the potential to increase sufficiently to close the financing gap by 2030.

Without a step-change in finance, we will witness an accelerated decline in biodiversity, the collapse of ecosystems and repeated climate disasters leading to the reversal of decades of poverty reduction and economic growth in the region as well as the acceleration of the global climate crisis.

Given these challenges, this study, commissioned together with ODI, suggests five key approaches to greater mobilisation of finance for biodiversity in the region: