g20 africa infrastructure investment conference financing infrastructure in africa stephan...
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G20 Africa Infrastructure Investment Conference
Financing Infrastructure in Africa
Stephan Diefenthal, Vice President
London, 18 July 2013
DEG: We finance opportunities.
A bank with a wide range of responsibilitiesDEG, a subsidiary of KfW
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Developing and emerging-market
countries:Financial
cooperation
International Financing
We promote Germany
Promotion construction
of new housing and modernization
as well as education
Promotion SMEs, business founders,
start-ups
Financing municipal infrastructure
projects and global loans Germany
agency business for Federal
Government
Domestic Promotion
We ensure internationalisa
tion
International project and
export finance
Business area Mittelstandsbank
Business area Privatkundenba
nk
Business area Kommunalbank
KfW IPEX-Bank Business area KfW Entwicklungsbank
Developing and emerging-market
countries:Private sector
promotion
DEG
Promotion of environmental and climate protection
We promote development
DEG at a glanceFacts and Figures 2012
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› Established 1962
› Employees 480
› Head office Cologne
› Shareholder KfW Frankfurt
› Equity EUR 1.8 billion
› Balance sheet total EUR 4.7 billion
› New business EUR 1.3 billion
› Portfolio EUR 6.0 billion
DEG is a partner for companies investing in emerging markets and developing countries. For more than 50 years, we have been successfully supporting people and markets on the spot.
DEG at a glance
Mandate and working method
› German development finance institution (DFI) for the private sector in emerging markets and developing countries
› Specialist for entrepreneurial development in all sectors of the economy
› Agribusiness, finance sector, infrastructure, manufacturing industries, services
› Long-term investment capital for private enterprises
› Financing of investments with a positive developmental impact
› Market-oriented conditions
› Ecological and social acceptance according to international guidelines
› Contributions to sustainable economic growth and poverty reduction
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Reasons to corporate with DEG
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Strategic planning
• Information on possible types of finance
• Advice on strategy and countries
• Evaluation of business plans
• Advice via local DEG offices
• Arranging contacts with local authorities and institutions
• Participation development cost
• Political support
Long-term finance
• Structuring of tailor-made finance
• Provision of various financing instruments
• Arranging of additional finance from commercial banks or financial institutions
• Finance from public programmes
• Coordination of the complete finance package
Competent partnership
• Establishment of suitable controlling instruments
• Mobilisation of additional funds
• Analysis of weak points
• Restructuring• Specific project and
sector expertise
Infrastructure Brochure / Cologne / 25.02.2013
New business 2012EUR 1.3 billion
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29%
27%
21%
16%
8%
Finance sector
Industrial sector
Infrastructure
Agribusiness and food industrie
Service
Sectors
37%
31%
18%
14%
Latin Amer-icaAsiaAfricaEurope
Regions
With a share of nearly 40 per cent, risk capital financings are at the core of DEG’s new business.
Mexico City
Lima
São Paulo
Accra
Johannesburg
Nairobi
Istanbul
Moskow
New Delhi
Peking
Bangkok
Jakarta
SingapurLatin America EUR 1.6bn
146 companiesLatin America EUR 1.6bn
146 companies
Africa EUR 1.1bn123 companies
Africa EUR 1.1bn123 companies
Europe EUR 1.3bn108 companies
Europe EUR 1.3bn108 companies
Asia EUR 1.8bn191 companiesAsia EUR 1.8bn191 companies
DEG worldwideOur work on-site
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› Strategic
› Reliable
› Developmental effectiveness
› International networks
Our commitment
› Profitable
› Successful in the long-term
› Environmentally andsocially compatible
Our project criteria
Our customers benefit from our network across the globe and individualised on-site advisory services.
Portfolio, as of: 31/12/2012
DEG representative offices
Our portfolio: EUR 6.0 bn
A strong allianceDEG is a member of the European Development Finance Institutions
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› Mobilisation of further capital
› Shared risks
› Structuring of complex finance
› Further partners outside Europe (International Finance Corporation, regional development banks)
International partnerships
DEG is one of the leading European development finance institutions which have joined to become the association of European Development Finance Institutions (EDFI).
Promotion of the developing countries: private sector
Establish and expand private sector structures in developing and transition countries
› for a sustainable economic growth
› for lasting improvement in the living conditions of the local population
By means of:
› Long Term Loans
› Mezzanine Finance
› Equity
› Guarantees
supported by technical assistance
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Financial instrumentsLong-term loans
› Currency: EUR or USD, in exceptional cases also local currencies
› Term: usually between four and 15 years
› Grace period: depending on cash-flow of the project company
› Interest rate: fixed or variable, margin is market-oriented depending to project and country risks
› Collateral: fixed and movable assets in the country of investment, project-specific arrangements
› Amount: usually up to EUR 30 million; larger volumes through cooperation with EDFI
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Financial instrumentsEquity capital
› Equity participation in the project company
› Minority stake, usually over a limited period
› Variable arrangement of the risk components (common shares, preference shares)
› In certain cases, voting rights and board seat
› Clearly defined exit strategies
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Financial instrumentsMezzanine finance
Financing combining elements of equity and debt:
› Tailor-made arrangements
› Subordination
› Conversions options
› Risk-oriented yield (equity kicker/ Ebitda multiple)
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General criteria for DEG financing
› Integrity, transparency of shareholder
› Track record of shareholder (know how, finance, management)
› International accounting standards
› Transparent corporate governance; secured local legal framework
› Majority interest in the project company through private company and private management
› Adequate protection for foreign capital investment; transfer of capital must be assured
› Limited governmental influence on license and concession agreements (independent regulatory authority)
› Financing: Equity ratio of at least 25 % (depending on project structure up to 40 %), adequate cash-flow oriented structure (i.e. debt service coverage, current ratio, flexible repayment structures)
› Minimum environmental social standard: in compliance with local, EU and World Bank requirements; in compliance with international standards of the International Labour Organisation and the UN
› Construction: Preferred: EPC contract on turn-key basis with completion and performance guarantees; adequate arrangements to cover cost overruns, project delays, unexpected event
› Operation: Long term O&M contract with experienced operator; modern equipment and operating system
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DEG activities in the African Infrastructure sector
14Infrastructure Brochure / Cologne / 25.02.2013
Infrastructure: The African context
› High and sustainable economic growth of Africa’s economy: 5.4% average growth 2004-2012 (source: African Economic Outlook 2013)
› Expected increasing FDIs: USD 42.7bn in 2011, USD 49.7bn in 2012 and expected USD 56.6bn in 2013 (source: African Economic Outlook 2013)
› Current spending on African Infrastructure: USD 45bn p.a.; need to spend USD 93bn p.a. to plug the infrastructure gap in Africa (source Infrastructure Investor Africa/AICD/World Bank)
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DEG activities in the African Infrastructure: sub-sectors
› Power production and distribution: conventional thermal (HFO, diesel, gas), renewables (wind, hydro, geothermal, solar, biomass)
› Telecommunication: mobile, fixed line, towers, submarine cables, satellite
› Water & waste: treatment, supply, sewage systems, desalination
› Transport: airports, railways, toll roads, harbors, container terminals, pipelines
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Type of Transactions
› Expansion of existing business
› Greenfield projects (with strong sponsor)
› Privatization
› Buy-outs (combined with new investments or significant improvements through new shareholder structure)
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DEG financing in the African Infrastructure
DEG commitments in African Infrastructure (as of 31.05.2013):
› All Infrastructure: USD 664m (= 29% of USD 2.3bn global DEG commitments)
› Power: > USD 200m = 31% of USD 650m globally (10 projects – gas, diesel, geothermal, hydro, wind, solar); strong African project pipeline: > USD 150m in 2013/4
› Telecommunication: Africa USD 380m (21 projects – mobile (18), fixed line (1), towers (1), submarine cables (1), satellite (1); project pipeline: > USD 80m (mobile, towers)
› Water & waste: nil
› Transport: > USD 100m (gas pipeline, rail, container terminal, toll road/bridge, barges, logistics)
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Conclusions for future DEG activities in African Infrastructure
› Strong business potential in African infrastructure due to existing gap and high GDP growth rates; DEG to almost double its new commitments in Africa to ca. USD 600m p.a. within next 4 years, expects up to 40-50% of its future business in Africa coming from infrastructure sector
› Power/Energy to remain the key sector for DEG; focus on renewable energy but also conventional thermal energy and energy distribution. Key countries: South Africa, Kenya, Nigeria, Ghana, Côte d’Ivoire, Cameroon, Zambia; also open for other countries (off-take structure, legal environment for IPPs)
› Telecommunication remains strong sector, shift from mobile (voice) to data transfer and infrastructure service providers (e.g. towers) expected
› High potential for transport sector: container terminals/ports, toll roads, airports, pipelines, logistics, etc.
› Water & waste: on selective basis (market liberalization = prerequisite)
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Selected References Mobile Telecommunication NetworkCELTEL International - Africa
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The Solution• Promoting a newly established company founded by Dr.
Mohamed Ibrahim with equity capital provided in several tranches by international financial institutions,
investment funds and DFIs
• Board- and Management team with rich track record in telecommunication and experience in Africa
The Challenge• Setting up of an Pan-African mobile phone operator in
13 African countries
• High growth potential for telecommunication services across the continent
• Low teledensity / poor fixed line systems
Value Added by DEG• DEG contributed USD 15 million venture capital in start-
up phase and suported expansion phase with another US$ 7 million
• DEG experience in developmental projects conveyed through Board Observer Seat
Financing of a Mobile Phone Operator in Sub-Saharian Africa
Equity Amount: US$ 22 million
Selected References 48 MW Geothermal Power PlantOlkaria III – Kenya
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The Solution• Project finance USD 105m
• Compliance with IFC Performance Standards (environmental/social)
• Strong project sponsor and management team
• Strong project advisors
The Challenge• One of first IPPs in Kenya and first geothermal IPP in
Africa
• High potential for geothermal power in Africa
• Country risk (2009), off-take risk
• Environmental and social impacts
Value Added by DEG• DEG contributed USD 50m own finance and acted as
arranger for USD 105m debt finance.
• Strong DEG experience in Kenya and power sector
• Geothermal know-how available in KfW Banking Group
Financing of a Geothermal Power Plant in Kenya
Senior Loan: USD 50m
Debt Arranger for USD 105m
Get in touch!
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Stephan DiefenthalVice President AfricaInfrastructure & Mining
Phone: +49 (0) 221 / 4986 - 1359Fax: +49 (0) 221 / 4986 – 1582
DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH
Kämmergasse 22
50676 Köln
Germany
www.deginvest.de