Nigeria may be in for a fresh financing of its infrastructure projects, courtesy of the African Development Bank (AfDB), as the lender signed into a $1 billion Multi-Lateral Development Bank and private sector investors’ facility, tagged Room2Run.
The initiative, which includes the European Commission, Mariner Investment Group, Africa50, and Mizuho International Plc, is aimed at pioneering the use of securitization for new and previously unexplored segment of the financial markets.
Structured as an impact investment, Room2Run is designed to enable AfDB increase lending in support of its mission to spur sustainable economic development and social progress.
Already, the bank, in connection with Room2Run, has committed to redeploying the freed-up capital into renewable energy projects in Sub-Saharan Africa, including projects in low income and fragile countries.
Meanwhile, the African Export-Import Bank (Afreximbank) has closed in on another facility, signing into a Korea-focused $150 million club loan, which has Shinhan Bank as coordinator and lender, with other participating institutions in the three-year tenor deal including KEB Hana Bank, Woori Bank and NongHyup Bank.
Afreximbank’s Executive Vice President in charge of Finance, Administration and Banking Services, Denys Denya, said the facility would greatly enhance Afreximbank’s capacity to achieve its core mandate, in particular, expanding intra-African trade, supporting export manufacturing.
He said it will also significantly fill the trade finance gap the continent was currently experiencing, by providing it with the requisite funding capabilities at competitive pricing.
“The facility also helps Afreximbank to diversify its sources of funding by geography, instrument and investor base,” he said.He noted that despite being a debut facility in the particular market, the facility, which targeted to raise $150 million, was oversubscribed to the tune of $160 million, with four banks joining in, saying that the development was clear testimony of strong confidence in Afreximbank.
By the arrangement, Room2Run will transfer credit risk on a portfolio of approximately 50 loans from among AfDB’s non-sovereign lending book, including power, transportation, financial sector, and manufacturing assets, providing the needed liquidity.
The said portfolios span the African continent, with exposure to borrowers in North Africa, West Africa, Central Africa, East Africa, and Southern Africa, while the global alternative asset manager and a majority-owned subsidiary of ORIX USA- Mariner Investment Group, are the lead investor in the transaction.
AfDB Group President, Akinwunmi Adesina, has described Room2Run as fresh resources to invest in the projects Africans need most, adding: “Africa has the most promise, the greatest natural resources, and the world’s youngest population.
But we also have the world’s most persistent infrastructure deficits.
“The African Development Bank has the strategy to address these infrastructure finance gaps–and Room2Run gives us the capacity to make it happen.
“The Lead Portfolio Manager and Head of the Mariner Infrastructure Investment Management, Dr.
Andrew Hohns, said: “Room2Run answers the call of the G20 for private sector participants to step in and facilitate development finance, providing a template for attracting significant private sector capital into urgently needed projects in developing economies.”
“On the Impact scale, Room2Run is off the charts,” said Dr. Andrew Hohns, Lead Portfolio Manager and head of the Mariner Infrastructure Investment Management team.
“Room2Run answers the call of the G20 for private sector participants to step in and facilitate development finance, providing a template for attracting significant private sector capital into urgently needed projects in developing economies.”
Also, the Head of Infrastructure Investment at Africa50, Raza Hasnani, said: “Room2Run provides an innovative and commercially viable solution to AfDB’s risk management and lending objectives, while paving the way for commercial investors to support and benefit from the growth of infrastructure on the continent.
Africa50 is very pleased to participate in this landmark transaction, which is in line with our mandate to drive increased investment in infrastructure in Africa, and to create pathways for long-term institutional capital to flow into this space.”
Room2Run enjoys the support and participation of the European Commission with an investment from the European Fund for Sustainable Development, in the form of a senior mezzanine guarantee.
“Only a few days after announcing our renewed Alliance with Africa for sustainable investments and jobs, I am very happy to announce that we are, together with the African Development Bank, launching Room2Run.
“This initiative is a perfect example of what we are doing to support investments in African low income and fragile countries through the External Investment Plan.
Through Room2Run we provide an additional protection to investments in the field of renewable energy.
“Through our Guarantee, investments under Room2Run will translate into extending supply to many people currently without electricity whilst creating much-needed new jobs,” the European Commissioner for International Cooperation and Development, Neven Mimica, said.
Room2Run also directly responds to calls by the G20 that MDBs use their existing resources to full capacity, as articulated in the 2015 G20 MDB Action Plan to Optimize Balance Sheets, as well as calls for greater MDB efforts to crowd-in private investment
. The G20 has called on MDBs to share risk in their non-sovereign operations with private investors, including through structured finance, mezzanine financing, credit guarantee programs, and hedging structures.
The Government of Canada has been a global leader in advocating for MDBs to use their existing resources more efficiently and to mobilize private capital for global development.
“Attracting more private capital into global development efforts is critical to building economies that work for more and more people around the world,” Canada’s Minister of Finance, Bill Morneau, said.
“That’s why Canada and our G20 partners have been calling on multilateral development banks to use their existing resources as efficiently as possible, and to look for new ways to attract more private capital.
We are pleased to see the African Development Bank come forward with a transaction that directly responds to both of these objectives. Room2Run is an innovative solution to a long-standing challenge,” he added.
Co-Head of Structured Solutions at Mizuho International, Juan Carlos Martorell, notes: “Compared to other synthetic securitizations, a major achievement of Room2Run has been to ensure that ratings agencies, and in particular, S&P, reflect the merits of the risk transfer into their rating assessments for multilateral development banks.”AfDB’s leadership through this transaction has now set the stage for broader adoption of the instrument throughout the MDB community.”