Allianz makes $120m investment in African infrastructure

Allianz will become the first large commercial lender to commit long-term funding to an African infrastructure fund by making a nearly $120m 12-year loan to a vehicle underwritten by western development agencies.

The commitment from the European insurer to the Emerging Africa Infrastructure Fund — part of a $385m funding round to be announced on Tuesday — could encourage other institutional investors to look more closely at financing what are generally considered risky African projects.

Allianz said the deal was structured in such a way that its loans were “risk remote”, because they were backed by collateral in more than 40 projects.

“We would only lose money if all the other equity investors are taken out,” said Claus Fintzen, chief investment officer for infrastructure debt at Allianz Global Investors, referring to international development agencies from Britain, Sweden, Germany and elsewhere, which have put equity in the 16-year-old fund.

Mr Fintzen added that the loan satisfied Allianz’s fiduciary responsibility to its investors. The interest rate was “more attractive than listed emerging market debt available on the market”, he said.

Nazmeera Moola, co-head of fixed income at Investec, which manages the fund, called the Allianz investment “a milestone in terms of mobilising capital into infrastructure projects across the continent”.

Allianz had decided to invest, she said, because it had understood there was “quite a big gap between perceived risk and the actual experience” of investing in African projects, which range from water supply in Rwanda to solar power in Uganda and a cement plant in the Democratic Republic of Congo. In spite of EAIF’s remit, which includes investing in fragile states, there had only been two debt writedowns out of more than 70 projects in 22 countries, she said.

Allianz’s participation could open the way for other insurers to look more seriously at investing in EAIF, or similar African infrastructure funds, she said.

Allianz is lending €75m and $25m, both over 12 years. Returning investors to the fund, which has cumulative investments of about $1.3bn, are the African Development Bank and Standard Chartered as well as KFW and FMO, the German and Dutch development banks, respectively.

The fund has 40 ongoing projects, half of which are in the power sector. Of those, two-fifths are in renewable energy, mostly solar and hydro.

Most of sub-Saharan Africa has huge infrastructure shortages. Only 35 per cent of people have access to electricity, against 78 per cent in south Asia and 96 per cent in east Asia and Latin America, according to the World Bank. It estimates that gross domestic product could be 2 percentage points higher if the power deficit could be fixed.

Ms Moola said that, since the 2008 financial crisis and the imposition of Basel III, which imposes stricter capital requirements, banks’ appetite for lending to infrastructure projects in Africa had “completely dried up”. However, while there were legitimate concerns about the risk of default or regulatory changes, she said, deals could be structured in such a “belt and braces” way that they were relatively insulated from political risk.

EAIF is part of the Private Infrastructure Development Group, which blends public and private finance to encourage investment in low-income countries. EAIF says its $1.3bn investments have attracted nearly $11bn of private funding.