African Development Bank approves ZAR 140-million loan to support African Local Currency Bond Fund
AfDB funding seeks to promote local currency bond issuers and develop domestic capital markets across the continent05/02/2018
The Board of the African Development Bank has approved a ZAR 140-million loan (about US $10 million) to the African Local Currency Bond Fund (ALCB Fund), to further enhance the Fund’s portfolio and promote the development of domestic capital markets across the continent.
The senior loan with a seven-year tenor including a two-year grace period, will support opportunities for local African corporate issuers to access and diversify their long-term funding sources in local currency and crowd in local institutional investors.
The ALCB Fund was incorporated in December 2012 by German Development Bank (KfW) on behalf of the German Federal Ministry of Economic Cooperation and Development and is licensed as an open-ended Fund, domiciled in Mauritius with initial paid-in capital of US $47 million.
The Fund is designed to promote local currency bond issuers in high-impact sectors by providing technical assistance to facilitate corporates bond issuances and champion best practice across various domestic debt markets. Geographically, the Fund is expected to invest in all African countries where local currency bonds are possible. It has invested in Botswana, Ghana, Kenya, Zambia, Lesotho, Senegal, Côte d’Ivoire, Nigeria, Uganda, Malawi, Gabon and Togo. As of December 31, 2017, the Fund had made 27 investments across 19 companies and in 10 currencies.
The products and services offered by the ALCB Fund are designed to improve access for non-sovereign issuers to long-term funding in local currency, reduce currency and maturity mismatches and increase local financial intermediation.
Through the funding, the African Development Bank will help to broaden and deepen Africa’s local currency corporate bond markets, thus supporting local capital market development in Regional Member Countries. The Fund will catalyze investments in critical sectors such as renewable energy, housing, health, education, the financial sector and agriculture in line with the Bank’s High 5 priorities: Light up and power Africa, Feed Africa, Industrialize Africa and Improve the quality of life for the people of Africa.
The transaction also provides an opportunity to leverage the Bank’s financing through ALCB Fund’s co-investments with local institutional investors such as pension funds and insurance companies; thereby amplifying the scope and impact investments.
The Bank’s contribution to the Fund will complement existing initiatives to mobilize domestic institutional savings and stimulate non-sovereign local debt capital markets development across Africa. This will ultimately help grow private sector financing through capital markets.