UK: FSD Africa invests £10m in Nigeria’s climate infrastructure

FSD Africa Investments, in partnership with InfraCredit, have invested £10m into a first-of-its-kind risk-sharing backstop facility, designed to unlock local currency funding for sustainable infrastructure development in Nigeria.

The Risk Sharing Backstop Facility (RSBF) will address the challenge of low credit enhancement by mobilising local institutional investment via bonds into viable early-stage or green-field climate-aligned infrastructure projects.

By increasing the accessibility of finance for climate-aligned infrastructure projects, the facility will help Nigeria accelerate social and economic development, green economic transition as well as deliver on climate goals.

Backed by the UK International Development through the Foreign, Commonwealth & Development Office (FCDO), FSD Africa Investments (FSDAi) is pleased to be undertaking this £10m investment in partnership with InfraCredit – an established player in the sustainable infrastructure financing space.

InfraCredit’s current investments and project pipeline demonstrates the breadth and variety of projects this facility will support, with projects ranging from distributed renewable energy services for urban residences, to commercial and industrial renewable projects, edge-certified green housing and e-mobility infrastructure.

The RSBF will raise funding in series, initially from FSDAi, and eventually from other funders – aiming to reach a total capital base of up to US$50m.This investment therefore aligns with one of FSD Africa’s primary objectives – developing capital markets by tackling blockages in the system.

UK Foreign Secretary, James Cleverly, said:

This investment further demonstrates the UK’s commitment and contribution to Nigeria’s transition to clean energy and builds on decades of UK leadership in mobilising support for climate-related infrastructure challenges. Just like the successes of British International Investment (BII) and our Private Infrastructure Development Group (PIDG), I am optimistic that InfraCredit will continue to grow and mobilise even more private sector capital to invest in better, greener infrastructure.

Chief Investment Officer, FSD Africa Investments, FSD Africa, Anne-Marie Chidzero, said:

FSDAi’s partnership with InfraCredit on the bridge-to-bond facility introduces a derisking financing solution to mobilise short and medium-term local institutional investment into critically needed infrastructure projects that are currently considered un-bankable without alternative credit enhancement. Moreover, as Africa’s economies struggle to mobilise capital to develop key climate mitigation and sustainable power generation projects, this facility comes as a timely and much-needed intervention for Nigeria’s infrastructure landscape.

Chief Executive Officer, InfraCredit, Chinua Azubike, said:

I am delighted to work with FSD Africa Investments on an innovative facility which will support much needed, but underfinanced projects realise their ultimate goals and purpose.

Smart use of catalytic capital can dramatically increase the role of private capital and local intermediaries in investing in Nigeria’s sustainable infrastructure space and help the country develop responses to the significant challenges which confront it from the deteriorating environment and ecology to an unstable energy mix and severe social inequality.

Background

About FSD Africa Investments

FSD Africa Investments (FSDAi) is the investing arm of FSD Africa, a UK International Development-funded regional programme operating in more than 30 countries from its Kenya base, to make finance work for Africa’s future.

FSDAi, has a total capital base of $131m, and a track record of backing innovation and deploys catalytic and high-risk capital to address financial market failures to bring about sustainable economic growth. Other investments in its stable include Persistent Energy, a leader and pioneer investor in the off-grid energy and e-mobility sectors in Sub-Saharan Africa, Nithio, which invests in renewable off-grid energy, and Nyala Venture, a fund designed to support African alternative capital providers targeting small and growing businesses, particularly those which are women-led or are applying a gender lens investment strategy.

While FSD Africa supports market development through advocacy, thought leadership, and capacity support, FSDAi makes investments in support of these policy objectives in novel financial instruments, facilities and intermediaries that can accelerate the role of finance in Africa’s green economic growth. As a private company limited by shares, FSDAi’s shareholders include both FSD Africa and the UK’s Foreign, Commonwealth & Development Office (FCDO). For more information, visit FSD Africa.

About InfraCredit

InfraCredit provides local currency guarantees to enhance the credit quality of debt instruments issued to finance creditworthy infrastructure assets in Nigeria that conform with its eligibility criteria. Since its inception in 2017, InfraCredit has built an exemplary record supporting strategic Nigerian infrastructure projects, having written ₦145bn (approximately US$315m) of guarantees underwriting bond issuances by eleven companies distributed across the power, transportation and logistics, ICT/telecommunications, gas to power, LPG clean cooking and input to infrastructure sectors. All of these issues have been fully subscribed, some by more than 160% by domestic pension funds and insurance companies.

InfraCredit’s financing is necessary because long-term capital required by infrastructure entities/projects to be commercially successful is not available from the domestic banking market. InfraCredit’s guarantees act as a catalyst to attract investment interests from pension funds, insurance firms and other long-term investors, thereby deepening the Nigerian debt capital markets.

Its successful operation will address the constraints facing the Nigerian pension and insurance market and motivate their involvement in investing in long-term bonds to finance infrastructure assets. For more information, visit InfraCredit.

Source – UK Government