Post on 13-Jan-2015
description
Recent trends in Alternative Financing Instruments
Financing African SMEs April 25, 2007
UNECA - Zanzibar
Tshepidi MoremongAureos Southern Africa Fund
Aureos Capital
COSTA RICA
EL SALVADOR
LONDON
SOUTH AFRICA
NIGERIA
MOZAMBIQUE
ZAMBIA
TANZANIA
KENYA
SRI LANKA
MAURITIUS
GHANA
PAPUA NEW GUINEA
DOMINICANREPUBLIC
THAILAND
PHILLIPINES INDONESIAVIETNAM
INDIA
SENEGAL
• Global Emerging markets SME Private Equity Fund Manger
• Formed in 2001 as a joint venture between CDC Capital and Norfund
• Inherited 14 pioneering country specific funds across the globe 9 of which are in Africa
• 17 funds currently under active management with a total committed capital of over US$450 million
• Sub-Saharan Africa US$140 million of new committed capital
• Aureos West Africa Fund: US$50 million
• Aureos East Africa Fund: US$40 million
• Aureos Southern Africa Fund: US$50 million
Strategic Overview
AUREOS CAPITAL LIMITED, MAURITIUS
SOUTH EAST ASIA - $50- Manila, Philippines*- Bangkok, Thailand - Jakarta, Indonesia- HCMC, Vietnam
Over US$450 million under management
WEST AFRICA - $50m
- Lagos, Nigeria *- Accra, Ghana- Dakar, Senegal
CENTRAL AMERICA - $36.3m
- San Jose, Costa Rica *- San Salvador, El Salvador- Santo Domingo, DR
Aureos Advisers Limited, London
SOUTHERN AFRICA - $50m
- Johannesburg, RSA *- Lusaka, Zambia- Port Louis, Mauritius
SOUTH ASIA - $70- Bangalore, India- Bombay, India- Colombo, Sri Lanka*
EAST AFRICA - $40m
- Nairobi, Kenya *- Dar es Salaam, Tanzania- Kampala, Uganda
PACIFIC ISLANDS - $20m
- Brisbane, Australia *- Port Moresby, PNG- Suva, Fiji
Legend: ACTIVE FUNDS / Existing offices / New offices* Regional hub
CHINA - $100m
- North East
Investment Guidelines
• Expansion Capital• Management Buy-Outs & Buy-Ins• Public to Private Transactions• Select Privatisations
Investment Types
Investment Size
Instruments
EquityStake
Currency
• US$0.5million – US$5million
• Equity/ Quasi-Equity/ Loans
• 10% - 49% with the ability to take control
• Board seat
• Ability to exit within a reasonable timeframe: 3-6 years
Across all Sectors
Exit
• US$/ Local Currency
Key Issues in Financing SMEs
• Limited track record
• Lack of proper financial records
• Inadequate business plan
• Insufficient management capacity/ skill
• Poor management of funds
• Under capitalisation
• Insufficient assets for security/ collateral
• No corporate governance structures
Limited Access To Capital
SME Traditional Sources of Financing
• Entrepreneurs own resources
• Family and Friends
• Limited access to bank debt
• Business Angels
• Private equity/
venture capital
Private Equity
• Dividends only paid on profits
• Holders of equity are business partners – not just financing
• Long-term funding – payback through exit
• Equity can be leveraged
• Dilution of owners equity
• Shareholders will demand greater disclosure
• Shareholders may “interfere” with day to day operations
• Dividends not tax deductible
• If business successful – unlikely for business owner to launch share buy-back
Advantages Disadvantages
Key Take Aways
• Sub-Saharan Africa Private Equity (excluding SA) as an Asset Class and Industry is still in its nascent years but growing
• SSA PE terrain requires negotiating “pothole-ridden” roads
• Notwithstanding the above, significant opportunities with above average returns
• Through partnerships we can improve the terrain encouraging further participation
SSA Private Equity Industry (excluding SA)
Fund Size (US$m) Vintage
Ghana Venture Capital Fund 6.0 m 1993
Tanzania Venture Capital Fund 8.0 m 1994
Mauritius Venture Capital Fund 7.5 m 1995
Zambia Venture Capital Fund 12.5 m 1996
Takura Venture Capital Fund 6.85 m 1997
Acacia Fund 19.6 m 1997
• Business Angels and family investors have formed the foundation for the PE market
• European and US Development Financial Institutions contributed to the“first” wave of private equity/ venture capital funds across Sub-Saharan Africa
• Majority “First” wave funds country specific
SSA 2nd Generation Private Equity FundsFund Committed Capital (US$m)
Pan-African Funds
Emerging Markets Partnership Africa Fund I & II > US$600m
Actis Africa Fund US$550m
Kingdom Zephyr Africa Fund US$102m
Pan-African Infrastructure Development Fund Target US$1 billion
Regional Funds
AfrInvest Fund EUR25m
Southern Africa Enterprise Development Fund US$100m
Helios US$250m
East African Development Bank (SME Fund) US$40m
Aureos Funds (East, West & Southern Africa) US$140m
Business Partners (Madagascar & Kenya) US$+50m
Country Funds (Increasing)
Capital Alliance Fund I (Nigeria) US$35m
CEDA Venture Fund (Botswana) US$40m
BIFM Capital (Botswana) +/- US$50m
SSA Govts and Private Equity
Increasingly, Governments are seeing PE/ Venture Capital as the engine to private sector development
NIGERIA• SM Industries Equity Investment Scheme: banks set aside 10% of their PBT annually to invest in SME businesses
BOTSWANA• CEDA Venture Capital Fund was formed in order to invest in VC and PE transactions. Independent private sector manager, with govt. pension Fund capital
• Govt largest pension fund has mandated 2.5% of funds under management be allocated to venture capital
NAMIBIA• Bank of Namibia conducted study to look into VC/ PE Industry and impact on the economy
The “Potholes”
• Currency Risk
• Political Risk
• Lack of Information
• Lack of Transparency and Corporate Governance
• Legal/ Regulatory Risk
• Liquidity Risk
• Market Size
Non –enabling environment
but NOTInsurmountable
How have we negotiated the Potholes?
Currency Risk
Political Risk
Liquidity Risk
Legal/ Regulatory
Management
Market Size
• “Naturally” Hedged Businesses
• Currency Hedges
• Political Risk Insurance
• Diversify across markets
• Consolidation across markets
• Get money out earlier
• Structure in an exit
• Government intervention
• Relationships, relationships!!
• Bring in Management
• Technical Strategic Partners
• Roll-Outs
Partnering to enable financing
• Regulatory & legal reforms Pension reform Judicial system Incentivising VC/PE funds (taxes) Tax amnesty from moving from
informal to formal sector
• Public infrastructure Access to ports, power,
telecommunications etc.
• Careful privatisation
Financial/ capital market development
Less onerous listing requirements Different taxation requirements for
investors in these markets
• Catalyst for VC development VC fund development
Encourage DFIs to invest in VC
• Technical assistance funds Training of management teams
• Provide access to markets
• Tax breaks Encourage multinational to
“plough” back profits into Africa
African Governments Foreign Governments
Case Study: MBO of Poultry Processor
Hybrid Poultry - Zambia
Transaction Overview
Aureos Value Addition
Exit Achieved
• ZVCF invested US $275k in a combination of debt and equity for 30% stake in Hybrid
Poultry
2001 follow-on loan to fund expansion
• Improved corporate governance
• Strengthened board
• Improved financial reporting
• Brokered working capital facility with local bank to fund production of maize – used for stock feed
• Exited in 2004 at a US $ IRR of 159% and a cash multiple of 5X
Golden Lay LimitedCountry of Origin: ZambiaScope of Services: Zambia
Date of Investment: 10 Feb 2006
Sector: Agriprocessing
Deal Type: MBI
Investment Size/ Stake: US$4.35m/ 49%
BUSINESS OVERVIEW
• Largest commercial table egg producer and distributor in the Copperbelt of Zambia
• Golden Lay (‘GLL”) controls approximately 15% of the Zambian national market in table eggs
• Company targets the informal sector which distributes product to the end consumer
• At investment produced on average 123,000 eggs per day
• Aureos backed an expert management team to expand capacity of the business and to enter neighbouring markets
NEW DEVELOPMENTS & AUREOS VALUE ADD
• Increased production by 14% by installing a third layer house
• Bio-security measures fully installed.
• Rearing house now registered and recognised as a quarantine facility.
• First year turnover surpassed budget by 17%
• Aureos loan (US $3.36m) refinanced within first 12 months using Barclay Bank loan on more favourable terms
• Proactive social responsibility plan in place: HIV/Aids programme for staff
Projected US$IRR: 36%
Case Study: Start Up Mineral Water Producer
Voltic Limited - Ghana
Transaction Overview
Aureos Value Addition
Exit Achieved
• GVCF invested US$700k for a 20% stake in Voltic
• Additional loan advanced for automation of processes
• Assisted in regional roll-out into Nigeria and Togo
• Strengthened board
• Improved depth of management
• Implemented strong financial controls and reporting systems
• Exited in 2003 with a US$IRR of 16.3%
Fibrex Angola
Country of Origin: AngolaScope of Services: Angola
Date of Investment: 18 January 2007
Sector: Manufacturing
Deal Type: Buy In
Investment Size/ Stake: US$2.5m/ 33%
BUSINESS OVERVIEW
• Fibrex is Angola’s leading plastics pipe (HDPE & PVC) manufacturer in the country • Aureos invested in Fibrex through a Mauritius SPV, PII which acquired a 99% of Fibrex Angola jointly with DPI International a leading South African plastics pipe manufacturer and a local entrepreneur - Plastip• Aureos, DPI and Plastip acquired the business in order to exploit the current boom in the infrastructure development across Angola post the civil war• Business was a family owned business and thus Aureos is looking to implement strong corporate governance and operational reporting
NEW DEVELOPMENTS & AUREOS VALUE ADD
• Business was taken over in mid January. Production since then has been below expectations due to significant power outages in the country• Generator was also down for two weeks impacting the production of the business• New Managing Director will be in Angola on April 25 th to take over the running of the plant and implement SA industry standard production mechanisms• Streamlined financial procedures and systems under implementation
Projected US$IRR: 32%
Aureos Capital aims to be the market leader in the provision of private equity to small and medium-sized enterprises in emerging markets. It realises this strategy with dedicated people and a strong local presence, continuously developing a culture of professionalism and excellence.
Aureos Capital also aims to deliver attractive financial returns and to add value for clients and investors – operating proactively and with integrity to the highest ethical standards.