In the lead-up to the Africa Energy and Infrastructure Investment Forum, we spoke to some of the key market participants who will also be on stage as panelists in London.
This Interview Series, gets to grips with what is front of mind for many developers and financiers as the African energy and infrastructure landscape evolves. Our speaker, Chinua Azubike, CEO of InfraCredit in Nigeria, shared his insights on some of the key challenges and opportunities.
What is the primary challenge that you are currently facing in the market, and how are you adapting to this?
Nigeria requires an estimated USD3 trillion to finance its infrastructure deficit; in order to bridge the current infrastructure gap and increase core infrastructure stock, Nigeria needs an investment of USD $127 billion over the next 5 years translating to an average of $25 billion per annum from 2014-2018. Budgetary resources alone is inadequate to meet Nigeria’s infrastructure requirements. To finance infrastructure development, the domestic debt capital market needs to be relatively developed to support long term local currency financing, the Nigerian bond market has witnessed significant growth and activity in recent times.
Despite its size, the banking sector’s overall appetite to take and hold large infrastructure project loan assets is much reduced, due to liquidity constraints and post-financial crisis regulation with the expected implementation of Basel III by 2018.
The total pension assets in Nigeria has grown considerably from N47 billion in 2004 to its current level of N7 trillion as at December 2017, with a projection to reach N10 trillion by 2020. There is currently less than 1% investment in infrastructure bonds. Pension funds are, in fact, ‘natural’ investors in infrastructure assets, since the long maturity and fixed rate nature of infrastructure-related bonds are a good match to their long-term liabilities.
InfraCredit is a ‘AAA’ rated local currency specialised financial guarantor recently established early 2017 by the Nigeria Sovereign Investment Authority in collaboration with GuarantCo to provide guarantees to enhance the credit quality of 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 guarantees will facilitate the issuance of long dated (up to 20 years) creditworthy investment instruments that pension funds and insurance companies, especially life and annuity insurance funds can invest in, to match the maturity structure of the contractual liabilities on their investment portfolios.
What has been the most interesting development in sub-Saharan Africa energy and infrastructure this year, from your perspective?
Off-grid/captive/embedded power solutions. Within the Nigerian power system, captive generation (Off-Grid Power) offers some distinct advantages: (i) industrial consumers can generate the power needed for their operations; (ii) the request for a permit for captive generation involves the least hurdles in terms of financing and regulatory risks; and (iii) captive generation represents the optimal use of electrical power, since there are theoretically no technical (transmission) or commercial losses to be dealt with.
Furthermore, embedded generation does not only offer advantages for industrial consumers, but also for states and local governments, which can achieve power supply aspirations within their borders without constitutional constraints.
What is your key goal for your organisation in the next year?
Our key goals are to increase market penetration in terms of support access to long term local currency financing for infrastructure in Nigeria, and also to improve our product design in order to increase the development impact in the market.
Which country in sub-Saharan Africa excites you the most in terms of its energy/infrastructure potential, and why?
Nigeria is the most populous country in Africa with an estimated 186 million people as at 2017, aggregate electricity need in Nigeria has been estimated at about 160,000 Mega Watts (MW) to satisfy the local electricity demand. With an installed capacity of 11,165 MW, only an estimated 6,056 MW of available capacity is operational. Of these, only between 3,000 MW to 4,500 MW are actually being generated due to unavailability of gas, breakdowns, water shortage and grid constraints which has led to acute shortage of power across the country. Nigeria’s transmission grid is estimated to cover a maximum 40% of the country, with annual self-generating capacity outside the national grid put at over 15,000 megawatts.
What is the most interesting project you have ever worked on, and why?
InfraCredit issued its maiden guarantee, supporting the first corporate infrastructure bond in the Nigerian debt capital market issued by Viathan Group, a power developer, successfully connecting infrastructure as an asset class to the long-term local currency debt capital markets in Nigeria. Viathan Group develops captive and embedded (off-grid) power solutions for governmental, commercial and residential off-takers across Nigeria, using natural gas as fuel with a combined generation capacity of 50MW.
With InfraCredit’s guarantee, Viathan Group, through Viathan Funding Plc, a special purpose vehicle established to raise debt capital, successfully accessed the debt capital markets for the first time by issuing a NGN 10.0bn Bonds backed by the irrevocable and unconditional guarantee of InfraCredit and accorded ‘AAA’ long term national scale rating.
The Bonds will be the first corporate infrastructure bonds issued in the Nigerian debt capital markets with a tenor of 10 years, extending the yield curve for corporate debt issuances. The success of these Viathan Bonds provides a strong signaling effect to foreign institutional investors that the Nigeria local currency debt capital market, with a potential of up to NGN2 trillion in allocable capital from local pension funds, can support Nigeria’s infrastructure sector.
Africa Energy and Infrastructure Investment Forum – Speaker Profile
Chinua is the Chief Executive Officer of InfraCredit, the first ‘AAA’ rated specialised local currency infrastructure credit enhancement facility in Nigeria. He has garnered over 15 years’ experience in corporate/structured finance and debt capital market roles. Chinua has a strong and practical know-how of domestic debt capital markets with a firm interest in market development, and has acted as a lead adviser in the establishment of key development finance institutions in Nigeria. He was the project lead for the establishment of a Nigeria Infrastructure Credit Enhancement Facility (now InfraCredit) and prior to this role, the Managing Director of Dunn Loren Merrifield Advisory Partners, a corporate finance advisory firm. He holds an Msc in Finance & Financial Law from University of London and studied law at the University of Lagos. He is currently the chairperson of the Regulation Consolidation Sub-Committee of FMDQ Debt Capital Market Development Project.
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