InfraCredit and the African Trade & Investment Development Insurance (“ATIDI”) have signed a counter-guarantee agreement on a portfolio risk sharing arrangement of N37 billion (US$40.7million) in a boost to Nigeria’s bid to close infrastructure gap in the country.
The risk sharing agreement will support seven infrastructure portfolio companies of InfraCredit across seven sectors including energy, healthcare, manufacturing (inputs to infrastructure) and logistics.
Nigeria 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.
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Speaking on the signing of the counter-guarantee agreement, the Chief Executive Officer of InfraCredit, Chinua Azubike, said, “We are pleased with 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”.
The Chief Executive Officer of ATIDI, Manuel Moses, noted that the pan-African multilateral development finance institution is committed to supporting InfraCredit in mitigating risks associated with infrastructure financing, thus catalysing investment and fostering development in a vital sector.
