The Board of the African Development Bank (AfDB) Thursday approved a $15 million investment package to Infrastructure Credit Guarantee Company to support infrastructure financing through the domestic debt capital markets in Nigeria, according to a statement by the bank.
The investment package to InfraCredit is comprised of a subordinated loan of $10 million and a risk sharing facility of up to $5 million even as InfraCredit aims to support up to $1.25 billion in infrastructure financing over the next few years, by involving the private sector in infrastructure financing essential to Nigeria’s economic resilience.
This intervention will promote local currency infrastructure financing and further development of the domestic capital market, according to the arrangement.
InfraCredit is a specialised infrastructure credit guarantee company established to enhance local currency debt instruments-mainly bonds to finance eligible infrastructure projects in Nigeria.
According to the bank, this is intended to uplift the credit rating of such bonds, allowing institutional investors to include them in their portfolios.
InfraCredit was founded by the Nigerian Sovereign Investment Authority (NSIA) in collaboration with GuarantCo, which is a part of the Private Infrastructure Development Group.
These initial investors have been joined by the Africa Finance Corporation (AFC) and KfW, the German Development Bank.
The African Development Bank’s investment in InfraCredit, accordingly, will catalyze local institutional investor funds, including pension funds, into financing long-term infrastructure projects through the local bond markets.
The investment boosts InfraCredit’s qualifying capital base through the subordinated loan, and will also improve its capacity to expand its guarantee business through the proposed risk sharing arrangement.
Through this intervention, the African Development Bank is helping to stimulate local currency financing across diverse infrastructure transactions, thereby improving economic diversification and competitiveness as well as promoting more equitable growth, strengthening local value chains and financial markets in Nigeria.
It further stated that InfraCredit’s operations would catalyze infrastructure investments in critical sectors such as renewable energy, housing, transportation, agricultural infrastructure and telecommunications, which are critical for the country’s economic development.
The bank’s Director of the Financial Sector Development, Mr. Stefan Nalletamby, said: “The bank’s support will strengthen the capital base of InfraCredit, underpinning the expansion of the company’s core business of guaranteeing of bonds issued to fund infrastructure projects.
“This will add to the bank’s existing initiatives to mobilise domestic institutional savings and stimulate non-sovereign local debt capital market development in Nigeria.
“This ultimately helps to increase private sector financing for critical infrastructure projects in key sectors, including energy, agriculture, water, health and education, through local capital markets.”
He said the transaction would also result in the leverage and enhancement of the scope and impact of the AfDB’s interventions alongside private sector financing, especially from pension funds as well as from co-investment partners.