Acre Impact Capital has raised $100m to plug the financing gap for state-sponsored climate-aligned infrastructure projects in Africa with targeted debt financing.
London-based Acre Impact Capital has announced the first closing of its Export Finance Fund I.
The private-debt impact investment manager has received commitments of $100m (€93m) from a range of institutional investors, development finance institutions such as the European Investment Bank and FSD Africa Investments, impact first family offices such as Ceniarth, and impact fund of funds Trimtab Impact. Capital commitments have also been made by African investors, including South African banks Investec, Rand Merchant Bank and Standard Bank.
The fund, which is targeting $300m, aims to address a critical financing gap for African climate-aligned essential infrastructure by providing debt financing to African countries for projects partially backed by export credit agencies (ECAs) that would otherwise struggle to get off the ground.
Speaking to Impact Investor, Hussein Sefian, CEO and founding partner of Acre Impact Capital, explained that typically, infrastructure projects in developing markets are put out for tender to large engineering, procurement and construction companies (EPCs), based anywhere globally, who are asked to include a debt financing solution in their response.
This financing, which usually comes in the form of a loan provided by the EPC’s commercial banking partner, is backed by state-owned Export Finance Agencies (ECAs) but often stops short at 85% of the project value, leaving a 15% financing gap that risks delaying or even preventing the project from ever taking off.
By providing specialist financing for this 15% tranche, Sefian said the fund would mobilise $5.6 dollars of ECA-backed financing for every dollar of private sector capital invested- based on the simple ratio of 85% of the capital divided by 15.
This would allow essential infrastructure projects to see the light of day and Acre Impact Capital believes their fund is the first of its kind to leverage the transaction facilitation role of ECAs for impact.
“This is a specialised area of debt financing and I believe we’re quite unique in what we do,” said Sefian.
“The 15% tranche of financing is clean risk exposure to the project sponsors, in this case African governments. Many banks aren’t always able or willing to lend the 15% because they don’t have the risk appetite and because under Basel III regulations, the regulatory capital requirements are too high. In instances where the insurance capacity is not available, we step in to fill the gap and allow the deal to move forward.”
As well as attracting private capital, Sefian said that the additional debt financing would also allow for the ECA-guaranteed loan tenors to be extended up to 22 years, significantly enhancing project affordability for African governments.
ECAs: a big driver of emerging market financing
Sefian explained the important role ECAs played in driving financing into emerging markets.
“ECAs are like the cousins to development finance institutions supporting exports from their own country into other countries, mainly in emerging markets where access to private finance is limited,” he said. “They do this either through direct financing or through guarantees and collectively, this amounts to about $250bn guaranteed globally every year.”
Unlike DFIs whose focus is on supporting development, ECAs are predominantly concerned with supporting the export of content from their own countries into emerging countries explained Sefian.
“Depending on the ECA, content requirements range anywhere from as low as 20% to 50% or more of the project value being assigned to a given country’s products or businesses. If their requirements are met, they will provide support to commercial banks in the form of a guarantee, which covers all political risk and all credit risk up to 85% of the value of the transaction.
“This allows the banks to lend against that guarantee safe in the knowledge that if the government sponsoring the project defaults on their loan, they can always get their money back.”
Generally, the EPCs responding to these projects come from outside of Africa but Sefian said he had also seen instances in which African EPCs were able to access foreign ECA-backed schemes having sourced significant materials or services from the country in which the ECA was based.
African climate-aligned infrastructure
The fund will invest in 15-20 projects across four themes; renewable power; health, food and water scarcity; sustainable cities and green transportation.
“The area of financing we’re targeting sits in a little-known corner of financial services but with a lot of African infrastructure funded through the ECA mechanism, it plays an extremely important role in developing essential infrastructure on the continent,” he said.
The African Development Bank estimates that between $130 and $170bn is needed for infrastructure development in Africa every year for things like water, roads, telecoms and energy access, leaving a financing gap of $68 to $108bn.
“This doesn’t paint a complete picture as important areas such as healthcare or climate adaptation are not included,” said Sefian. “To rise to the challenge will require a range of financing solutions from equity investments and debt financing to mezzanine financing and our own focus on supporting ECA-backed debt.”
The fund is committed to gender smart investing and seeks to ensure at least 30% of its portfolio of projects meet the 2X Criteria, increasing the number of women represented across its investment portfolio.
The 2X Criteria are a global baseline standard for gender finance developed by the 2X Challenge, an initiative launched at the G7 Summit in 2018 as a commitment by DFIs to collectively mobilise private sector investments aimed at improving the lives of women in developing country markets.
