African Development Bank Group
Presentation by GCRO/IRMA at the Workshop
Mobilizing Institutional Investment in Africa
A joint Initiative by USAID and SIDA
October 22-23 2014
The Bank’s new Group Chief Risk Office is actively supporting various private sector portfolio management initiatives to manage its capital efficiently, create new headroom, and crowd in new investors.
• Africa Growing Together Fund (“China Fund”)
• Africa 50
• Private Sector Facility (“PSF”)
• Credit Insurance and Risk Participation Agreements
• Collaboration with other IFIs such as MIGA
• Vertical risk sharing with credit enhancement NEW!
• Investors have a preference for Cash flow generating long term infrastructure projects. They are interested in Africa as a diversification and want to team up with a experienced partner who has privileged client relationships, project finance expertise and a long term vision.
• AfDB is exploring with a US based asset management firm a synthetically transfer of part of its private sector exposures into a Special Purpose
Vehicle (“vertical risk sharing”) while remaining lender of record and managing the portfolio as usual.
• A credit enhancement, fully collateralized by cash or highly rated securities, would support the transferred portfolio, benefiting the AfDB and providing capital relief and additional headroom .
Characteristics of the AfDB Private Sector Infrastructure Portfolio
Country of Project
(Data as of YE 2013)
Infrastructure Sector power projects wind power project power and transport transport
Oil &Gas air transport power wind, thermal power hydro and mining mining mining toll road, port, power
Airport, port, road, power
South Africa Power, transport, mining, gas
Airport, Oil & Gas
Ticket sizes (approx. at approval in USD MM)
$50, 25 and 35 MM
$70 MM and X MM
$50 MM and 2 MM
$150 and $30 MM
$4, $10, $10 MM
$145, $7, $35MM
$140, $4 MM
$100, 20, 15, 75 MM
$450, 150, 175, 8 MM
$75, 45 MM
(i.e. Board approval)
2006, 2010, 2011
2005. 2009, 2010, 2011
2007, 2009, 2010, 2011
Characteristics of the Private Sector Portfolio of the African
Development Bank which makes it an attractive partner for
Institutional investors (pension funds and asset management cies).
• The AfDB has a large portfolio of Cash flow generating long term infrastructure projects, which provides diversification as to geography, sectors and sponsors.
• The Bank is a seasoned, experienced partner who has privileged client relationships, project finance expertise and a long term vision.
• Preferred Creditor status for convertibility and transferability and excellent workout experience because of its close relationships.
• AfDB has a strong culture of social and environmental safeguards
• The Bank is present with a representative office in most of its countries of operation which allows for close monitoring
• An US asset management firm which manages pension funds for state retirement plans and corporate retirement accounts is working with the
Bank on a model which can be replicated once put in place (scheduled for
• AfDB would synthetically transfer part of its private sector exposures into a
SPV (“vertical risk sharing”) while remaining the lender of record and managing the portfolio as usual.
• A credit enhancement, fully collateralized by cash or highly rated securities, would support the transferred portfolio, benefiting the AfDB and providing capital relief during the time of protection which would correspond to the
WAL of the portfolio.
SPV = Special Purpose Vehicle
• The asset management firm would agree with the AfDB on a certain percentage of a selected group of projects while the Bank would retain an material stake in the project (to avoid “moral hazard”).
• The AfDB would synthetically assign that part of its private sector exposures into a SPV (“vertical risk sharing”, using credit linked note documentation with reference obligations and defined events of default) while remaining the lender of record and managing the portfolio as usual.
• The asset management firm would provide due diligence on the Bank’s underwriting and portfolio management policies and procedures but not in depth deal specific due diligence
SPV = Special Purpose Vehicle
• A credit enhancement would protect the transferred portfolio, for the benefit of the AfDB.
• It would be sized in function of the diversification of the pool of assets in terms of countries, industries and sponsors, size of the individual transactions being included and length of this proposed arrangement.
• In case of an event of default as defined, a pre-agreed percentage of expected loss would be applied and securities sold in the collateral account to make the Bank whole. After final recovery, adjustments would be made if appropriate.
• The collateral account would remain available throughout the period of protection (or in unlikely case until all credit enhancement would have been exhausted).
• While only cash flow generating assets would be included initially, greenfield projects could be identified for future inclusion, once the construction period (and risk) were over, creating as such a revolving structure and allowing for substitution in case of refinancings.
• Pricing of the credit enhancement would be in function of appropriate risk rewards for the asset management firm and its investors.
AfDB also has other initiatives to crowd in institutional investors
• The following slides are for information purpose only, they provide additional examples of other AFDB risk mitigation initiatives, to provide create headroom, manage capital more efficiently and provide coinvestmentopportunitiesto institutionalinvestorsinAfrica
For additionalinformationon the aboveand otherinitiatives,pleasecontact:
Tim Turner, Group Chief Risk Officer, African Development Bank Group
Office: +225 20262051 Email: T.Turner@afdb.org
Dominiek Vangaever,Initiative for Risk Mitigation in Africa, AfDB
Office: +216 7110 1837 Email: D.Vangaever@afdb.org
Luigi de Pierris, Initiative for Risk Mitigation in Africa, AfDB
Office: +225 20261000 Email: L.DePierris@afdb.org
Keith Martin, Initiative for Risk Mitigation in Africa, AfDB
Office: + 225 2026 1000 Email : K.Martin@afdb.org
Stefano Capodagli, Chief Risk Reform Officer, AfDB
Office: +216 71101210 Email: S.Capodagli@afdb.org
The Private Sector Facility (PSF) is a dedicated guarantee facility for private sector operations in low income countries and can be scaled up to catalyze more private sector investments
• The AfDF established a private sector credit guarantee facility with $250 mn seed funding, but will seek other bilateral partners as well.
• AfDB identifies, appraises and finances new non-sovereign loans and acts as the lender of record
• AfDB implements guaranteed projects on behalf of the PSF and pays a guarantee fee reflecting the margin on the underlying loans..
• The PSF will leverage its capital 3-4:1 through its partial credit guarantees and will seek to maintain an “investment grade” rating and thus should enable the Bank to expand its non-sovereign operations even in higher risk countries .
Africa 50 is expected to become a key infrastructure co-financing partner for the Bank
• The Bank is the lead partner for the Africa 50 infrastructure project development and project financing facility.
• The Bank will invest in Africa 50 and expects to catalyze at least $5 from other investors for each $1 from the Bank.
• The Bank expects to use Africa 50 to co-finance most of its large commercially viable infrastructure projects.
• Expected to be operational before year end 2014. (approved during recent Annual Meeting.)
The AGTF is an example of a catalytic managed facility to cofinance Bank-led public and private sector operations, which the bank seeks to replicate
• China funds the $2 bn Africa Growing Together Fund co-financing facility that is managed by the Bank
• AfDB identifies, appraises and finances new sovereign and non-sovereign loans and acts as the lender of record for the AGTF* and passes-through pro-rata cash-flows.
• The AGFT leverages the Bank’s strengths – project appraisal and implementation experience – and the investor’s (China) appetite for sound investments in Africa.
• The AGTF provides flexibility on sovereign versus non-sovereign, risk sharing percentage, countries and sectors with a streamlined approval process matching the Bank’s.
Similar to the A/B loan structure used by the Bank for non-sovereign syndication
• The commercial insurance market has expressed interest in providing credit protection on commercially viable NSO (either pari passu or for the AfDB the first loss), including a pilot transaction with an insurance company for 35% of a loan to an IPP in Zambia on the basis of a credit insurance policy (unfunded).
• Commercial banks and DFIs such as SIDA have been interested in Risk
Participation agreements where they would act as “silent participants” behind the ADB without Borrower consent.
• In both cases, single assets as well as new or existing portfolios would be considered. The difference between the RPA and CRI is that the latter is usually negotiated on a case by case basis while RPAs tend to be much more standardized (usually 50/50 and payment on demand.
• MIGA has recently developed a credit guarantee instrument covering
State-Owned Enterprises (“non honoring of sub sovereign's financial obligations without sovereign counter guarantees”).
• The Bank has been negotiating pilot transactions with MIGA for state owned enterprises, including loans for a gas pipeline in Tunisia and a major South African transportation. In the latter case, MIGA may be providing coverage to the B-loan participants.
• The Bank is also looking to combine its Partial Credit Guarantee product with MIGA’s political risk insurance, taking advantage of each institution’s strength and limit availability .