Nigeria: New $320m fund targets mid-sized power projects

The growing risks attached to investing in developed country infrastructure are prompting renewed investor interest in African projects.

Inflows into private markets for developed country infrastructure have resulted in valuations close to those of 2007, with investors being forced into riskier, non-core assets to generate returns, Declan O’Brien and Alex Leung of UBS Asset Management argued in April.

• The risk of further correction in public markets is a further headwind to private infrastructure investment, the UBS piece said.

African infrastructure investment has grown beyond its development finance origins, with final closes for Africa-focused infrastructure funds over the last five years averaging $233m annually, Frankish says. AIIF3 will be targeting the power, transport and midstream energy sectors where AIIM sees the greatest disconnect between the demand for critical infrastructure and available capital.

• More than half of the fund is already committed to assets across the thermal power, renewable energy, ports and logistics and airports sectors.
• Frankish sees strong opportunities in the off-grid power sectors in Nigeria and east Africa.
• AIIM says that at full generation its projects will generate 13% and 27% of on-grid generation in Nigeria and Mali, and 17% of Ghana’s on-grid capacity.

The mid-stream energy in west Africa and transport in east Africa is also attracting the fund’s interest.

• The fund has concluded deals in Mali, Cote d’Ivoire and the Republic of the Congo and is in advanced discussions on projects in Benin and Burkina Faso.
• AIIM expects to complete the fund’s investments in the next 18 to 24 months, Frankish says.

Diversification

The fund is structured as a long-term, closed-ended fund with a five-year commitment period and a 13-year term – similar to traditional private-equity funds, but with an extended period to support the longer-term nature of infrastructure investments, Frankish says. AIIM, a member of Old Mutual Alternative Investments, has offices in Abidjan, Nairobi, Lagos, Cape Town and Johannesburg.

AIIM prefers deals in the $20-$30m range, seen as less competitive due to shorter construction periods and reduced execution risk.

• Larger marque deals tend to be more competitively bid and are less frequent, Frankish says.
• They also usually entail complex development, approval and logistics management with multiple stakeholders and often multiple jurisdictions involved, he adds.

The fund will have around 15 assets when fully invested. That doesn’t mean abandoning the advantages of scale.

• The AIIF3 fund prefers partners with whom multiple investments can be executed and to seek assets which can be aggregated into portfolios, providing scale to support exits.

“The exit environment for African infrastructure is much more robust and active than many realise,” Frankish says, pointing to recent auction exits by the previous AIIF2 fund from investments in Kenya and Nigeria.

Bottom Line: A diversified approach to infrastructure projects will help to bring African onto more fund management radars.

By David Whitehouse