The African Development Bank (AfDB) launched last month their Room2Run initiative. This synthetic securitisation of a $1bn portfolio of private sector loans will effectively free up $700m off the bank's balance sheet that they can now re-deploy to new projects We spoke to Raza Hasnani, head of infrastructure investments at the Africa50 fund, who were investors in this new instrument and who helped structure the deal.
The Africa50 fund officially opened its headquarters in Casablanca, Morocco, in September of this year. Mandated in 2013, during the African Union's 50th anniversary, it has built a capital base of $850m with a medium-term target of $3bn. When African Business spoke to its senior management team, they said the fund would focus on developing a pipeline of bankable projects (feasibility studies and early stage investments), project finance (taking exclusively strategic equity stakes, as opposed to debt) and mobilising more capital into infrastructure.
Operating with both a commercial and development mandate, they have identified four sectors where they intend to be active: the power sector, transport and logistics, ICT and the mid-stream gas sector. Typically, a $1bn fund will be able to invest in 10-15 projects, but according to Reza Hasnani, given the way Africa50 intends to operate, and the fact that they will in general take a minority stake, they anticipate they'll be involved in many more than this. To date they have invested in four transactions, mostly in power projects and the fifth being the Room2Run initiative.
This sort of initiative is part of the fund's strategy to get institutions, development banks and commercial ones to better use their balance sheets through what they call "asset recycling", by getting out of certain projects and using his freed-up balance sheet to fund new ones. The Room2Run transaction took a while to happen but Hasnani says that now the template is there it's one that can be replicated not only on the' continent but globally by other multilateral development banks (MDBs) and international finance institutions (IFIs). Africa50 were not only investors in the security but also helped select the underlying assets, the 40 or so projects that make up the $1bn portfolio. In this interview, Hasnani tells us how they went about it and also where he sees the fund acting next.
In terms of selecting the underlying projects that you securitised fora billion dollars, how did you go about it?
It was both an...