InfraCredit, development partners initiate investor capacity building programme
by INNOCENT UNAH
August 7, 2017 | 12:12 am| | | Start Conversation
InfraCredit, an infrastructure credit enhancement institution, organised an investor workshop in Lagos last Friday in collaboration with GuarantCo, Private Infrastructure Development Group (PIDG) and the IFC, to support investor capacity building and knowledge sharing in the Nigerian infrastructure finance sector.
“This workshop is a capacity building programme aimed at further empowering and informing the key potential institutional investors in the country’s infrastructure market in order to stimulate capital formation for infrastructure development,” said chief executive officer of InfraCredit, Chinua Azubike, on the sidelines of the workshop. “Developing our domestic debt capital markets and strengthening the capacity of domestic institutional investors is the sustainable path to connecting the infrastructure finance market to long-term local currency financing.”
Themed ‘Unlocking Pension Fund and Insurance Investment in Infrastructure Debt Issues’, the workshop, which held at the Oriental Hotel, Lagos, noted that investments in infrastructure-related corporate bonds in Nigeria are currently limited, due to low risk appetite and limited asset classes to invest in.
It therefore sought to enable participants have an interactive conversation with the regulators and other stakeholders to discuss and critically evaluate how the country can leverage experiences in other markets to overcome the constraint and unlock financing for Nigeria’s infrastructure particularly through the use of credit enhancement tools.
According to the Nigeria Integrated Infrastructure Master Plan (NIIMP), Nigeria needs to invest up to $3 trillion to deliver quality infrastructure across different asset classes, including energy, transport, ICT, housing, water, agriculture, mining, social infrastructure, vital registration and security over the 30-year period.
In order to bridge the current infrastructure gap and reach desired optimal investment, NIIMP says that Nigeria must increase core infrastructure stock from 35-40% of GDP6 in 2012 to 70% by 2043 (prior to GDP rebasing).
Most developed countries typically have ‘core infrastructure’ stock (roads, rail, ports, airports, power, water, ICT) equal in value to about 70 per cent of GDP, with power and transportation infrastructure usually accounting for at least half of the total value.
For the first 5 years of the NIIMP (2014-2018), an investment of USD $127 billion is required over the next 5 years, which translates to an average of $25 billion per annum within the period, which is the ‘1st Operational Plan Period’.
One of the key reasoning behind the creation of InfraCredit is to attract significant new capacity to the infrastructure finance market from the domestic pension funds, insurance companies and other long-term investors to bridge the yawning infrastcture gap in the country.
Participants at the workshop included regulators such as the Nigerian Securities and Exchange Commission (SEC). Other participants were the Africa Finance Corporation, Nigerian Sovereign Investment Authority, FMDQ OTC Exchange, chief executive officers, chief investment officers, risk managers, and board members of domestic pension fund managers and life insurance firms.
“Our belief is that investor capacity building can play a critical role in unlocking the potential for sustainable long-term infrastructure finance by strengthening investors’ analytical skills in understanding infrastructure as an asset class and pricing the risk rating of credit enhancement tools. This is expected to deepen the participation of pension and insurance firms as natural investors in infrastructure assets” according to Chinua Azubike in his opening remarks at the workshop.
Participants at the investor workshop were sensitised on credit enhancement, its benefits and pricing, as well as approaches to investor protection. They also discussed issues bordering on credit rating methodology for infrastructure finance guarantors, secondary market liquidity on Infra Bonds. Besides, they learnt how to price credit and liquidity risk.
Chief Executive Officer of GuarantCo, Lasitha Perera, said the investor workshop exposed participants to the means of using credit enhancement to motivate investment in long-term bonds for financing infrastructure investment and identifying the existing products and potential deal flow.
GuarantCo is a member of the Private Infrastructure Development Group (PIDG) sponsored by five G12 governments. It provides guarantees to lenders to support local currency finance for infrastructure projects in low-income countries, promoting domestic infrastructure financing and capital market development.
“The emphasis (of the workshop) was on identifying the sustainable path to increasing the capacity of pension and insurance funds to invest in the infrastructure sector in the long term,” Perera said.
In his closing presentation titled “a tale of two countries”, Perera drew a contrast between South Korea and Nigeria, two countries that shared similar economic and demographic characteristics in the ‘70s. He highlighted how South Korea’s pension funds and other long-term private sector investors have accelerated economic development through long-term infrastructure investments as reflected in the country’s high domestic private sector credit to GDP. Mr Lasitha Perera, Chief Executive Officer of GuarantCo, said InfraCredit was established as a critical tool to play a catalytic role towards achieving a similar result in Nigeria by attracting Nigerian pension and other investors to see infrastructure as an asset class.
InfraCredit was established by the Nigeria Sovereign Investment Authority in collaboration with GuarantCo, with the key mandate of issuing guarantees to enhance the credit quality of local currency debt instruments issued to finance eligible infrastructure related assets in Nigeria, thereby acting as a catalyst to attract the investment interest from pension funds, insurance firms and other long-term investors.
InfraCredit’s guarantee of timely principal and interest payments to investors is backed by a claims-paying ability that has been rigorously tested by major local rating agencies and accorded a ‘AAA’ national scale rating by Agusto & Co. and GCR, an indication of the protection afforded to investors against credit risk.
It is expected that the successful operation of InfraCredit will address the constraints facing the Nigerian pension market and other long-term investors, thereby increasing their involvement in investing in long-term bonds to finance infrastructure assets.
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