To further enhance the African Local Currency Bond Fund (ALCB Fund) portfolio and promote the development of domestic capital markets across the continent, the African Development Bank (AfDB) has approved a loan of R140-million.
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 $47-million.
The fund promotes local currency bond issuers in high-impact sectors by providing technical assistance to facilitate corporate bond issuances and champion best practice across various domestic debt markets.
To date, it has invested in Botswana, Ghana, Kenya, Zambia, Lesotho, Senegal, Côte d’Ivoire, Nigeria, Uganda, Malawi, Gabon and Togo and is expected to invest in all African countries where local currency bonds are possible.
As of December 31, 2017, the fund had made 27 investments across 19 companies and in ten currencies.
Through its funding, the AfDB would broaden and deepen Africa‘s local currency corporate bond markets, supporting local capital market development in regional member countries.
The fund will catalyse 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, Industrialise 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 of investments.
The bank‘s contribution to the fund will complement existing initiatives to mobilise domestic institutional savings and stimulate nonsovereign local debt capital markets development across Africa.
This will ultimately help grow private sector financing through capital markets.