To date, the African Local Currency Bond Fund has invested $420m in African companies in sectors ranging from financial inclusion to renewable energy and affordable housing.
The African Local Currency Bond (ALCB) Fund has raised $30m (€25.6m) from an unnamed UK-based insurance company through the issuance of a 10-year bond under its Euro Medium Term Note (EMTN) programme. This framework allows a financial institution to raise capital multiple times under the same documentation with standardised terms.
The ALCB Fund, managed by emerging markets-focused investment bank and asset management firm Cygnum Capital, anchors corporate bonds in local currency to support the development of African capital markets. Its investments have achieved a 9.1x private capital mobilisation ratio, meaning that for every dollar it invested, an additional $9.10 was mobilised from local investors.
Since its foundation in 2012 by German development bank KFW, the ALCB Fund has deployed more than $420m, backing 67 companies focused on financial inclusion, renewable energy, affordable housing, and other critical sectors across the African continent.
Institutional backing
Getting the bond fully subscribed by the fund’s first private institutional investor is a “significant step forward” for its strategy to mobilise private capital in support of the Sustainable Development Goals (SDGs), according to Brock Hoback, fund lead at the ALCB Fund.
“At the heart of the African local currency bond fund has always been a focus on private capital mobilisation. Historically, though, the way that we did that was through the co-investment requirement we had. So when we invest in a bond in local currency in Africa, we will only take up to 50% of the issuance amount, and the rest needs to come from local institutional investors,” Hoback told Impact Investor.
With the UK-based insurer coming on board, the fund is now also trying to mobilise international private capital directly through the fund itself, according to Hoback. It does this by leveraging both its balance sheet and its “robust capital structure” underpinned by development finance institutions such as KfW and FSD Africa Investments, he added.
“The hope is that this builds forward momentum in our private capital mobilisation strategy,” Hoback said.
Moody’s rating
The bond, which was completed with HSBC Continental Europe acting as a dealer, was rated Baa1 by Moody’s Investors Service. The notes are listed on The International Stock Exchange. The ALCB Fund, which has the same Baa1 rating, is the second-highest rated Africa-focused investor, after the Africa Finance Corporation.
“Since inception, we’ve had write-off ratios of less than 2%, which speaks to our local currency mandate, which is that if you enable businesses to match local assets and liabilities, and support them to tap local institutional investors as a source of funding, you materially reduce credit risk,” Hoback said. He went on to say the Baa1 rating by Moody’s had played a “crucial role” in attracting institutional investors.
“We are delighted to have supported the ALCB Fund in broadening its investor base and attracting institutional capital to support African markets. This transaction showcases how international bond markets can mobilise the private investment community for good and is expected to be a springboard from which other investors will participate,” said Robert Anson, vice president, debt syndicate at HSBC.
