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NSE to list Kenya’s first Sh3.5bn infrastructure fund for investors
The investors will start getting a return once the firm starts getting incomes from the Sh3.5 billion investment. This suggests the investors will benefit from capital gains in trading part of 35 million units at the NSE.
The Nairobi Securities Exchange (NSE) is on Tuesday set to list its first infrastructure fund, a Sh3.5 billion investment vehicle offering investors direct exposure to logistics and power projects while allowing them entry and exit through trading.
Spearhead Africa Asset Management Limited, the sponsor of the fund, will list 35 million units of the fund at the price of Sh100 each, supporting the fund’s accessibility, transparency and liquidity to investors.
The fund, dubbed the Spearhead Africa Infrastructure Fund, has raised Sh3.5 billion in local currency from 25 high-net-worth investors, including CPF Group and United Kingdom’s Mobilist programme, in its first series.
Investors in the fund stand to earn a quarterly interest payout from investments like renewable energy, agribusiness and logistics. The listing of the fund on the NSE’s unquoted securities platform expands the list of asset classes available to investors, easing the dominance of company stocks and government bonds.
The fund targets delivering a return of between five and six percent above the prevailing 10-year government bond return/yield, enticing domestic capital pools like pension funds that have largely favoured Treasury instruments over alternative asset classes.
The investors will start getting a return once the firm starts getting incomes from the Sh3.5 billion investment. This suggests the investors will benefit from capital gains in trading part of 35 million units at the NSE.
“Many times when you invest into an infrastructure fund, it will take 10, 15 or even 20 years before you can get your money out. The situation where you are stuck for that much time is unattractive and unappealing to a lot of investors,” Ngatia Kirungie, the managing director of Spearhead Africa Asset Management Limited told Business Daily in an interview on Monday.
“We are not a typical fund manager that oversees say pension portfolios and then goes and invests into different asset classes. We create asset classes and products like infrastructure and instruments that people can use to invest in those asset classes. Fund managers, pension schemes and their clients can invest through us.”
Spearhead Africa is licensed by the Capital Markets Authority as a special collective investment scheme, implying that today's listing is also a first for a pooled investment vehicle.
The fund has picked NCBA as its independent trust- ee and KCB as the custodian. Units of the fund will be tradeable by institutional investors, high-net-worth individuals and retail investors, with the minimum amount traded set at Sh100,000 or 1,000 units.
The sponsor of the fund is set to raise additional capital to support further senior/subordinate debt underwriting through public offers which will take various forms, including rights issues to existing unit holders.
This will see both the net asset value of the fund, its listed price and number of units vary over time. The fund has yet to underwrite any debt at present but expects to promptly issue loans to identiied infrastructure projects. Spearhead expects to distribute its entire income from its on-lending activities to unit holders.
The investors would currently earn a return of up to 18.3 percent based on the prevailing return from a 10-year tenure fixed -income government bond (around 12.3 percent). The fund manager says the vehicle is better than bank loans from a borrower perspective and private equity funds from an investor perspective.
This is by offering long-term/patient capital to backers of infrastructure projects while allowing investors to enter and exit the fund at will through the NSE.
“If you go to a local bank to borrow, the tenure you get is five years or maybe seven years at best. This presents a mis- match when the asset is 20 years. This creates a refinancing risk at the end of the loan period and puts a lot of pressure on cash flows of the business during the early critical stages of its life,” added Mr Kirungie.
“With the private equity typical structure, you get nothing until the end. PE and venture capital funds are also domiciled in other jurisdictions and some local investors including pension funds might be hesitant to invest in such funds.”
Spearhead sees its vehicle as attractive to pension funds and their trustees, who are still obligated by members to report strong periodic returns even with a longer-investment horizon.
"The fund says it will initially focus on infrastructure projects before exploring alternative asset classes like private debt.
