InfraCredit, a specialized infrastructure credit guarantee institution in Nigeria and the African Trade & Investment Development Insurance (“ATIDI”), a pan-African multilateral development finance institution that provides risk solutions headquartered in Kenya, have signed a local currency counter-guarantee agreement on a portfolio risk sharing arrangement of NGN37 billion (US$40.7million) to support seven (7) infrastructure portfolio companies of InfraCredit across seven sectors including energy, healthcare, manufacturing (inputs to infrastructure) and logistics.
The signing of the counter-guarantee agreement is in line with the Memorandum of Understanding executed by the two institutions in March 2022, under which InfraCredit and ATIDI agreed to collaborate and work together as risk-sharing partners, within the context of their respective mandates, policies, resources and instruments, to provide credit guarantees, co-guarantees and counter-guarantees/reinsurance, as applicable, on eligible infrastructure financing transactions.
This portfolio counter guarantee arrangement follows from the established strategic partnership between InfraCredit and ATIDI on a transaction basis, the first being the risk sharing arrangement on a 10 year 10-billion-naira digital infrastructure bond (US$24 million equivalent) issued in 2022 and subscribed by domestic pension funds.
Nigeria’s government aims to increase its infrastructure stock to up to 70% of GDP in line with peer emerging market countries, which requires an annual spending of above 7% of GDP over the next 30 years to close the infrastructure gap, therefore increasing institutional investor funding of infrastructure is crucial.
Currently, within the Nigerian pension fund industry (with assets under management (AUM) of NGN18.3 trillion $11.8 billion) only around 1.5% of total assets are invested in infrastructure debt even though pension funds are permitted to invest up to 35% of their assets in corporate debt.
Credit enhancements, such as debt guarantees, on infrastructure project financings will help attract interest from lower risk appetite investors like pension funds.
This portfolio risk sharing partnership with ATIDI is strategically important to enable InfraCredit underwrite large contracts without over-exposing its balance sheet, introduce mechanisms necessary to manage single obligor limit and the portfolio balance, and bring diverse experience, know-how and credit quality to the guarantee portfolio thereby expanding access to domestic institutional investments to bridge the infrastructure deficit in the country.
Speaking on the signing of the counter-guarantee agreement, the Chief Executive Officer of InfraCredit, Chinua Azubike, stated that
- “We are proud of the growth of our partnership with ATIDI, through this second risk sharing transaction, a first of its kind local currency portfolio counter-guarantee transaction, which will enhance InfraCredit’s capacity to issue more guarantees that will reduce the cost of capital and crowd in larger scale domestic credit, particularly from local pension funds and insurance investors to finance infrastructure development in Nigeria.
- Our partnership with ATIDI is a strong demonstration of the vital role multilaterals can play to help borrowing countries’ debt levels remain sustainable, by leveraging their balance sheets as risk sharing partners working alongside local institutions, to mobilise domestic resources from the private sector to finance infrastructure development in local currency whilst deepening domestic debt capital markets for sustainable development.”
Commenting on the agreement, Manuel Moses, the Chief Executive Officer of ATIDI, noted that:
- “ATIDI is committed to supporting InfraCredit in mitigating risks associated with infrastructure financing, thus catalyzing investment, and fostering development in a vital sector.
- The portfolio counter guarantee provides a vital layer of protection, instilling confidence among investors and stakeholders while enabling InfraCredit to expand its reach and impact in facilitating access to affordable financing for critical infrastructure projects nationwide.
- This collaborative effort underscores the shared vision of ATIDI and InfraCredit in driving sustainable growth, enhancing resilience, and advancing Nigeria’s infrastructure development agenda.”